Analyst Conference Summary
conference date: July 19, 2007 @ 2:00 PM PT
Overview: Heavy losses on better than expected revenues.
Revenues of $1.38 billion were up 12% sequentially from $1.23 billion and up 13% from $1.22 billion in Q2 2006.
GAAP net loss was $600 million or $1.09 per share, compared to a loss of $611 million in Q1 2007 (EPS loss of $1.11) and a gain of $89 million year-earlier.
$1.6 billion in cash at end of quarter.
Increased revenues in Q3 in line with normally up seasonality. Operating expenses to be down slightly sequentially. $35 million stock-based compensation. Gross margin to improve. $290 million for depreciation and amortization.
$1.8 billion in 2007 total capital expenditures, $200 million less than previous guidance.
Results were negatively impacted by charges for ATI acquisition, integration charge of $78 million, stock-based compensation of $31 million, severance charge of $16 million and debt issuance charges of $5 million, totalling $130 million in charges.
GAAP Gross margin was 33%; non-GAAAP 34%. Negatively impacted by inventory write-down. Positively impacted by 65 nm conversion.
Computing Solutions segment revenue was $1.098 billion, up from $918 million in Q1. Toshiba partnership helped, as did Dell expansion of AMD offerings. Unit shipments were up 38%, but ASPs (average selling prices) were down for desktop processors. Server, mobile, and desktop revenue increased sequentially. Mobile processor unit shipments increased 21% and were up 82% year-over-year.
Chipset revenue dropped 13% in quarter driven by loss in Intel segment.
$195 million in graphics division. Sales of ATI Radeon HD 2000 family started well.
$85 million in consumer electronics, down overall with handset sales lower and better HDTV relates sales.
Overall channel inventory now at appropriate level. 65 nm conversion complete with yields exceding expectations. Now working on conversion to 45 nm.
Our spending levels will decrease going further. Doing so well with 65nm yields we can ramp Fab 38 slower than expected.
Have eye towards breaking even by end of year.
Customers are hungry for partnership, inovation, and choice.
Cost of sales was $917 million. R&D cost $475 million.
Have $800 million in cash generating opportunities from potential sale of tools, land, etc.
Unafraid of transformation and in fact welcome it. Evolution had been restrained by domination by Intel. Will slow ramp of Fab 38. For competive reasons does not want to share details of asset-light plans at this point.
What does Q3 seasonal improvement amount to? 8 to 10% in PC space. 2nd half looks pretty strong at global level. We will have the new products and will ship more 65nm, including graphics chips. Does not expect another inventory write off. Gross margin expected to improve.
Operating expense? Never promised a big drop in 2nd half, just said declining.
Pricing dynamics in 2nd half? In Q2 ASPs decreased close to 10% in desktop, around flat in notebook, and actually improved for server segment. Value space shipments look likely to improve in Q3 with new products, but expect continued competion.
Barcellona launch? Focus in data center has switched to performance per what. Performance is extremely satisfactory; our customers are very happy and can't wait to ship it in Q3.
Delays, challenges in introduction? Very happy with 65 nm yields, including Barcellona. It is a complicated design and is taking a bit more work than anticipated with finalizing design.
Fab 38 slow down a statement about market share? Aspire to continue to gain share over time. Flexibility with Charter Semiconductor has given us an opportunity to slow capital outlay this year.
Operating cash burn? Had negative cash flow from operations, continuing to invest in Fab 36. Expects burn to decline towards neutral as year progresses. $2.2 billion converted to $1.5 billion cash because used partly to pay down debt. We are bullish on the value of this company.
2008? Do not plan to cut our way to success, but to gain market share in units and revenues each quarter while making progress on margins. Not changing long-term margin (50%) model, but not short term. Dug a hole in Q1 and now have to work our way out.
Headcount rose in Q2? Did have severance charges, which were late in quarter. Will see a reduction of around 500 people.
Phenom will ship late in Q4, so no substantial contribution to bottom line until 2008.
Mobile marketplace is not following traditional seasonality (because it is eating into desktop space). Demand appears strong and inventory is about right in notebook space.
Chipset business going forward? Our pipeline is solid. Decline is because we are losing Intel architecture business. But AMD architecture business is picking up quickly.
Inventory write off in Q2? Was $30 million.
ASPs in Q3? Mix move to notebook and server should benefit ASPs. New products will be at higher prices. Phenom benefit to ASPs won't be until Q1 2008.
Q4 break even at exit, or for full Q4? Would really like to be even for full Q4.
SOI on low-end chips? Through 45nm plan to use SOI. Still evaluating for past that.
Toshiba design wins? Can't say percentage versus Intel. Acquisition of ATI was very important to this. Only had partial quarter with Toshiba, would not be more specific.
Lawsuit with Intel? Very pleased with how things are going. Well into discovery. Customers want to see fair and open competition.
Inventory write off? Everything in inventory is now DDR2 memory compatible; DDR1 prices are too high.
Market share v. profit share? Real question is what kind of investments we need to serve customers, so we need to grow share to cover R&D needs.
Albany fab scrapped? Not at all. Have not yet broken through to the market share we want. We have until summer of 2009 to decide on NY plant.
Why market share shift surprise? Ultimate decision is end customers. They don't ask what nm the processor is. Looking for innovation and distinctiveness in user experience.
Opteron v. Barcellona rollouts? Opteron had no tier 1 global OEM support, now will launch into heavy, pin-compatible support.
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Copyright 2007 William P. Meyers