Analyst Conference Summary
conference date: April 17, 2008 @ 2:00 PM Pacific Time
Overview: Not as bad as I thought. Not that much more seasonal downturn than Intel reported. New products may help in Q2 and Q3.
Revenues were $1.505 billion, down 15% sequentially from $1.77 billion, but up 22% from $1.23 billion the year-earlier quarter.
Net Loss was $358 million, improved sequentially on a net loss of $1.77 billion and improved from the year-earlier net loss of $611 million.
EPS (earnings per share) were negative $0.59, improved sequentially from negative $3.06 and from negative $1.11 year-earlier.
Seasonally down Q2 revenues and expect a restructuring charge.
GAAP results included a $50 million charge related to the ATI acquisition. The non-GAAP net loss was $308 million.
Blamed it on seasonal weakness and economic challenges to consumers. Looking forward, encouraged by quad-core Opterons and new chipsets and graphic chips. Hopes for operating profitability in second half of year.
Gross margin was 42%, down sequentially from 44% but up from 28% year-earlier.
Revenues by segment:
Computing solutions $1.19 billion, prices flat, units down sequentially.
Graphics $230 million, prices down but units up sequentially.
Consumer electronics $81 million, down 26% sequentially and 31% from year-earlier.
Dresden fab is doing well with operational performance, as are other plants. Mature yields of 45nm products expected this summer.
$16 million positive cash flow from operations. Positive EBITDA.
$323 million capital expenditures in quarter.
Cash balance was $1.75 billion. $50 million cash generated by tool sales. Inventory declined.
Guidance: Operating expenses flat to slightly down as savings from cutbacks begin to kick in. Reduced to $900 million 2008 capital expenditures plan.
Cost reduction will help with future success.
Our business environment has changed. Some of our non-core businesses have questionable futures. Focus on core graphics and processor products. Will exit businesses if necessary. Reduced break-even point but also positioned to grow and lead in core area. Asset light strategy is working and data will be released in the near future. Still looking to achieve profitabilit in Q3.
Operating expense after restructuring, by Q4? Won't be complete by Q4. Cost reduction of $25 to $50 million less per quarter by Q4.
Why not better than seasonal if new products? Average Q2 drop has been 4 to 5%. Even with new products we see no reason to expect to do better than that, and competitor [Intel] is seeing the same thing.
Cost per unit should drop, and margins improve, when 45nm go to volume production in second half of year.
We had better margins on the graphics side. Mix shift was positive, but there was pricing pressure at the low end.
Break even point? We have reduced that to $1.5 billion revenues per quarter.
We did a good job locking down OEM design wins, which should equate to some gains going forward.
How can you grow quad-core share given how far behind you are? End customers and OEMs are impressed by the product, which offers competitive advantages in data centers and in floating-point processing.
With Puma notebook products shouldn't you gain market share in Q2? We have a lot of Puma design wins and it will hit market in Q2. Problem is consumers are spending cautiously, so we can't plan on Q2 strength, as we mostly sell notebooks to consumers. If we do well with small and medium businesses, that might make a difference. Typically the consumer refresh cycle starts for the back-to-school season, and we ship processors for builds in June-July, so mostly not Q2.
Plans for cash balance? We are running the business very cash-focused. We are trying to weather the storm and being prepared for storms. We are plenty liquid to get to our asset-smart manufacturing strategy.
We hope to gain back some market share in the server space in Q2. We are more heavily exposed to the consumer market than Intel, which means we lost overall market share in Q1 and might have trouble holding share in Q2.
Fab 36 was built with local government help, on April 1st we had our first chance to buy out a minority interest and we did so.
Inventory? We believe there are no inventory problems.
Any geographic concerns? We are hearing from our European customers of a little bit of weakness in western Europe, offset by stength in eastern Europe.
Pricing? Our pricing strategy has not changed. Introduction of quad-core may help us with ASPs (prices).
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Copyright 2007 William P. Meyers