Analyst Conference Summary
conference date: April 15, 2010 @ 2:00 PM Pacific Time
Overview: Best first quarter in the company's history, showing a profit when most analysts predicted a loss. But look closely at differences between GAAP and non-GAAP numbers, largely due to GlobalFoundries spinoff.
Basic data (GAAP):
Revenue was $1.57 billion, down 5% sequentially from $1.646 billion, but up 33% from $1.18 billion in the year-earlier quarter.
Net income was $257 million, down 78% sequentially from $1.178 billion, but up from a loss of $416 million year-earlier.
EPS (earnings per share) were $0.35, down 77% sequentially from $1.52, but up from a loss of $0.66 year-earlier.
"AMD expects revenue to be down seasonally for the second quarter of 2010." Operating expenses about $560 million in Q2. Capital expenditures $160 million for full year 2010.
Non-GAAP numbers: operating income $130 million, net income $63 million, EPS $0.09. EBITDA $302 million. Excludes GlobalFoundries one-time transactions.
In the quarter, along with "solid operating performance," new server platforms were launched, graphics family was expanded, and new notebook platforms started shipping to customers. Priority for 2010 is increasing access to customer demand. Believes business can continue to be scaled up.
GAAP gross margin was 47%, non-GAAP gross margin 43%, up by 2% sequentially.
Cash and securities balance ended at $1.93 billion, up $160 million in the quarter (excluding GlobalFoundries). But long-term debt listed as $2.6 billion. Cash from operating activities was $26 million. Adjusted free cash flow $177 million.
Computing solutions segment revenues $1.16 billion, down 5% sequentially but up 23% y/y. ASPs were up due to improved mix. Major customers Acer, Asus, Dell, HP, Lenovo and Toshiba increased AMD-based offerings. First 8 and 12 core server processors introduced. Mobile Danube and Nile platform interest from OEMs is strong. Embedded graphics now included in this segment. ASPs were up particularly for notebook units and 6 to 12 core server units.
Graphics segment revenues of $409 million were down 3% sequentially but up 88% y/y. Royalties from game consoles declined, GPU revenue increased. ASPs increased sequentially but decreased y/y. Main driver was mobile discrete graphics units. Desktop discrete graphics sales were down sequentially.
GlobalFoundries deconsolidation recognized as a non-cash, one time $325 million gain in Other income, but there was also $183 million loss on investment in the quarter. GlobalFoundries investment is now accounted for using the equity method. That investment was listed at $270 million on the balance sheet. Now owns about 30% of GlobalFoundries.
Cost of sales was $833 million, leaving gross profit of $741 million. Research and development expense $323 million; marketing, general and administrative $219 million; amortization of acquired intangibles $17 million. Leaving operating income of $182 million. Interest negative $46 million. Other income $304 million. Loss in equity $183 million.
Inventories ended at $577 million, accounts receivable at $675 million.
Gross margin improvement? In Q1 improvement was due to product mix with higher ASPs. Believes 40 to 45% range for full year. May see better product mix in Q2, but lower volume.
Q2 guidance on operating expense is up to pull in R&D expenses to accelerate the work. R&D spend for full year should remain unchanged.
Fusion launch? Still on plan. Volume production "in the back half of this year." We have initial samples, we are quite happy with what we have seen. One design is being sampled to customers.
Inventory? Currently very healthy. Will build up in Q2 to prepare for stronger demand in second half of year.
8 & 12 core (Magny Cours 6000 series) CPU volume launches to OEMs started in March, so products should start getting to end customers this quarter. Response is good with some big customer wins so far. We are in the best competitive position we have been in since 2006.
IT spending outlook? Enterprise server business started picking up in Q3 2009, with a minor seasonal downturn Q4 to Q1. ROI on new platforms is very attractive.
We have been closing gaps in out notebook platforms, and our graphics are awesome, so we believe we can continue to bring up our notebook market share.
By lowering the 6000 series price differential (to zero) between 2 and 4 socket capable, AMD has a disruptive strategy for sales in this segment.
"We were supply constrained in 40nm GPU parts in Q1." Supply is increasing, but so is demand, so supplies are likely to remain tight.
Now that the new generation NVIDIA GPUs have been launched, we feel better about our competitive strength.
Overall pricing environment? There has not been much competitive change in the last few quarters. The wild card is the mix, which appears to be improving, particularly in the AMD notebook line.
Normal Q1 to Q2 seasonality for units is roughly flat to down 5%.
What is now in depreciation excluding amortization? Depreciation is from back end assembly facilities, etc.
32nm product availability? Volume ramp for 32nm in second half of 2010, with OEM shipments in first half of 2011.
Why will Q2 not be better than seasonal? Our guidance reflects how we see Q2. Nothing in particular makes us cautious.
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Copyright 2010 William P. Meyers