AMD Reports 2014 Second Quarter Results

- Transformation strategy on track -

Q2 2014 Results

• Revenue of $1.44 billion, increased 3 percent sequentially and 24 percent year-over-year
• Gross margin of 35 percent
• Operating income of $63 million and non-GAAP⁽¹⁾ operating income of $67 million
• Net loss of $36 million, loss per share of $0.05 and non-GAAP⁽¹⁾ net income of $17 million, earnings per share of $0.02

AMD (NYSE:AMD) announced revenue for the second quarter of 2014 of $1.44 billion, operating income of $63 million and net loss of $36 million, or $0.05 per share. Non-GAAP operating income was $67 million and non-GAAP net income, which primarily excludes $49 million of loss from debt redemption in the quarter, was $17 million, or $0.02 per share. 

“The second quarter capped off a solid first half of the year for AMD with strong revenue growth and improved financial performance,” said Rory Read, AMD president and CEO. “Our transformation strategy is on track and we expect to deliver full year non-GAAP profitability and year-over-year revenue growth.  We continue to strengthen our business model and shape AMD into a more agile company offering differentiated solutions for a diverse set of markets.”

GAAP Financial Results

Non-GAAP Financial Results ⁽¹⁾

Quarterly Financial Summary

·  Gross margin was 35 percent in Q2 2014.

o  Gross margin was flat sequentially. 

• Cash, cash equivalents and marketable securities were $948 million at the end of the quarter, significantly higher than the target minimum of $600 million and close to the optimal zone of $1 billion.

·  Total debt at the end of the quarter was $2.21 billion, an increase from $2.14 billion at the end of Q1 2014. 

o  During Q2 2014, the company continued re-profiling its near-term debt maturities, issuing $500 million in aggregate principal amount of 7.00% Senior Notes due 2024 and repurchasing all $452 million aggregate principal amount of the company’s outstanding 8.125% Senior Notes due 2017.

• Computing Solutions segment revenue increased 1 percent sequentially and decreased 20 percent year-over-year. The year-over-year decline was due to decreased microprocessor unit shipments.

o  Operating income was $9 million, an improvement from an operating loss of $3 million in Q1 2014 and operating income of $2 million in Q2 2013. The sequential increase was primarily driven by improved gross margin due to a richer mix of notebook products while the year-over-year increase was primarily driven by lower operating expenses.

o  Microprocessor average selling price (ASP) increased sequentially and year-over-year.

·  Graphics and Visual Solutions segment revenue increased 5 percent sequentially and 141 percent year-over-year driven largely by increased semi-custom SoC shipments. Graphics processor unit (GPU) revenue decreased sequentially and year-over-year, primarily due to a decrease in AIB channel sales, partially offset by increased sales of professional graphics and desktop OEM GPUs.

o  Operating income was $82 million compared with $91 million in Q1 2014 and breakeven in Q2 2013. The sequential decline was primarily due to lower GPU revenue, while the year-over-year increase was driven by increased sales of semi-custom SoCs.

o  GPU ASP decreased sequentially and year-over-year, primarily driven by  lower AIB channel sales.

Recent Highlights

·  AMD unveiled further details on its ambidextrous computing roadmap, including a 64-bit ARM architecture license and plans to develop custom high-performance ARM and x86 processor cores for 2016. The company’s differentiated x86 and ARM strategy is designed to deliver unmatched computing and graphics performance using a shared, flexible infrastructure to drive new innovations.

·  AMD appointed Dr. Lisa Su to Chief Operating Officer, responsible for overseeing the company’s previously separate global operations, operating segments and sales organization to drive growth in both traditional PC and adjacent markets.

·  AMD realigned its organization structure to deliver unmatched customer value in both traditional PC markets and adjacent high-growth markets. Effective July 1, 2014, AMD’s two new reportable segments are as follows:

o  Computing and Graphics segment, which will primarily include desktop and notebook processors and chipsets, discrete GPUs and professional graphics;

o  Enterprise, Embedded and Semi-Custom segment, which will primarily include server and embedded processors, dense servers, semi-custom SoC products, development services and technology for game consoles.

o  AMD’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2014 will reflect this new segment reporting structure.

·  AMD detailed its plans to accelerate the energy efficiency of its accelerated processing units (APUs) delivering 25x efficiency improvements by 2020 through design optimizations, intelligent power management and Heterogeneous System Architecture advances that are expected to enable AMD to outpace the industry’s historical energy efficiency trend by at least 70 percent.

·  AMD continued to gain momentum with its embedded products in the second quarter.

o  The company introduced the 2nd-generation embedded R-Series APU as well as the AMD embedded G-Series SoC and CPU solutions, which will power HP thin clients  and Advantech’s new embedded industrial solution and are ideally suited for ATMs, kiosks and medical equipment applications. 

o  AMD embedded Radeon™ graphics were selected by Boeing for its next-generation advanced cockpit display systems.

·  AMD publicly demonstrated for the first time its 64-bit ARM-based AMD Opteron™ A-Series processor, codenamed “Seattle,” a significant step forward in expanding the footprint of ultra-efficient 64-bit ARM solutions for cloud computing and the Internet of Things.

·  AMD expanded its mobile APU offerings in the quarter:

o  Acer, Dell, HP and Lenovo have all introduced notebooks powered by AMD’s newest 3rd-generation mainstream mobile APUs, which combine category-leading compute performance^2,3 with unique features and rich user interactions.

o  AMD also launched its most advanced mobile APUs for consumer and commercial notebooks. The new 2014 performance mobile APUs include AMD’s first FX-branded enthusiast class APU for notebooks as well as AMD Pro A-Series APUs. HP is offering the AMD PRO A-Series APUs across its Elite 700-Series notebooks, desktops and all-in-ones, with additional OEMs expected to introduce systems later this year.

·  AMD expanded its 2nd-generation Graphics Core Next-based professional graphics solutions with the introduction of the AMD FirePro W8100 professional graphics card, which delivers 38x more performance⁴ than the closest competitive offerings based on double precision testing. Dell, HP and more than 10 workstation system integrators have all announced systems featuring the new card.

·  AMD’s groundbreaking Mantle API, which creates more immersive experiences that take fuller advantage of modern APUs and GPUs to deliver console-like experiences, will be used by Electronic Arts in the upcoming  Battlefield Hardline™, Dragon Age: Inquisition™ and Plants vs. Zombies: Garden Warfare™ games. More than 40 game titles supporting Mantle are in development with more than 50 developers actively working with the API for future titles. 

Current Outlook
AMD’s outlook statements are based on current expectations. The following statements are forward-looking, and actual results could differ materially depending on market conditions and the factors set forth under “Cautionary Statement” below.

For the third quarter of 2014, AMD expects revenue to increase 2 percent, plus or minus 3 percent, sequentially.

For additional details regarding AMD’s results and outlook please see the CFO commentary posted at quarterlyearnings.amd.com.

AMD Teleconference
AMD will hold a conference call for the financial community at 2:30 p.m. PT (5:30 p.m. ET) today to discuss its second quarter financial results. AMD will provide a real-time audio broadcast of the teleconference on the Investor Relations page of its web site at www.amd.com. The webcast will be available for 12 months after the conference call.

Reconciliation of GAAP to Non-GAAP Operating Income (Loss) ¹

Reconciliation of GAAP Net Loss to Non-GAAP Net Income (Loss)

Cautionary Statement
This earnings press release contains forward-looking statements concerning AMD, its ability to deliver non-GAAP profitability and revenue growth; its ability to diversify its business; its targeted and optimal cash, cash equivalents and marketable securities balances; expected OEM introductions of its products and its expected third quarter of 2014 revenue; which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are commonly identified by words such as “believes, "expects," “may,” “will,” “should,” “seeks,” “intends,” “pro forma,” “estimates,” “anticipates,” “plans,” “projects,” “would” and other terms with similar meaning. Investors are cautioned that the forward-looking statements in this release are based on current beliefs, assumptions and expectations, speak only as of the date of this release and involve risks and uncertainties that could cause actual results to differ materially from current expectations. Risks include the possibility that Intel Corporation's pricing, marketing and rebating programs, product bundling, standard setting, new product introductions or other activities may negatively impact AMD’s plans; that AMD will require additional funding and may be unable to raise sufficient capital on favorable terms, or at all; that customers stop buying AMD’s products or materially reduce their operations or demand for AMD’s products; that AMD may be unable to develop, launch and ramp new products and technologies in the volumes that are required by the market at mature yields on a timely basis; that AMD’s third-party foundry suppliers will be unable to transition AMD’s products to advanced manufacturing process technologies in a timely and effective way or to manufacture AMD’s products on a timely basis in sufficient quantities and using competitive process technologies; that AMD will be unable to obtain sufficient manufacturing capacity or components to meet demand for its products or will not fully utilize its projected manufacturing capacity needs at GLOBALFOUNDRIES, Inc. (GF) microprocessor manufacturing facilities; that AMD’s requirements for wafers will be less than the fixed number of wafers that it agreed to purchase from GF or GF encounters problems that significantly reduce the number of functional die it receives from each wafer; that AMD is unable to successfully implement its long-term business strategy; that AMD inaccurately estimates the quantity or type of products that its customers will want in the future or will ultimately end up purchasing, resulting in excess or obsolete inventory; that AMD is unable to manage the risks related to the use of its third-party distributors and add-in-board (AIB) partners or offer the appropriate incentives to focus them on the sale of AMD’s products; that AMD may be unable to maintain the level of investment in research and development that is required to remain competitive; that there may be unexpected variations in market growth and demand for AMD’s products and technologies in light of the product mix that it may have available at any particular time; that global business and economic conditions will not improve or will worsen; that PC market conditions, will not improve or will worsen; that demand for computers will be lower than currently expected; and the effect of political or economic instability, domestically or internationally, on AMD’s sales or supply chain. Investors are urged to review in detail the risks and uncertainties in AMD’s Securities and Exchange Commission filings, including but not limited to the Quarterly Report on Form 10-Q for the quarter ended March 29, 2014.