Add
AMD to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| AMD > SEC Filings for AMD > Form 10-Q on 5-Aug-2009 | All Recent SEC Filings |
5-Aug-2009
Quarterly Report
The statements in this report include forward-looking statements. These
forward-looking statements are based on current expectations and beliefs and
involve numerous risks and uncertainties that could cause actual results to
differ materially from expectations. These forward-looking statements should not
be relied upon as predictions of future events as we cannot assure you that the
events or circumstances reflected in these statements will be achieved or will
occur. You can identify forward-looking statements by the use of forward-looking
terminology including "believes," "expects," "may," "will," "should," "seeks,"
"intends," "plans," "pro forma," "estimates," or "anticipates" or the negative
of these words and phrases or other variations of these words and phrases or
comparable terminology. The forward-looking statements relate to, among other
things: the demand for our products; the growth and competitive landscape of the
markets in which we participate; the credit market crisis and other
macro-economic challenges currently affecting the global economy and end-user
demand for PCs; our cost reduction efforts and related restructuring charges;
future sales of previously written-down inventory; our plans to purchase or
otherwise retire our 5.75% Notes, 6.00% Notes and 7.75% Notes; our ability to
liquidate our auction rate securities in the next twelve months; our capital
expenditures; our aggregate contractual obligations; and availability of
external financing. Material factors and assumptions that were applied in making
these forward-looking statements include, without limitation, the following:
(1) the expected rate of market growth and demand for our products and
technologies (and the mix thereof); (2) our expected market share; (3) our
expected product and manufacturing costs and average selling prices; (4) our
overall competitive position and the competitiveness of our current and future
products; (5) our ability to introduce new products and transition to more
advanced manufacturing process technologies, consistent with our current plans;
(6) our ability to make additional investment in research and development and
that such opportunities will be available; and (7) the expected demand for
computers. Material factors that could cause actual results to differ materially
from current expectations include, without limitation, the following: (1) that
Intel Corporation's pricing, marketing and rebating programs, product bundling,
standard setting, new product introductions or other activities may negatively
impact sales; (2) that our substantial indebtedness could adversely affect our
financial position and prevent us from implementing our strategy or fulfilling
our contractual obligations; (3) that we will require additional funding and may
be unable to raise sufficient capital, on favorable terms, or at all; (4) that
we may be unable to maintain the level of investment in research and development
that is required to remain competitive; (5) that we may be unable to develop,
launch and ramp new products and technologies in the volumes required by the
market on a timely basis; (6) that we may be unable to transition to advanced
manufacturing process technologies in a timely and effective way; (7) that there
may be unexpected variations in market growth and demand for our products and
technologies in light of the product mix that we may have available at any
particular time; (8) that demand for computers will be lower than currently
expected; (9) that we may under-utilize GLOBALFOUNDRIES' and our own
manufacturing facilities; and (10) the effect of political or economic
instability, domestically or internationally, on our sales or production.
For a discussion of the factors that could cause actual results to differ materially from the forward-looking statements, see "Part II, Item 1A-Risk Factors" section beginning on page 58 and the "Financial Condition" section beginning on page 47 and such other risks and uncertainties as set forth below in this report or detailed in our other Securities and Exchange Commission (SEC) reports and filings. We assume no obligation to update forward-looking statements.
AMD, the AMD Arrow logo, AMD Opteron, and combinations thereof, ATI and the ATI logo are trademarks of Advanced Micro Devices, Inc. Microsoft is a registered trademark of Microsoft Corporation in the United States and other jurisdictions. Other names are for informational purposes only and are used to identify companies and products and may be trademarks of their respective owners.
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in this report and our audited consolidated financial statements and related notes as of December 27, 2008 and December 29, 2007, and for each of the three years in the period ended December 27, 2008 as filed in our Annual Report on Form 10-K for the year ended December 27, 2008.
Overview
We are a global semiconductor company with facilities around the world. Within the global semiconductor industry, we offer primarily:
x86 microprocessors, for the commercial and consumer markets, embedded microprocessors for commercial, commercial client and consumer markets and chipsets for desktop and notebook PCs, professional workstations and servers; and
graphics, video and multimedia products for desktop and notebook computers, including home media PCs and professional workstations, servers and technology for game consoles.
In this section, we will describe the general financial condition and the results of operations for Advanced Micro Devices, Inc. and its consolidated subsidiaries as well as GLOBALFOUNDRIES Inc. (GF) and its consolidated subsidiaries, including a discussion of our results of operations for the quarter and six months ending June 27, 2009 compared to the quarter ending March 28, 2009 and quarter and six months ending June 28, 2008, an analysis of changes in our financial condition and a discussion of our contractual obligations and off balance sheet arrangements. For accounting purposes, we are required to consolidate the accounts of GF pursuant to FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, An Interpretation of ARB No. 51 (FIN 46R). References in this report to "us," "our," "AMD," or "the Company" include these consolidated operating results.
In the second quarter of 2009, the global macroeconomic environment continued to be challenging. Although we believe end-user PC demand stabilized, end-customers continued to demand value-priced products, which adversely impacted our average selling prices and product mix. With respect to our product roadmap, we were able to meet or exceed our major engineering milestones during the second quarter of 2009, and in June 2009 we began shipping our new six-core AMD Opteron processor for servers and introduced a 40-nanometer graphics processer for desktop PCs. Moreover, we reduced our cash requirements and operating expenses as compared to the first quarter of 2009 and the second quarter of 2008.
Net revenue in the second quarter of 2009 was $1.2 billion, approximately flat compared to the first quarter of 2009 and a 13 percent decrease compared to the second quarter of 2008. Compared to the first quarter of 2009, a 3 percent decrease in Computing Solutions net revenue was offset by a 13 percent increase in Graphics net revenue during the second quarter of 2009. Although net revenue was approximately flat compared to the first quarter of 2009, total unit shipments increased 27 percent as our customers began to replenish depleted inventory. However, this unit shipment increase was almost entirely offset by a 20 percent decrease in average selling prices as end-customers demanded more value-priced products, which resulted in both decreasing prices and a shift in product mix to lower end microprocessors and GPUs. Net revenue in the second quarter of 2009 decreased compared to the second quarter of 2008 due to a decrease in average selling prices partially offset by an increase in unit shipments. Average selling prices decreased due to the shift in our product mix to lower end microprocessors. Unit shipments increased due to an increase in GPU and chipset unit shipments.
Gross margin, as a percentage of net revenue for the second quarter of 2009 was 37 percent, a 6 percentage point decrease compared to 43 percent in the first quarter of 2009 and a 1 percentage point decrease compared to 38 percent in the second quarter of 2008. However, during the fourth quarter of 2008, we recorded a $227 million incremental write-down of certain inventory due to weak economic conditions. A portion of this inventory was sold in the first quarter of 2009 at discount prices, which benefited gross margin in the first quarter of 2009 by $64 million, or 5 percentage points, and an additional portion of this inventory was sold in the second quarter of 2009, which benefited gross margin by $98 million, or 8 percentage points. The decrease in gross margin during the second quarter of 2009 as compared to the first quarter of 2009 and the second quarter of 2008 was primarily due to lower average selling prices as our product mix shifted to lower end products. Gross margin was also negatively impacted by our underutilization of GF's manufacturing assets in the first and second quarters of 2009 due to lower wafer volumes.
Our operating loss for the second quarter of 2009 was $249 million compared to $298 million in the first quarter of 2009 and $569 million in the second quarter of 2008. The improvement in operating performance for the second quarter of 2009 compared to the first quarter of 2009 was primarily due to a reduction in operating expenses and restructuring charges. The improvement in operating performance in the second quarter of 2009 compared to the second quarter of 2008 was primarily due to the absence of the impairment of goodwill and acquired intangible assets and reduced operating expenses. In addition, during the second quarter of 2008 we recorded a $193 million gain on the sale of 200 millimeter equipment.
Our cash, cash equivalents and marketable securities as of June 27, 2009 was $2.5 billion compared to $1.1 billion as of December 27, 2008. The increase in our cash, cash equivalents and marketable securities was primarily due to the consummation of the GF manufacturing joint venture transaction. Of the $2.5 billion, $877 million constituted GF cash and cash equivalents. Because the global macroeconomic environment continues to be uncertain, we continue to preserve cash and exercise cost containment measures.
We intend the discussion of our financial condition and results of operations that follows to provide information that will assist you in understanding our financial statements, the changes in certain key items in those financial statements from year to year, the primary factors that resulted in those changes, and how certain accounting principles, policies and estimates affect our financial statements.
GLOBALFOUNDRIES
On March 2, 2009, we consummated the transactions contemplated by the Master Transaction Agreement among us, Advanced Technology Investment Company LLC (ATIC), a limited liability company established under the laws of the Emirate of Abu Dhabi and wholly owned by the Government of the Emirate of Abu Dhabi, and West Coast Hitech L.P., an exempted limited partnership organized under the laws of the Cayman Islands (WCH), acting through its general partner, West Coast Hitech G.P., Ltd., a corporation organized under the laws of the Cayman Islands, pursuant to which we formed GF. At the closing of this transaction (Closing), we contributed certain assets and liabilities to GF, including, among other things, shares of the groups of German subsidiaries owning Fab 1 Module 1 (formerly Fab 36) and Fab 1 Module 2 (formerly Fab 30/38), certain manufacturing assets, real property, tangible personal property, employees, inventories, books and records, a portion of our patent portfolio, intellectual property and technology, rights under certain material contracts and authorizations necessary for GF to carry on its business. In exchange we received GF securities consisting of one Class A Ordinary Share, 1,090,950 Class A Preferred Shares and 700,000 Class B Preferred Shares, and the assumption of certain liabilities by GF. ATIC contributed $1.4 billion of cash to GF in exchange for GF securities consisting of one Class A Ordinary Share, 218,190 Class A Preferred Shares, 172,760 Class B Preferred Shares, $202 million aggregate principal amount of 4% Class A Subordinated Convertible Notes (the Class A Notes) and $807 million aggregate principal amount of 11% Class B Subordinated Convertible Notes (the Class B Notes), and transferred $700 million of cash to us in exchange for the transfer by us of 700,000 GF Class B Preferred Shares.
At the Closing, we also issued to WCH for an aggregate purchase price of $125 million, 58 million shares of our common stock and warrants to purchase 35 million shares of our common stock at an exercise price of $0.01 per share (the Warrants). The Warrants became exercisable upon the public ground-breaking of GF's planned manufacturing facility in New York on July 24, 2009 and expire on March 2, 2019.
Under the Master Transaction Agreement, the cash consideration that WCH and ATIC paid and the securities that they received are as follows:
Cash paid by WCH to AMD for the purchase of 58 million shares of AMD common stock and Warrants: $125 million;
Cash paid by ATIC to GF for the aggregate principal amount of Class A Notes, which are convertible into 201,810 Class A Preferred Shares: $202 million;
Cash paid by ATIC to GF for the aggregate principal amount of Class B Notes, which are convertible into 807,240 Class B Preferred Shares: $807 million;
Cash paid by ATIC to GF for 218,190 Class A Preferred Shares: $218 million;
Cash paid by ATIC to GF for 172,760 Class B Preferred Shares: $173 million; and
Cash paid by ATIC to AMD for 700,000 Class B Preferred Shares: $700 million.
As of the Closing, AMD and ATIC owned 1,090,950, or 83.3%, and 218,190, or 16.7%, respectively, of Class A Preferred Shares, and ATIC owned 100% of the Class B Preferred Shares and 100% of the Class A Notes and Class B Notes.
Class A Preferred Shares. The Class A Preferred Shares rank senior in right of payment to the Ordinary Shares of GF and junior in right of payment to the Class B Preferred Shares for purposes of dividends, distributions and upon a Liquidation Event (as defined below). The Class A Preferred Shares are not entitled to any dividend or pre-determined accretion in value. In the event of the liquidation, dissolution or winding up of GF (Liquidation Event), each Class A Preferred Share will be entitled to receive, after the distribution to the holders of the Class B Preferred Shares but prior to any distribution to the holders of Ordinary Shares, out of the remaining assets of GF, if any, an amount equal to the initial purchase price per share of the Class A Preferred Shares. Each Class A Preferred Share is convertible, at the option of the holder thereof, into Class B Ordinary Shares at the then applicable Class A Conversion Rate upon a Liquidation Event. Each Class A Preferred Share will automatically convert into Class B Ordinary Shares at the then applicable Class A Conversion Rate upon the earlier of (i) an initial public offering of GF (IPO) or (ii) a change of control transaction of GF. The "Class A Conversion Rate" is 100 Class B Ordinary Shares for each Class A Preferred Share converted, subject to customary anti-dilution adjustments. The Class A Preferred Shares are non-voting until the Reconciliation Event (defined below). Following the Reconciliation Event, each Class A Preferred Share will vote on an as-converted basis with the Ordinary Shares, voting together as a single class, with respect to any question upon which holders of Ordinary Shares have the right to vote.
Class B Preferred Shares. The Class B Preferred Shares rank senior in right of payment to all other classes or series of equity securities of GF for purposes of dividends, distributions and upon a Liquidation Event. Each Class B Preferred Share is deemed to accrete in value at a rate of 12% per year, compounded semiannually, of the initial purchase price per such share. The accreted value accrues daily from the Closing and is taken into account upon certain distributions to the holders of
Class B Preferred Shares or upon conversion of the Class B Preferred Shares. In the event of a Liquidation Event, each Class B Preferred Share will be entitled to receive, prior to any distribution to the holders of any other classes or series of equity securities, an amount equal to its accreted value. Upon completion of the above distribution to the holders of Class B Preferred Shares, each Class A Preferred Share will be entitled to receive its liquidation preference amount out of any remaining assets of GF. Upon completion of the above distributions to the holders of Preferred Shares, all of the remaining assets of GF, if any, will be distributed pro rata among the holders of Ordinary Shares. Each Class B Preferred Share is convertible, at the option of the holder thereof, into Class B Ordinary Shares at the then applicable Class B Conversion Rate (as hereinafter defined) upon a Liquidation Event. Each Class B Preferred Share automatically converts into Class B Ordinary Shares at the then applicable Class B Conversion Rate upon the earlier of (i) an IPO or (ii) a change of control transaction of GF. The "Class B Conversion Rate" is 100 Class B Ordinary Shares for each Class B Preferred Share converted, subject to customary anti-dilution adjustments. The Class B Preferred Shares are non-voting until the Reconciliation Event (defined below). Following the Reconciliation Event, each Class B Preferred Share will vote on an as-converted basis with the Ordinary Shares, voting together as a single class, with respect to any question upon which holders of Ordinary Shares have the right to vote.
Class A Subordinated Convertible Notes. The Class A Notes accrue interest at a
rate of 4% per annum, compounded semiannually, and mature upon the later of
(i) 10 years from the date of issuance or (ii) the date of the earlier of
(i) such time when we have secured for GF certain rights under our existing
cross license agreement with Intel Corporation (Intel Patent Cross License
Agreement), or (ii) such time when GF's Board of Directors determines that GF no
longer needs to be a "Subsidiary" under the Intel Patent Cross License Agreement
(the Reconciliation Event). Interest on the Class A Notes is payable
semiannually in additional Class A Notes. The Class A Notes are the unsecured
obligations of GF and rank subordinated in right of payment to any current or
future senior indebtedness of GF. The Class A Notes are not redeemable by GF
without the noteholder's consent. The Class A Notes are convertible, in whole or
in part, in multiples of $1,000, into GF Class A Preferred Shares at the option
of the holder at any time prior to the close of business on the business day
immediately preceding the maturity date based on the conversion ratio in effect
on the date of conversion, if (i) such conversion would not cause GF to fail to
constitute our "Subsidiary" under the Intel Patent Cross License Agreement or
(ii) the Reconciliation Event has occurred. On or after the Reconciliation
Event, the Class A Notes will automatically convert into Class A Preferred
Shares upon the earlier of (i) an IPO, (ii) certain change of control
transactions of GF or (iii) the close of business on the business day
immediately preceding the maturity date.
Class B Subordinated Convertible Notes. The Class B Notes accrue interest at a
rate of 11% per annum, compounded semiannually, and mature upon the later of
(i) 10 years from the date of issuance or (ii) the date of the Reconciliation
Event. Interest on the Class B Notes is payable semiannually in additional Class
B Notes. The Class B Notes are the unsecured obligations of GF and rank
subordinated in right of payment to any current or future senior indebtedness of
GF. The Class B Notes are not redeemable by GF without the noteholder's consent.
The Class B Notes are convertible, in whole or in part, in multiples of $1,000,
into GF Class B Preferred Shares at the option of the holder at any time prior
to the close of business on the business day immediately preceding the maturity
date at the conversion ratio in effect on the date of conversion, if (i) such
conversion would not cause GF to fail to constitute our "Subsidiary" under the
Intel Patent Cross License Agreement or (ii) the Reconciliation Event has
occurred. On or after the Reconciliation Event, the Class B Notes will
automatically convert into GF Class B Preferred Shares upon the earlier of
(i) an IPO, (ii) certain change of control transactions of GF or (iii) the close
of business on the business day immediately preceding the maturity date.
For accounting purposes, we consolidate the accounts of GF as required by FIN
46(R). Based on the structure of the transaction, pursuant to the guidance in
FIN 46R, GF is a variable-interest entity, and we are deemed to be the primary
beneficiary and are, therefore, required to consolidate the accounts of GF.
Pursuant to the requirements of SFAS 160, which we applied as of the beginning
of fiscal 2009, we present ATIC's noncontrolling interest, represented by its
equity interests in GF, outside of stockholders' equity in our condensed
consolidated balance sheet due to the right that ATIC has to put those
securities back to us in the event of a change of control of AMD during the two
years following the Closing. Our net income (loss) attributable to our common
stockholders per share consists of our consolidated net income (loss), as
adjusted for (i) the portion of GF's earnings or losses attributable to ATIC,
which is based on ATIC's proportional ownership interest in GF's Class A
Preferred Shares (16.7% as of June 27, 2009), and (ii) the non-cash accretion on
GF's Class B Preferred Shares attributable to us, based on our proportional
ownership interest of GF's Class A Preferred Shares (83.3% as of June 27, 2009).
The table below reflects the changes in noncontrolling interest during the quarter and six months ended June 27, 2009.
|
|