Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
AMD > SEC Filings for AMD > Form 10-Q on 31-Jul-2014All Recent SEC Filings

Show all filings for ADVANCED MICRO DEVICES INC

Form 10-Q for ADVANCED MICRO DEVICES INC


31-Jul-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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," "anticipates," the negative of these words and phrases, other variations of these words and phrases or comparable terminology. The forward-looking statements relate to, among other things: demand for our products; the growth, change and competitive landscape of the markets in which we participate; the nature and extent of our future payments to GLOBALFOUNDRIES Inc. (GF) and the materiality of these payments; the materiality of our future purchases from GF; sales patterns of our semi-custom System-on-Chip products for game consoles; consumer PC market conditions; the success of our transformation strategy; our ability to transform our business to attain revenue from high-growth markets; the level of international sales as compared to total sales; our ability to reduce our unrecognized tax benefits over the next twelve months; that our cash, cash equivalents and marketable securities balances and our senior secured asset based line of credit will be sufficient to fund our operations including capital expenditures over the next twelve months; our ability to obtain sufficient external financing on favorable terms, or at all; our dependence on a small number of customers; our hedging strategy; and our expenditures related to environmental compliance and conflict minerals disclosure requirements. Material factors and assumptions that were applied in making these forward-looking statements include, without limitation, the following: the expected rate of market growth and demand for our products and technologies (and the mix thereof); GF's manufacturing yields and wafer volumes; our expected market share; our expected product costs and average selling price; our overall competitive position and the competitiveness of our current and future products; our ability to introduce new products, consistent with our current roadmap; our ability to make additional investment in research and development and that such opportunities will be available; the expected demand for computers; and the state of credit markets and macroeconomic conditions. Material factors that could cause actual results to differ materially from current expectations include, without limitation, the following:
that Intel Corporation's pricing, marketing and rebating programs, product bundling, standard setting, new product introductions or other activities may negatively impact our plans; that we will require additional funding and may be unable to raise sufficient capital on favorable terms, or at all; that customers stop buying our products or materially reduce their operations or demand for our products; that we 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 our third-party foundry suppliers will be unable to transition our products to advanced manufacturing process technologies in a timely and effective way or to manufacture our products on a timely basis in sufficient quantities and using competitive process technologies; that we will be unable to obtain sufficient manufacturing capacity or components to meet demand for our products or will not fully utilize our projected manufacturing capacity needs at GF's microprocessor manufacturing facilities; that our requirements for wafers will be less than the fixed number of wafers that we agreed to purchase from GF or GF encounters problems that significantly reduce the number of functional die we receive from each wafer; that we are unable to successfully implement our long-term business strategy; that we inaccurately estimate the quantity or type of products that our customers will want in the future or will ultimately end up purchasing, resulting in excess or obsolete inventory; that we are unable to manage the risks related to the use of our third-party distributors and add-in-board (AIB) partners or offer the appropriate incentives to focus them on the sale of our products; that we 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 our products and technologies in light of the product mix that we 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 our sales or supply chain.

For a discussion of 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 37 and the "Financial Condition" section beginning on page 28 and other risks and uncertainties 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, ATI, the ATI logo, AMD Opteron, Radeon, FirePro and combinations thereof are trademarks of Advanced Micro Devices, Inc. Microsoft is a registered trademark of Microsoft Corporation in the United States and other jurisdictions. Sony is a trademark of Sony Corporation. 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 28,


Table of Contents

2013 and December 29, 2012, and for each of the three years in the period ended December 28, 2013 as filed in our Annual Report on Form 10-K for the year ended December 28, 2013.

Overview

We are a global semiconductor company with facilities around the world. Within the global semiconductor industry, we offer primarily:

• x86 microprocessors, as standalone devices or as incorporated as an accelerated processing unit (APU), chipsets, embedded processors and dense servers; and

• graphics processing units (GPUs), including professional graphics, semi-custom System-on-Chip (SoC) products and technology for game consoles.

In this section, we will describe the general financial condition and the results of operations of Advanced Micro Devices, Inc. and its wholly-owned subsidiaries (collectively, "us," "our" or "AMD"), including a discussion of our results of operations for the quarter and six months ended June 28, 2014 compared to the quarter ended March 29, 2014 and the quarter and six months ended June 29, 2013, an analysis of changes in our financial condition and a discussion of our contractual obligations.

We believe our financial results for the second quarter of 2014 demonstrate our continued progress toward executing our three-phase transformation plan to restructure, accelerate and transform AMD's business. Net revenue for the second quarter of 2014 was $1.4 billion, a 24% increase compared to the second quarter of 2013 and a 3% increase compared to the first quarter of 2014. Our operating income for the second quarter of 2014 was $63 million, compared to an operating loss of $29 million in the second quarter of 2013 and operating income of $49 million in the first quarter of 2014. During the second quarter of 2014, our operating expenses were $435 million, compared to $488 million in the second quarter of 2013 and $438 million in the first quarter of 2014.

During the second quarter of 2014, we continued to focus on the third phase of our transformation plan to generate approximately 50% of net revenue from high-growth adjacent markets by the end of 2015. During the second quarter of 2014, we announced our ambidextrous computing roadmap, including a 64-bit ARM architectural license and plans to develop custom high-performance ARM and x86 processor cores for 2016. For the first time, we also publicly demonstrated the AMD Opteron™ A1100 Series, our first 64-bit ARM-based server processor based on 28 nanometer technology. We also expanded our notebook APU offerings in the second quarter of 2014 with the introduction of the AMD 2014 Performance Mobile APU designed for ultrathin and high-performance mobile PCs, the AMD Pro A-Series APU for commercial PCs and the third-generation AMD mainstream and low-powered mobile APU designed for a variety of commercial and consumer mobile devices. We introduced several new embedded processors: the second-generation AMD Embedded R-series APU and CPU, the new x86 AMD Embedded G-Series SOC and the AMD Embedded G-Series CPU. With respect to our graphics products, we launched the AMD Radeon™ R9 295X2 designed for performance gaming, and we expanded our second-generation Graphics Core Next-based professional graphics solutions with the launch of the AMD FirePro W8100 professional graphics card.

Cash, cash equivalents and marketable securities as of the end of the second quarter of 2014 were $948 million, compared to $982 million as of the end of the first quarter of 2014. Total debt as of the end of the second quarter of 2014 was $2.2 billion, an increase from $2.1 billion as of the end of the first quarter of 2014. During the second quarter of 2014, we issued $500 million of 7.00% Senior Notes due 2024 (7.00% Notes). We used the proceeds from this issuance to repurchase and redeem the remaining $452 million in aggregate principal amount of our 8.125% Senior Notes due 2017 (8.125% Notes). We incurred a total loss of $49 million in connection with this repurchase and redemption of our 8.125% Notes. As of June 28, 2014, we did not have any 8.125% Notes outstanding.

GLOBALFOUNDRIES

Wafer Supply Agreement. The Wafer Supply Agreement (WSA) governs the terms by which we purchase products manufactured by GLOBALFOUNDRIES Inc. (GF).

Third Amendment to Wafer Supply Agreement. On December 6, 2012, we entered into a third amendment to the WSA. Pursuant to the third amendment, we modified the wafer purchase commitments for the fourth quarter of 2012 made pursuant to the second amendment to the WSA. In addition, we agreed to certain pricing and other terms of the WSA applicable to wafers for its microprocessor and APU products to be delivered by GF to us from the fourth quarter of 2012 through December 31, 2013. Pursuant to the third amendment, GF agreed to waive a portion of our wafer purchase commitments for the fourth quarter of 2012. In consideration of this waiver, we agreed to pay GF a fee of $320 million. As a result, we recorded a lower of cost or market charge of $273 million for the write-down of inventory to its market value in the fourth quarter of 2012.


Table of Contents

The cash impact of this $320 million fee was paid over several quarters, with $80 million paid on December 28, 2012, $40 million paid on April 1, 2013 and $200 million paid on December 31, 2013.

Fourth Amendment to Wafer Supply Agreement. On March 30, 2014, we entered into a fourth amendment to the WSA. The primary effect of the fourth amendment was to establish volume purchase commitments and fixed pricing for the 2014 calendar year as well as to modify certain other terms of the WSA applicable to wafers for some of our microprocessor, graphics processor and semi-custom game console products to be delivered by GF to us during the 2014 calendar year.

Our total purchases from GF related to wafer manufacturing and research and development activities for the quarters ended June 28, 2014 and June 29, 2013 were $293 million and $255 million, respectively. Our total purchases from GF related to wafer manufacturing and research and development activities for the six months ended June 28, 2014 and June 29, 2013 were $553 million and $524 million, respectively. At June 28, 2014, we had prepayments to GF of $70 million related to wafer purchases, which were included in prepaid expenses and other current assets on our consolidated balance sheets.

We currently estimate that our wafer purchase obligation from GF will be $1.2 billion for the 2014 calendar year. We are not able to meaningfully quantify or estimate our purchase obligations to GF beyond December 31, 2014, but we expect that our future purchases from GF will continue to be material.

GF is a related party of us because GF is affiliated with West Coast Hitech L.P., our largest stockholder.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts in our condensed consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to our net revenue, inventories, asset impairments and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of our assets and liabilities. Although actual results have historically been reasonably consistent with management's expectations, the actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions.

Management believes there have been no significant changes during the quarter and six months ended June 28, 2014 to the items that we disclosed as our critical accounting estimates in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the year ended December 28, 2013.

During our fourth quarter of 2014, we will perform an annual goodwill impairment analysis pursuant to our accounting policy. However, we will also test for goodwill impairment at any time during the year if there are indicators of impairment present. If there are declines in our market capitalization, business climate or operating results, we may incur impairment charges that could be material.

Results of Operations

Management, including the Chief Operating Decision Maker, who is our Chief Executive Officer, reviews and assesses our operating performance using segment net revenue and operating income (loss) before interest, other income (expense), net, and income taxes. These performance measures include the allocation of expenses to the operating segments based on management's judgment.

As of June 28, 2014, we used the following two reportable segments:

• the Computing Solutions segment, which primarily includes x86 microprocessors, as standalone devices or as incorporated as an APU, chipsets, embedded processors and dense servers; and

• the Graphics and Visual Solutions segment, which primarily includes GPUs, including professional graphics, semi-custom SoC products, development services and technology for game consoles.

In addition to these reportable segments, we have an All Other category, which is not a reportable segment. This category primarily includes certain expenses and credits that are not allocated to any of the operating segments because management does not consider these expenses and credits in evaluating the performance of the operating segments. Also included in this category are amortization of acquired intangible assets, employee stock-based compensation expense, net restructuring and other special charges and workforce rebalancing severance charges. We also reported the results of former businesses in the All Other category because the operating results were not material.


Table of Contents

We use a 52 or 53 week fiscal year ending on the last Saturday in December. The quarters ended June 28, 2014, March 29, 2014 and June 29, 2013 each consisted of 13 weeks. The six months ended June 28, 2014 and June 29, 2013 consisted of 26 weeks.

Our operating results tend to vary seasonally. For example, historically, first quarter PC product sales are generally lower than fourth quarter sales. In addition, with respect to our semi-custom SoC products for game consoles, we expect sales patterns to follow the seasonal trends of a consumer business with sales in the first half of the year being lower than sales in the second half of the year.

The following table provides a summary of net revenue and operating income
(loss) by segment:

                                                    Three Months Ended                      Six Months Ended
                                         June 28,        March 29,       June 29,       June 28,       June 29,
                                           2014            2014            2013           2014           2013
                                                                      (In millions)
Net revenue:
Computing Solutions                      $     669      $       663      $     841      $   1,332      $   1,592
Graphics and Visual Solutions                  772              734            320          1,506            657

Total net revenue                        $   1,441      $     1,397      $   1,161      $   2,838      $   2,249

Operating income (loss):
Computing Solutions                      $       9      $        (3 )    $       2      $       6      $     (37 )
Graphics and Visual Solutions                   82               91             -             173             16
All Other                                      (28 )            (39 )          (31 )          (67 )         (106 )

Total operating income (loss)            $      63      $        49      $     (29 )    $     112      $    (127 )

In connection with our continued strategic transformation, effective as of July 1, 2014, we realigned our organizational structure. As a result of this organizational change, we will have the following two reportable segments:

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

• the 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.

We will present the effects of these new reportable segments in our segment financial data as of July 1, 2014, including any applicable restatements of prior period results to reflect these new reportable segments. The reportable segments used and disclosed in this quarterly report are based on our organizational structure in effect as of June 28, 2014.


Table of Contents

Computing Solutions

Computing Solutions net revenue of $669 million in the second quarter of 2014 decreased by 21% compared to net revenue of $841 million in the second quarter of 2013 as a result of a 33% decrease in unit shipments, partially offset by an 18% increase in average selling price. The decrease in unit shipments was primarily attributable to lower unit shipments of our microprocessors for desktop PCs and notebooks due to challenging consumer PC market conditions and lower unit shipments of our chipset products due to chipsets being integrated into our APU products. The increase in average selling price was attributable to an increase in average selling price of our microprocessor products.

Computing Solutions net revenue of $669 million in the second quarter of 2014 increased by 1% compared to $663 million in the first quarter of 2014 as a result of a 3% increase in average selling price, partially offset by a 2% decrease in unit shipments. The increase in average selling price was attributable to an increase in average selling price of our microprocessors for notebooks and servers, partially offset by a decrease in average selling price of our microprocessors for desktop PCs. The decrease in unit shipments was primarily attributable to lower unit shipments of our microprocessors for desktop PCs and lower units shipments of our chipset products due to chipsets being integrated into our APU products, partially offset by higher unit shipments of our notebook and embedded processors.

Computing Solutions net revenue of $1,332 million in the first six months of 2014 decreased by 16% compared to net revenue of $1,592 million in the first six months of 2013 as a result of a 27% decrease in unit shipments, partially offset by a 14% increase in average selling price. The decrease in unit shipments was primarily attributable to lower unit shipments of our microprocessor products due to challenging consumer PC market conditions and lower unit shipments of our chipset products due to chipsets being integrated into our APU products. The increase in average selling price was attributable to an increase in average selling price of microprocessor, chipset and embedded products.

Computing Solutions operating income was $9 million in the second quarter of 2014 compared to operating income of $2 million in the second quarter of 2013. The improvement in operating results was primarily due to a $113 million decrease in cost of sales, a $35 million decrease in research and development expenses and a $33 million decrease in marketing, general and administrative expenses, partially offset by the decrease in net revenue referenced above. Cost of sales decreased primarily due to lower unit shipments in the second quarter of 2014 compared to the second quarter of 2013. In addition, operating income for the second quarter of 2014 included a $3 million benefit from sales of inventory that had been previously reserved in the third quarter of 2012, as compared to a similar $11 million benefit for the second quarter of 2013. Research and development expenses and marketing, general and administrative expenses decreased for the reasons set forth under "Expenses," below.

Computing Solutions operating income was $9 million in the second quarter of 2014 compared to operating loss of $3 million in the first quarter of 2014. The improvement in operating results was primarily due to the increase in net revenue referenced above, a $10 million decrease in cost of sales and a $2 million decrease in marketing, general and administrative expenses, partially offset by a $6 million increase in research and development expenses. Cost of sales decreased primarily due to lower unit shipments in the second quarter of 2014 compared to the first quarter of 2014. In addition, operating income for the second quarter of 2014 included a $3 million benefit from sales of inventory that had been previously reserved in the third quarter of 2012, as compared to a similar $4 million benefit for the first quarter of 2014. Research and development expenses increased and marketing, general and administrative expenses decreased for the reasons set forth under "Expenses," below.

Computing Solutions operating income was $6 million in the first six months of 2014 compared to operating loss of $37 million in the first six months of 2013. The improvement in operating results was primarily due to a $157 million decrease in cost of sales, a $74 million decrease in research and development expenses and a $72 million decrease in marketing, general and administrative expenses, partially offset by the decrease in revenue referenced above. Cost of sales decreased primarily due to lower unit shipments in the first six months of 2014 compared to the first six months of 2013. In addition, operating loss for the six months ended June 29, 2013 included a $31 million benefit from sales of inventory that had been previously reserved in the third quarter of 2012, as compared to a similar $7 million benefit for the six months ended June 28, 2014. Research and development expenses and marketing, general and administrative expenses decreased for the reasons set forth under "Expenses," below.

Graphics and Visual Solutions

Graphics and Visual Solutions net revenue of $772 million in the second quarter of 2014 increased by 141% compared to net revenue of $320 million in the second quarter of 2013. The increase was primarily due to an increase in net revenue received in connection with sales of our semi-custom SoC products, which we began shipping in the second quarter of 2013, partially offset by a decrease in net revenue received from sales of our GPU products.


Table of Contents

Graphics and Visual Solutions net revenue of $772 million in the second quarter of 2014 increased by 5% compared to net revenue of $734 million in the first quarter of 2014. The increase was primarily due to an increase in net revenue received in connection with sales of our semi-custom SoC products, partially offset by decrease in revenue from sales of GPU products. Net revenue from sales of GPU products decreased primarily as a result of a decrease in average selling price, partially offset by an increase in GPU unit shipments.

Graphics and Visual Solutions net revenue of $1,506 million in the first six months of 2014 increased by 129% compared to net revenue of $657 million in the first six months of 2013. The increase was primarily due to an increase in net revenue received in connection with sales of our semi-custom SoC products, which we began shipping in the second quarter of 2013, and an increase in net revenue from sales of GPU products.

Graphics and Visual Solutions operating income was $82 million in the second quarter of 2014 compared to breakeven operating income in the second quarter of 2013. The improvement in operating results was primarily due to the increase in net revenue referenced above, partially offset by a $355 million increase in cost of sales, a $12 million increase in marketing, general and administrative expenses and a $2 million increase in research and development expenses. The increase in cost of sales was primarily due to the commencement of unit shipments of our semi-custom SoC products in the second quarter of 2013. Marketing, general and administrative expenses and research and development expenses increased for the reasons set forth under "Expenses," below.

Graphics and Visual Solutions operating income was $82 million in the second quarter of 2014 compared to operating income of $91 million in the first quarter of 2014. The decline in operating results was primarily due to a $44 million increase in cost of sales, a $2 million increase in marketing, general and administrative expenses and a $2 million increase in research and development expenses, partially offset by the increase in net revenue referenced above. The increase in cost of sales was primarily due to an increase in unit shipments of our semi-custom SoC products in the second quarter of 2014 compared to the first quarter of 2014. General and administrative expenses and research and development expenses increased for the reasons set forth under "Expenses," below.

. . .

  Add AMD to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for AMD - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.