Advanced Micro Devices, Inc. (AMD)
March 05, 2012 8:30 am ET
Ruth Cotter - Director
Thomas Seifert - Chief Financial officer, Principal Accounting officer and Senior Vice President
JoAnne Feeney - Longbow Research LLC
David M. Wong - Wells Fargo Securities, LLC, Research Division
Vivek Arya - BofA Merrill Lynch, Research Division
Romit J. Shah - Nomura Securities Co. Ltd., Research Division
Stacy A. Rasgon - Sanford C. Bernstein & Co., LLC., Research Division
Glen Yeung - Citigroup Inc, Research Division
John Pitzer - Crédit Suisse AG, Research Division
Craig Berger - FBR Capital Markets & Co., Research Division
James Covello - Goldman Sachs Group Inc., Research Division
Doug Freedman - RBC Capital Markets, LLC, Research Division
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Good morning, and welcome to AMD's conference call and webcast to discuss an amendment to our Wafer Supply Agreement with GLOBALFOUNDRIES. Today's short conference call and webcast is hosted by Thomas Seifert, Senior Vice President and Chief Financial Officer of AMD. Thomas will be accompanied by Devinder Kumar, Senior Vice President and Corporate Controller, for the question-and-answer portion of the call.
Any references on this call to annual or quarterly periods should be assumed to be our fiscal period unless specified otherwise. I'd like to remind you that this is a live call. A replay will be available later today via webcast on ir.amd.com for 30 days. There will also be a telephone replay available for 10 days. The number is (888) 266-2081. Outside of the United States, the number is (703) 925-2533. The access code for both is 1570740. The webcast of this event is a slide and audio event, so you are encouraged to log on to the Investor Relations homepage on amd.com to view the slide presentation that Thomas will be referencing this morning. This slide presentation is also downloadable from the Investor Relations homepage on amd.com.
Before we begin today's call, I'd like to caution everyone that we will be making forward-looking statements about management's expectations. Investors are cautioned that those statements are based on current beliefs, assumptions and expectations, speak only as of the current date and involve risks and uncertainties that could cause actual results to differ materially from our current expectations. The semiconductor industry is generally volatile, and market conditions are particularly difficult to forecast. We encourage you to review our filings with the SEC where we discuss the risk factors that could cause actual results to differ materially from our expectations. You'll find detailed discussions about such risk factors in our most recent SEC filings, AMD Annual Report on Form 10-K for the year ended December 31, 2011.
Now with that, I'd like to hand the call over to Thomas. Thomas?
Good morning, everyone, and thank you for joining us on the call. We're here to discuss the key elements of the 2012 amendment to AMD's Wafer Supply Agreement with GLOBALFOUNDRIES. AMD and GLOBALFOUNDRIES have made significant progress last year to strengthen our relationship, and the amended Wafer Supply Agreement demonstrates we remain committed as long-term strategic business partners. I will walk you through some slides outlining the updated and new terms of the amendment, and then we'll open the call for questions. At that point, I'll invite my colleague, Devinder Kumar, to participate in the discussion.
So let's get started and move to Slide 2. As you review our cautionary statement, I would like to remind everyone that we expect to announce our first fiscal quarter 2012 results on April 19. Therefore, we'll only be discussing today's announcement on this call. We'll not be discussing other topics such as Q1 progress or today's market and demand condition.
Slide 3. To start off, I will quickly review the origin and nature of the Wafer Supply Agreement that was in place prior to today's announcement. I will then define the terms of the 2012 amendment, and last but not least, I will discuss our expectations regarding the financial impact of the amendment.
Slide 4. When AMD embarked on its strategy of pursuing a fabless business model through the creation of GLOBALFOUNDRIES, it was about 2 fundamental things. First, it was about ensuring that AMD's access to world-class leading edge semiconductor manufacturing without the obligation to capitalize the capacity on our own. And second, it was about leveraging AMD's 40-plus years of semiconductor expertise, opening doors to the entire industry in order to help serve the growing needs for access to leading edge manufacturing. As a result, today, AMD is leaner, more nimble and focused on continuing to achieve consistent profitability, delivering on our strengths of design and innovation.
So with that, let me remind you of the Wafer Supply Agreement construct that was in place just prior to the amendment. You'll recall the purpose of the WSA is to define the terms by which AMD purchases products manufactured by GLOBALFOUNDRIES in an agreement that lasts until 2024. Under the original Wafer Supply Agreement prior to 2011, we have been paying GLOBALFOUNDRIES for wafers on a cost-plus basis, which included fixed costs on certain GLOBALFOUNDRIES fabs in Dresden. We were to return to the cost-plus model as of January 2012, originally anticipated to commence this year, whereby AMD's wafer pricing would have been based on the fixed cost of only that capacity attributable to AMD's forecasted demand. However, to ensure we continue working with GLOBALFOUNDRIES to develop a pricing strategy that aligns to our business case and is mutually beneficial, we amended the agreement again in 2012, which is what I will walk you through today.