Advanced Micro Devices, Inc. - Special Call

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Advanced Micro Devices, Inc. (AMD)

March 05, 2012 8:30 am ET

Executives

Ruth Cotter - Director

Thomas Seifert - Chief Financial officer, Principal Accounting officer and Senior Vice President

Analysts

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

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by. My name is Huey, and I'll be your conference operator for today. At this time, I'd like to welcome everyone to AMD's conference call. [Operator Instructions] As a reminder, this conference is being recorded today. I would now like to turn the conference over to Ms. Ruth Cotter, Vice President of Investor Relations for AMD. Please go ahead.

Ruth Cotter

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?

Thomas Seifert

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.

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