Advanced Micro Devices, Inc. (AMD)

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Advanced Micro Devices (AMD)

Q3 2012 Earnings Call

October 18, 2012 5:00 pm ET

Executives

Ruth Cotter - Director

Rory P. Read - Chief Executive Officer, President and Director

Devinder Kumar - Interim Chief Financial Officer, Senior Vice President and Corporate Controller

Lisa T. Su - Senior Vice President and General Manager of Global Business Unit

Analysts

Ross Seymore - Deutsche Bank AG, Research Division

Hans C. Mosesmann - Raymond James & Associates, Inc., Research Division

JoAnne Feeney - Longbow Research LLC

Christopher J. Muse - Barclays Capital, Research Division

Stacy A. Rasgon - Sanford C. Bernstein & Co., LLC., Research Division

Joseph Moore - Morgan Stanley, Research Division

John W. Pitzer - Crédit Suisse AG, Research Division

Christopher B. Danely - JP Morgan Chase & Co, Research Division

Mark Lipacis - Jefferies & Company, Inc., Research Division

Dean Grumlose - Stifel, Nicolaus & Co., Inc., Research Division

Cody G. Acree - Williams Financial Group, Inc., Research Division

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

James Covello - Goldman Sachs Group Inc., Research Division

Patrick Wang - Evercore Partners Inc., Research Division

Vivek Arya - BofA Merrill Lynch, Research Division

Steven Eliscu - UBS Investment Bank, Research Division

Craig Berger - FBR Capital Markets & Co., Research Division

Presentation

Operator

Good afternoon. My name is Huey, and I'll be your conference operator for today. At this time, I would like to welcome everyone to AMD's Third Quarter 2012 Earnings Conference Call. [Operator Instructions] After the speakers' remarks, you will be invited to participate in a question-and-answer session. 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

Thank you, Huey. Welcome to AMD's Third Quarter Earnings Conference Call. By now, you should have had the opportunity to review a copy of our earnings press release and CFO commentary. If you have not reviewed these documents, they can be found on AMD's website at quarterlyearnings.amd.com. Participants on today's conference call are Rory Read, our President and Chief Executive Officer; Devinder Kumar, Senior Vice President, Corporate Controller and Interim Chief Financial Officer; and Lisa Su, our Senior Vice President and General Manager, Global Business Unit, and she will be present for the question-and-answer portion of the call. This is a live call and will be replayed via webcast on amd.com.

I'd like to take this opportunity to highlight a few dates of note for you. Rory Read will present at the Crédit Suisse Technology Conference on November 27; Devinder Kumar will present at the Raymond James Conference on December 10; and our fourth quarter earnings quiet time will begin at the close of business on Friday, December 14. Lastly, we intend to announce our fourth quarter and fiscal 2012 earnings on January 17, 2013. Dial-in information for that call will be provided in mid-December of this year.

Please note, non-GAAP financial measures referenced during this call are reconciled to their most directly comparable GAAP financial measures in the recent CFO commentary posted on our website at quarterlyearnings.amd.com.

Before we begin today, let me remind everyone that today's discussions contain forward-looking statements based on the environment as we currently see it. Those statements are based on current beliefs, assumptions and expectations, speak only as of the current date and as such, involve risks and uncertainties that could cause actual results to differ materially from our current expectations. Please refer to the cautionary statement in our press release for more information. You will also find detailed discussions about our risk factors and our filings with the SEC and in particular, AMD's quarterly report on Form 10-Q for the quarter ended June 30, 2012.

Now with that, I'll hand the call over to Rory. Rory?

Rory P. Read

Thank you, Ruth. Our third quarter financial performance fell significantly short of our expectations. We understand the dynamics behind the shortfall, and we are taking decisive actions to address the core issues. To help return the company to profitability, we also announced a restructuring plan designed to strengthen AMD's competitive positioning and reduce our expense structure. I will cover that plan in greater detail shortly, but first I wanted to discuss our third quarter results.

Broader macroeconomic issues are impacting consumer PC spend. OEMs are also taking a cautious approach to managing inventory in advance of the Windows 8 launch, and tablets continue to grow as a consumer device of choice. As a result, we face a very challenging selling environment, especially in the lower end of the consumer client space.

Yet, against this backdrop, we saw a continued consumer adoption of our Trinity APU in the quarter. Trinity notebook unit shipments increased more than 70% sequentially and accounted for nearly 1/3 of our total notebook shipments in the third quarter. Although Trinity is targeted at mainstream price points, Ultrathin notebooks featuring the low-power APU are also competing effectively at higher system price points. As a result, we believe we gained share in the $600 to $799 retail notebook price band globally in the third quarter. More than 125 AMD-based systems are expected to launch with Windows 8, including tablets and several new Ultrathins. While we look forward to the introduction of Win 8, the fourth quarter will continue to be challenging, and we do not expect PC market conditions to improve for several quarters.

Our graphics business performed in line with our expectations. Despite market softness, we continue to see improvement in our desktop discrete channel business, and game console revenue increased. Our industry-leading graphics technologies remain a cornerstone of our end-end product strategy, and we plan to further invest in our graphics business to drive differentiation and future growth across the entire product portfolio.

Now let's turn to the changes in the market and how they are affecting our business and the steps we are taking to address them. Shortly after joining AMD, I talked about the fundamental changes occurring in the PC industry. These trends are occurring now at an even faster rate than previously anticipated. We underestimated the speed of change in our industry, and we expected to have several years to transform the AMD business. But we must implement our transformation on a more aggressive time line.

Here is what we will do. First, we are restructuring our business and building a more efficient operating model. This reset will put in place a business model capable of delivering consistent profitability at lower breakeven revenue points. Second, we must diversify beyond the traditional PC market and become a leader in fast-growing and adjacent markets where we can differentiate and create leadership.

Read the rest of this transcript for free on seekingalpha.com