10-QPeriod: Q2 FY2007

ADVANCED MICRO DEVICES INC Quarterly Report for Q2 Ended Jun 30, 2007

Filed August 7, 2007For Securities:AMD

Summary

Advanced Micro Devices, Inc. (AMD) reported a net loss of $600 million for the second quarter ended June 30, 2007, a slight improvement from a net loss of $611 million in the prior quarter, but a significant decrease from a net income of $89 million in the same quarter of the previous year. Net revenue for the quarter was $1.38 billion, up 13% year-over-year, primarily driven by the inclusion of revenues from the acquired ATI business and increased unit shipments in the Computing Solutions segment. Despite revenue growth, gross margin declined sharply to 33% from 57% in the prior year's quarter, attributed to lower average selling prices and higher manufacturing costs, exacerbated by an inventory write-down. Operating expenses, particularly research and development and integration charges related to the ATI acquisition, also increased significantly. The company secured $2.17 billion in net proceeds from issuing 6.00% Convertible Senior Notes due 2015 in April 2007, which, along with other financing activities, increased cash and cash equivalents to $1.3 billion at quarter-end. However, the company also carries substantial debt, totaling $5.5 billion.

Key Highlights

  • 1Net loss of $600 million for the quarter, a slight improvement from the prior quarter but a significant decline compared to the prior year's net income.
  • 2Net revenue increased 13% year-over-year to $1.38 billion, boosted by the ATI acquisition and higher unit shipments in Computing Solutions.
  • 3Gross margin significantly decreased to 33% from 57% year-over-year due to lower average selling prices and higher manufacturing costs.
  • 4Operating expenses rose, driven by increased R&D spending and integration charges for the ATI acquisition.
  • 5The company issued $2.2 billion in convertible senior notes, improving cash and cash equivalents to $1.3 billion.
  • 6Total debt increased to $5.5 billion, indicating a significant leverage position.
  • 7Management believes current liquidity and cash flows are sufficient for the next twelve months, despite substantial capital expenditures planned.

Frequently Asked Questions

AMD reported a net loss of $600 million on net revenue of $1.38 billion for the second quarter ended June 30, 2007. This represents a significant decline from the prior year's second quarter, which saw a net income of $89 million, but a slight improvement from the net loss of $611 million in the first quarter of 2007.

The gross margin significantly decreased to 33% in the second quarter of 2007 compared to 57% in the same period of 2006. This decline was primarily attributed to lower average selling prices and higher manufacturing costs, along with an inventory write-down of approximately $30 million for older generation microprocessor inventory and the impact of consolidating ATI's lower-margin operations.

The acquisition of ATI, completed in October 2006, significantly impacted the second quarter of 2007 results. It contributed to the year-over-year increase in net revenue and segment diversity (Graphics and Consumer Electronics segments), but also led to higher operating expenses, including substantial amortization of acquired intangible assets and integration charges ($78 million in Q2 2007).

AMD's total debt stood at $5.5 billion as of June 30, 2007. The company raised approximately $2.17 billion in net proceeds from the issuance of 6.00% Convertible Senior Notes due 2015 in April 2007. Cash and cash equivalents and marketable securities totaled $1.6 billion. Management believes this liquidity, combined with operational cash flows, is sufficient to fund operations and capital investments for the next twelve months.