10-QPeriod: Q2 FY2011

ADVANCED MICRO DEVICES INC Quarterly Report for Q2 Ended Apr 2, 2011

Filed May 10, 2011For Securities:AMD

Summary

Advanced Micro Devices (AMD) reported its first quarter 2011 financial results, showcasing a slight increase in net revenue to $1.613 billion, up 2% year-over-year. The company saw a significant rise in net income to $510 million, or $0.68 per diluted share, a substantial improvement from $257 million in the prior year's quarter. This strong profitability was largely driven by a non-cash gain of $492 million related to the change in accounting method for its investment in GLOBALFOUNDRIES (GF) from the equity method to the cost method. Despite revenue growth, operating income declined to $54 million from $182 million, primarily due to increased R&D and SG&A expenses. The company highlighted the strong customer demand for its new AMD Fusion family of accelerated processor unit (APU) products, particularly the 'Brazos' platform, which contributed positively to gross margin. AMD also amended its Wafer Supply Agreement (WSA) with GLOBALFOUNDRIES, which is expected to lower wafer costs. The company's financial position remains stable with $1.7 billion in cash and marketable securities, though operating activities used $168 million in cash during the quarter.

Financial Highlights

52 data points
Beta

Revenue

$1.61B

42.8% Gross Margin

Net Income

$510.00M

31.6% Net Margin

EPS (Diluted)

$0.68

Total Assets

$5.21B

Cash & Equivalents

$602.00M

Free Cash Flow

-$206.00M

Financial Statements
Beta
Revenue$1.61B
Cost of Revenue$922.00M
Gross Profit$691.00M
R&D Expenses$367.00M
SG&A Expenses$261.00M
Operating Income$54.00M
Interest Expense$48.00M
Net Income$510.00M
EPS (Basic)$0.71
EPS (Diluted)$0.68
Shares Outstanding (Basic)720.00M
Shares Outstanding (Diluted)764.00M

Key Highlights

  • 1Net revenue increased by 2% year-over-year to $1.613 billion.
  • 2Net income significantly increased to $510 million, largely due to a $492 million non-cash gain from a change in accounting for the GLOBALFOUNDRIES investment.
  • 3Operating income decreased to $54 million from $182 million due to higher operating expenses.
  • 4The 'Brazos' APU platform launch saw strong customer demand and positively impacted gross margin.
  • 5AMD amended its Wafer Supply Agreement (WSA) with GLOBALFOUNDRIES, expecting reduced wafer costs.
  • 6Cash, cash equivalents, and marketable securities totaled $1.7 billion, a slight decrease from the prior quarter.
  • 7The company continued to invest in Research and Development, with expenses increasing by $44 million year-over-year.

Frequently Asked Questions

The primary driver of the significant increase in net income from $257 million in Q1 2010 to $510 million in Q1 2011 was a non-cash gain of approximately $492 million. This gain resulted from AMD changing its accounting method for its investment in GLOBALFOUNDRIES (GF) from the equity method to the cost method, as AMD determined it no longer had the ability to exercise significant influence over GF.

The amended WSA, effective April 2, 2011, revised the pricing methodology for wafers delivered in 2011. This amendment was expected to contribute to lower wafer costs in Q1 2011 and beyond, positively impacting the company's cost of sales and gross margin. AMD estimated it would pay GF between $1.1 to $1.5 billion in 2011 for wafer purchases under the amended agreement.

The 'Brazos' platform is AMD's new low-powered Accelerated Processing Unit (APU) product line. In Q1 2011, customer demand was strong, with approximately half of AMD's microprocessor shipments for notebook PCs being based on this platform. Its introduction contributed positively to AMD's gross margin due to its lower cost and accretive margin profile.

As of April 2, 2011, AMD had $1.7 billion in cash, cash equivalents, and marketable securities. The company reported that it believes its current cash balance, anticipated cash flow from operations, and available external financing will be sufficient to fund operations, including capital expenditures, over the next twelve months. However, the report also mentions that global market and economic conditions have been challenging.