10-QPeriod: Q3 FY2011

ADVANCED MICRO DEVICES INC Quarterly Report for Q3 Ended Oct 1, 2011

Filed November 9, 2011For Securities:AMD

Summary

Advanced Micro Devices (AMD) reported third-quarter 2011 revenue of $1.69 billion, a 4% increase year-over-year, driven by strong demand for its AMD Fusion APU products. However, gross margin declined to 45% from 46% in the prior year, impacted by supply constraints at GLOBALFOUNDRIES (GF) related to 32nm and 45nm wafer fabrication, which hampered the company's ability to meet customer demand for its microprocessor products. Despite these challenges, AMD achieved profitability for the nine-month period ended October 1, 2011, with net income of $668 million, a significant improvement from the $96 million net income in the same period of 2010. The company also ended the quarter with a solid cash position of $1.8 billion in cash, cash equivalents, and marketable securities. Looking ahead, AMD announced a restructuring plan in November 2011, involving approximately 1,400 employees, to strengthen its competitive position and implement a more efficient cost structure, with an estimated expense of $101 million in Q4 2011. The company is working closely with GF to resolve manufacturing yield issues, but expects continued supply constraints for 45nm microprocessor products in Q4 2011, which may unfavorably impact gross margins. Investors should monitor AMD's ability to navigate supply chain challenges and successfully execute its restructuring efforts.

Key Highlights

  • 1Third-quarter 2011 revenue increased 4% year-over-year to $1.69 billion, driven by strong demand for AMD Fusion APU products.
  • 2Gross margin decreased to 45% from 46% year-over-year, primarily due to supply constraints at GLOBALFOUNDRIES impacting microprocessor production.
  • 3The company reported a net income of $668 million for the nine months ended October 1, 2011, a significant increase compared to $96 million for the same period in 2010.
  • 4Cash, cash equivalents, and marketable securities totaled $1.8 billion as of October 1, 2011, indicating a healthy liquidity position.
  • 5A restructuring plan was announced in November 2011, involving workforce reductions and cost-saving measures, with an estimated expense of $101 million in Q4 2011.
  • 6GLOBALFOUNDRIES experienced manufacturing yield issues impacting AMD's supply of 32nm and 45nm wafers.
  • 7AMD began revenue shipments of its AMD Opteron 6200 Series server processors (Interlagos) late in the third quarter.

Frequently Asked Questions

Revenue was primarily driven by strong customer demand for AMD's Fusion family of Accelerated Processing Unit (APU) products. Over 90% of mobile processors shipped in Q3 2011 were APU products.

AMD faced significant supply constraints due to manufacturing yield and other difficulties at GLOBALFOUNDRIES (GF), its primary foundry partner, for both 32nm and 45nm wafer fabrication. This impacted the company's ability to fulfill customer demand for its microprocessor products and consequently affected gross margins.

AMD changed its accounting method for its investment in GLOBALFOUNDRIES (GF) from the equity method to the cost method in Q1 2011, due to a diluted ownership interest. While AMD no longer recognizes GF's net income or loss, the Wafer Supply Agreement (WSA) remains critical, with significant estimated payments to GF in 2011 and 2012. The WSA was amended in April 2011 to adjust pricing methodologies and commitments.

AMD expects continued supply constraints for its 45nm microprocessor products in the fourth quarter of 2011 due to a strategic shift in volume to obtain additional Llano products. This is expected to have an unfavorable impact on gross margins.