10-QPeriod: Q3 FY2014

ADVANCED MICRO DEVICES INC Quarterly Report for Q3 Ended Sep 27, 2014

Filed October 30, 2014For Securities:AMD

Summary

Advanced Micro Devices, Inc. (AMD) reported mixed financial results for the third quarter and nine months ended September 27, 2014. While net revenue saw a slight decrease year-over-year in the third quarter, it increased for the first nine months, driven primarily by the Enterprise, Embedded and Semi-Custom segment. The company reported a net income of $17 million for the quarter, a decrease from $48 million in the prior year, and a net loss of $39 million for the nine-month period, a significant improvement from a loss of $172 million in the prior year. Key financial metrics indicate continued strategic shifts. The company experienced a significant increase in its Enterprise, Embedded and Semi-Custom segment revenue, largely due to higher semi-custom SoC product shipments, while the Computing and Graphics segment faced ongoing challenges from the declining PC market. AMD also completed a significant debt refinancing in the first half of the year, issuing new notes and repurchasing older ones. The company announced a restructuring plan in October 2014 to further improve operational efficiencies, which will involve headcount reductions.

Financial Statements
Beta

Key Highlights

  • 1For the third quarter of 2014, net revenue was $1.43 billion, a 2% decrease from $1.46 billion in the prior year's third quarter. For the nine months ended September 27, 2014, net revenue increased by 15% to $4.27 billion from $3.71 billion in the prior year.
  • 2The company reported a net income of $17 million ($0.02 per diluted share) for the third quarter of 2014, compared to a net income of $48 million ($0.06 per diluted share) for the same period in 2013. For the nine months ended September 27, 2014, AMD reported a net loss of $39 million ($0.05 per diluted share), an improvement from a net loss of $172 million ($0.23 per diluted share) in the same period last year.
  • 3Gross margin for the third quarter was 35%, flat compared to the prior year's third quarter (36%) and current year's second quarter (35%). The nine-month gross margin was 35%, down from 38% in the prior year.
  • 4The Enterprise, Embedded and Semi-Custom segment showed strong growth, with net revenue increasing 21% year-over-year in Q3 to $648 million and 105% year-over-year for the nine months to $1.8 billion, primarily driven by semi-custom SoC products. The Computing and Graphics segment saw revenue declines, with Q3 revenue down 16% year-over-year to $781 million.
  • 5Operating expenses were managed, with Marketing, General, and Administrative expenses remaining relatively flat year-over-year. Research and Development expenses decreased for the nine-month period.
  • 6As of September 27, 2014, AMD had $640 million in cash and cash equivalents and $298 million in marketable securities, totaling $938 million in liquid assets, a decrease from $869 million in cash and $228 million in marketable securities at the end of 2013.
  • 7The company announced a restructuring plan in October 2014 to reduce global headcount by approximately 7% and expects to record restructuring charges of approximately $70 million in Q4 2014 and H1 2015.

Frequently Asked Questions

For the third quarter of 2014, AMD reported a net income of $17 million, or $0.02 per diluted share, which is a decrease compared to the $48 million net income reported in the same quarter of 2013. While the company returned to profitability for the nine-month period with a net loss of $39 million (an improvement from a loss of $172 million in 2013), the quarterly net income declined.

The Enterprise, Embedded and Semi-Custom segment is the primary growth driver, with its revenue increasing significantly due to higher shipments of semi-custom System-on-Chip (SoC) products. This segment's performance is compensating for the challenges faced by the Computing and Graphics segment, which is experiencing declines due to the weaker consumer PC market.

AMD has actively managed its debt, issuing new Senior Notes in 2014 and repurchasing older debt. As of September 27, 2014, the company held $938 million in cash and marketable securities. Management believes these resources, along with its credit line, are sufficient to fund operations over the next twelve months, although they acknowledge the need for potential external financing in the future under certain market conditions.

In October 2014, AMD announced a restructuring plan that includes a 7% global headcount reduction and alignment of its real estate footprint. This plan is expected to result in restructuring and impairment charges of approximately $70 million, with cash payments also anticipated. This initiative aims to improve operational efficiencies and cost savings as part of the company's ongoing transformation.