Advanced Micro Devices Management Discusses Q2 2012 Results - Earnings Call Transcript

Advanced Micro Devices (AMD)

Q2 2012 Earnings Call

July 19, 2012 5:00 pm ET


Ruth Cotter - Director

Rory P. Read - Chief Executive Officer, President, Interim Chief Sales Officer and Member of The Board of Directors

Thomas Seifert - Chief Financial officer, Principal Accounting officer and Senior Vice President

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


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

Adeline Lee

David M. Wong - Wells Fargo Securities, LLC, Research Division

Uche X. Orji - UBS Investment Bank, Research Division

JoAnne Feeney - Longbow Research LLC

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

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

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

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

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

Vivek Arya - BofA Merrill Lynch, Research Division

Gabriel Ho

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

Michael McConnell - Pacific Crest Securities, Inc., Research Division



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 Second Quarter 2012 Earnings Conference Call. [Operator Instructions] 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, and welcome to AMD's Second Quarter Earnings Conference Call. By now, you should have had the opportunity to review a copy of our earnings release and the CFO commentary. If you have not reviewed these documents, they can be found on AMD's website at Participants on today's conference call are Rory Read, our President and Chief Executive Officer; and Thomas Seifert, our Senior Vice President and Chief Financial Officer. For the Q&A portion of the call, we will be joined by Lisa Su, our Senior Vice President and General Manager, Global Business Units. This is a live call and will be replayed via webcast on

I'd like to take this opportunity to highlight a few dates for you. Rory Read will present at the Citi Technology Conference on the 4th of September in New York; our third quarter Quiet Time will begin at the close of business on Friday, September 14; and lastly, we intend to announce our third quarter earnings on October 18. Dial-in information for the call will be provided publicly in mid-September. Please note, any reference to non-GAAP financial measures are reconciled in the CFO written commentary posted on our website

Before we begin today, let me remind everyone that our discussion contains 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'll also find detailed discussions about our risk factors in our filings with the SEC, and in particular, AMD's quarterly report on form 10-Q for the quarter ended March 31, 2012.

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

Rory P. Read

Thank you, Ruth. Clearly, our performance in the quarter was disappointing and did not meet our commitments. When I enjoined AMD last year, we laid out a set of priorities to improve our execution and transform the company to sustain our long-term growth potential. This has not changed. In spite of the setback in the quarter, we continue to move forward confidently and we are taking the right steps to strengthen and transform our business.

For the second quarter, our revenue of $1.41 billion decreased 10% from a year ago and 11% sequentially, missing our expectations. After a reasonable start, we saw business velocity slow in the later part of the quarter driving this revenue miss. This second quarter revenue shortfall was largely driven by 2 key factors: first, weak sales of desktop processors in the channel, primarily in China and Europe; and secondly, a soft consumer PC market that impacted OEM notebook processor sales. We reacted quickly to this revenue softness by focusing on maintaining margin and effectively managing our expense position. As a result, we reduced expenses sequentially and maintained margin at approximately 46%, generating a net income of $37 million in the quarter.

Looking at the specifics of the desktop business, sales to OEMs increased sequentially based on their continued adoption of APUs. However, our desktop channel revenue declined simply as our Llano product did not experience the same uptake it had with our OEM customers. Looking back, when we were significantly 32-nanometer supply constrained last year, we prioritized shipments of Llano to our OEM customers. As a result, channel partners saw a dramatic change in supply linearity and a misalignment with motherboard availability. This clearly impacted Llano sales and built inventory in the channel.

Correcting our channel challenges with Llano is largely within our own control. Moving forward, we will focus on accelerating desktop channel sell-through, ensure proper supply linearity and more effectively position Llano's value proposition in this area. It is clear that the overall PC market experienced softness in the second quarter, particularly in the consumer space. This impacted our notebook processor business. As the slowdown accelerated late in the quarter, OEMs responded quickly in an effort to reduce their inventory exposure at retailers and limit their on-hand inventories. We made the decision to protect our notebook margin and not chase lower margin business as the environment weakened at the end of the quarter.

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