Advanced Micro Devices (AMD) Q2 2012 Earnings Call July 19, 2012 5:00 pm ET Executives 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 Analysts 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 Presentation Operator
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 quarterlyearnings.amd.com.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. Read the rest of this transcript for free on seekingalpha.com