Status Update

Oct 8, 2014

Press Release

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the AMD Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference to our host, Ms. Ruth Cotter. Ma'am, you may begin. Thank you, operator, and thank you to everyone for joining us today. Participants on today's call are Rory Reid, our former President and Chief Executive Officer and Lisa Su, our newly appointed President and Chief Executive Officer. This is a live call and will be replayed via webcast on amd.com. Before we begin, let me remind everyone that today's discussion may contain 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 factors in our filings with the SEC and in particular AMD's quarterly report on Form 10 Q for the quarter ended June 28, 2014. We will report our full Q3 2014 results after market close on Thursday, October 16, 2014 and will hold a conference call for the financial community, which will also be webcast at that time. I'd like remind everyone that the purpose of today's call is to discuss our leadership change. We will not be discussing our Q3 financial results or associated business Now with that, I'd like to hand the call over to Rory. Rory? Thank you, Ruth. When I started my journey at AMD more than 3 years ago, the company needed to strengthen and improve on a number of fronts. So I came with a clear job to do. This included ensuring that we had the right strategy and business model to deliver consistent financial results and drive our leadership IP into new growth markets. So we developed a 3 step strategy to transform AMD. We successfully completed the first two steps And are now in the 3rd phase transformation. Together, the team has realigned and reestablished our core goals to better serve our customers and position AMD for future success in a competitive industry. We have significantly bolstered our financial position and performance. By restructuring our debt and maintaining our cash position, where our leadership graphics and ambidextrous compute IP provide a competitive advantage. I am proud to have led AMD through such an important chapter of its history and believe the company is in a Strong position to win moving forward. One of my other clear mandates when I joined AMD required to keep AMD on the right track. The culmination of that process is what we're announcing today, The appointment of Lisa Su as AMD's new President and Chief Executive Officer. Lisa is a proven leader with Key roles such as the Head of all of AMD's business units and most recently as Chief Operating Officer. Now is the right time for her to take the reins and continue driving AMD forward. I have no doubt That Lisa is the right leader for what lies ahead during this important time for the company where the emphasis will be on creating winning products across a Broader set of markets. I will remain an advisor to Lisa and the company through the end of the year To ensure a seamless transition for all of our internal and external stakeholders, I want to thank all of you for your support and advice during the past 3 years. And particularly, I want to thank all of the colleagues at AMD for their commitment and focus. It is because of their tireless efforts and dedication that AMD is positioned for future success. It has been a true honor and privilege to be part of the AMD team. With that, I'd like to hand the call over to AMD's President and Chief Executive Officer, Lisa Su. Lisa? Thank you, Rory, And good afternoon to all those listening in today. On behalf of the Board and all AMDers, let me begin by thanking Rory for his Leadership, passion and all that he has done during the last 3 years to build a stronger AMD. We have Outlined a clear strategy, we have built a stronger business model and we have improved our execution. Rory has made a significant difference in all of those And we are a better company because of his leadership. And on a personal note, I will always be thankful for his friendship and the role he played in bringing me Thank you, Rory. Today is a very exciting day for me. It is truly a great honor for me to lead AMD I joined AMD because I believe that it was one of the few companies in our industry with the technology assets, the talent and the market position to really lead the industry forward. After almost 3 years here, I can say for sure my conviction has only grown stronger. At our core, we are a technology and a product company and we've had a very strong heritage of innovation. The foundation of our success has always been grounded In delivering great products, from setting the industry standard for 64 bit x86 processing to pushing the limits of visual computing To creating the first APU. So what does the transformation of AMD really mean to me? The transformation of AMD is really about taking all of those technology assets that leadership IP, the products that we have and really applying them To the most important and challenging applications of the future. This is really how we create shareholder value and build a strong and sustainable business foundation. Now what we see in front of us is a really exciting industry. Over the next 5 years, there will be more than 50,000,000,000 interconnected devices that will need increased computing and visualization capabilities. And the majority of these will be either ARM or Graphics leadership, SoC design, system and software knowledge to build great products for these next generation applications. This is why I'm so excited about our opportunity going forward. Now my key priorities as I start this role will be centered on several 1st and foremost, we are here to build great products. These are enabled through our investments in differentiated IP coupled with our Sign, integration and system capabilities. Mark Papermaster and his team have really established good momentum in this area And this will continue to be our highest priority for the company. We will also drive deeper and more strategic relationships with key market leaders. We have proven with the game console ramp that we can be a trusted supplier to key market makers and I truly believe that this model of co development and deep partnerships will only become more important in the future and we will expand our efforts in this area to be a better and stronger partner for our customers. And then lastly, as we continue our transformation, we will simplify the company and sharpen our focus. An example of that simplification happened several months ago when we separated the AMD business into 2 business groups around the Computing and Graphics Business and the Enterprise Embedded and Semi Custom Business. This separation enables us to really optimize each business I strongly believe that we have tremendous technology assets, great talent and strong resolve to become a great company. We won't transform AMD overnight. It will surely take time. However, we do have a strong strategy and a clear path. The next few years be very exciting for the industry and for AMD. I'm very much looking forward to the journey. Thank you for joining us today. With that, let's turn the call back over to Ruth, so we can open it up for Q and A. Thank you, Lisa. Operator, We'd be happy for you to pull the audience for questions now, please. Certainly. And our first question comes from Matt Ramsay of Canaccord Ingenuity. Please go ahead. Yes. Thank you very much for taking my questions. Lisa, congratulations on your new role. I just wanted to I guess it's an interesting dichotomy that you guys have as a business right now during this transition period, the revenue is still give or take 60% exposed to the PC space and while you're trying to invest in the 5 new focus areas. So maybe Lisa you could talk a little bit about as you take over as leader If there's any change in the strategy of emphasis of R and D and then within the five growth areas that you guys have lined out, is I am very excited about the opportunity we have in front of us. I think we've made strong progress over the past couple of years in building that foundation and improving our business model. I do think going forward, it is all about the technology and how we're able to accelerate the technology. Relative to the growth areas, We are very much along the path as we've said of diversifying our business. The PC business is an important one to us, but it's also extremely critical That we grow in the enterprise embedded and semi custom space. When we look over the next couple of years, our investments will pivot to those new markets and continue to focus on developing the leadership IP to do that. So very much Continuity for our strategy and also continuing to execute the technology. Great. And just as a follow-up, it was When you laid out your priorities as you took over, the first one was build great products, but then the 3rd Focus area that you mentioned was Sharpen focused and to me that speaks to controlling operating cost So maybe you could talk about and I know that Rory and his team have laid out some goals for the long term versus the targets that were set out there prior? Thanks. Sure, Matt. We will talk more about some of the financial metrics as we go into The 3rd quarter earnings call next week. I will say that the two items that you mentioned are very much linked. It is about the technology. It is about building differentiated and leadership IP. We also do very much focus on and my focus will be on ensuring that Both businesses are profitable and that's a key metric that we've laid out. It's a very important metric for us going forward. And so we'll continue to that as we go through the next couple of quarters and the next couple of years. It's an interesting one, Matt. As you identified the point about great products, As the Board and I looked at this succession plan and we look at it every year and in every Board meeting, we looked at Lisa and developed her over the past 3 years. As we move into the transformation phase, Matt, it really is about delivering the next set of Leadership IP and then putting it into great products. Lisa is the right person To lead that transformation. She's got a deep semiconductor background. She's been in the industry forever. She's been here for the past 3 years running This unit driving as COO, this is the right person to take that next step and it's really That right move at this time. Thank you very much for taking my questions. Rory, best of luck and Lisa congrats again. Thanks so much, Matt. Thanks, Matt. Our next question comes from Joanne Feeney of ABR SMITH Strategy. Please go ahead. Yes. Thanks. And again, congrats, Lisa, and best wishes, Rory. I just had a follow-up question On the roadmap side and the strategy you see going forward, Lisa, obviously in trying to control costs, one of the things will be Most critically investments in future roadmaps. And I'm wondering if you see perhaps given the priorities for the company and shifting into embedded and perhaps Internet of Things that the ARM based roadmap might be a more productive way to go rather than to continue to try to invest to stay at the forefront of x86. Can you make any comments in that regard? Sure, Joanne. Thank you for your question and thanks for joining today. I will say that It is very much about choosing the right product investments. We're in an industry where you actually make a bet and you'll see the results of it 3, 4, 5 years Relative to where our strategy is going and where my priorities are, I do very much believe that diversifying our business is critical. I think we have tremendous technology. And as we apply it over broader markets, that will be a strong business model for us Deliver. I do believe though X86 and ARM will absolutely coexist and be important as we go forward. And from that standpoint, as much as We are investing in leading edge ARM capability. We will also continue to invest in X86 for our core markets. Okay. And perhaps I missed this. Thank you for that answer, Lisa. And perhaps I missed this. Is anyone stepping into the role of COO at this point? Yes, let me answer that. We are not replacing the COO role, so that was really an opportunity for us to streamline some of the business operations, but we will simplify Good to hear. And then last question, I'm wondering if we should read anything into this regarding progress On your semi custom efforts for the back half of the year that you guys have talked about in the past? Yes, Joanne. So we have made some About our plans for the semi custom business, I will update that at our next earnings call. Fair enough. Okay, thanks for taking my questions. Thank you, Joanne. Our next question comes from David Wong of Wells Fargo. Please go ahead. Thank you very much. Lisa, you've said that the strategy is pretty much as has been laid out already. But are Any sort of changes in emphasis at all? Are there any activities that you might scale back on or reduce investment in? And conversely, are Thanks David. Nice to talk diversification we talked about. I think you will see some adjustments as we go forward and that's really in the realm of the technology priorities. As Rory talked In our 3 step turnaround, the first two phases were really about resetting and restructuring the company and getting a sounder financial foundation. I think the 3rd stage is about the technology and making the right technology investments. So we have a very strong team that we've recruited over the past couple of years. I'm very much looking forward to really focusing on those key technology bets as we go forward. Great. Thanks. Our next question comes from Ian Ng of MKM Partners. Please go ahead. Yes. Thanks. Congratulations, Lisa. So Yes. I think it's unfair to ask what products are going to change at this point. But as you reflect on the past 2 years, do you think there's any changes in terms of How you're evaluating the ongoing projects and investments, perhaps looking at the investment hurdles, time to market evaluation criteria, anything that might change along those lines? Thanks, Ian, for the question. I would say that, again, when we look at what we've been doing over the past couple of years, we are pretty proud of what we've done. It's a strong We've really started the diversification of the business. We are very much focused on ensuring that we're making the right technology bets going I think it's a little bit early to say in terms of exactly what will change in the roadmap. I will say that we had some long term investments that we've started with Mark Papermaster and the team that he's brought in and those investments are absolutely critical around CPU cores, around leading edge graphics IP, around And really what we're going to do is evaluate the highest impact Products as we go forward. Thanks. And as a follow-up, do you have a sense of the relative investment levels available to you going forward and opportunities for acquisitions? Did you have any agreements with the Board before you took the position along those lines? I think we will talk more about the long term financial performance as we go forward I think the important thing is some of the fundamentals and basics that we've laid out are very critical and it is about ensuring Profitability and ensuring that we have a strong track record of improved performance going forward. Great. Thank you very much. Our next question comes from Vivek Arya from Bank of America. Please go ahead. Hi. This is Shankar on behalf of Vivek. So I just want to touch upon the microserver and the product strategy so far. And in first half of twenty fourteen, The micro servers grew almost doubled. But as you look into second half and then 2015 and beyond, What would be the change in strategy that you would think about growing that business faster than what you have in the past? Thanks, Jankar. So again, to talk a little bit about the microserver business, it is an area that we have been investing in, in both On the chip side with our ARM based servers as well as on the system side with our C Micro business. I think this is a new market and it is a market that we believe will be very important as we go out over the next 3 or 4 years, but it does take some time for it to develop. So you've seen some recent announcements around ARM From us and from some of our competitors as well as our partners, I think you'll see more of that over the next couple of quarters As these products come into production and the ecosystem is enabled. This is a follow-up. Do We expect the significant revenue still come around 2016 timeframe or do we expect 2015 to be a meaningful driver from these product launches? Yes, really like to cover that as we go through more of the financial results when we go into the earnings conference call. I think here we wanted to focus more on the leadership change. Question comes from Ian King from Bloomberg News. Please go ahead. Hi. Thanks very much for the opportunity here. I wonder if we could just address the issue of timing of this announcement please. Rory, you don't seem like somebody who backs down from a challenge and going forward AMD is going to continue to have operating challenges that are going to need it to be addressed. And Lisa, setting the direction For the company in terms of its product roadmap, why does that need the CEO role to do that? These are all kind of questions that I'm sort of fielding right And I wonder if you could address the Y now aspect a little bit more detailed for us please? Yes, no Pramod, Ian, I do love a challenge and I think we've had a very interesting challenge here in AMD. There's a 45 year old company with A history of kind of mixed results, we embarked as a leadership team, Lisa, myself, Mark Papermaster, we put together A real team that was focused on changing and creating a different AMD. The part that I'm good at, I've already done that part And I've been working on that part. And I think Lisa is uniquely positioned for the 3rd phase. It is about product. And when the Board and I look at succession planning, that is a key component of my role. We hired Lisa, we developed Lisa and we saw her grow and be Positioned and ready to take this to the next level. I look at it as a natural move here at this time, because that phase around transformation It's about the next generation IP, the next generation cores, the leadership graphics and that's Lisa's background. She's a semiconductor professional. She loves this space. She knows this space with Mark Papermaster, Jim Keller, the leaders that We brought in across the team Raja Kodori. They're going to take this to that next step. The Board and I felt this was the right time and we felt this was It seems to me that AMD's Processor cores market reach have grown more under you Rory and Mark in 3 years in the previous 3 decades. Could you please share some color for your Aspirations about how you envisage emerging markets, smart embedded, expanding your solutions catalog and reach? Rick, thank you, and thanks for the comments. I really am very excited about the opportunity we have in front of us. And if you put it all together, I think over the next 3 to 5 years, there's going to be tremendous change in the semiconductor industry. We really have an opportunity to lead in this space and what I'm most excited about is the fact that A strong growth market for us as well as our semi custom and enterprise business, as well as ensuring that as the traditional PC business changes and morphs over the next couple that we are similarly inspiring innovation in that area. So I think without a doubt, the technology is critical. The business model is critical. I think ensuring that we are returning strong shareholder value are all things that are very important to me. Great. Thank you. Excelsior. Thanks, Rick. Our next question comes from Rick Merritt of EE Times. Thanks for taking my question and congratulations Lisa. I wanted to follow-up the why now Question, 3 years is a pretty short tenure for a CEO of a semiconductor company. So I mean, I understand the rationale that Boreal outlined, but it seems like we might be missing Was there a disagreement about what products are going to be rationalized or other moves ahead? No, absolutely not. Piece of united effort. We do it from the employees in terms of how we communicate it, make sure Every person across the company is driving to that singular goal through the management team, up through the Board and then across our executive team. We saw this. We analyzed the data. We saw Lisa take On the roles of the business units, we saw how our business was beginning to diversify and making good progress in semi custom and across the portfolio. We saw Other leaders on the team beginning to emerge and grow forward. This is a normal and natural time for this because Lisa And this is the right step in the transformation for her to lead forward. And Rick, if I could Just add to that, again, as Rory said, there were really no disagreements on anything at this point. Rory and I have been very aligned. He's been a great A great mentor and we've built this strategy together. I think it's all about this is a 3 step transformation. It is one that will take some time. We've done the first two steps. There was a lot of focus on some of the financial metrics and some of the work that we did on debt profiling, all very, very Important. I think the next couple of years, 3 to 5 years, we're going to do very, very interesting things and they're more around the innovation And how we choose those technology bets. So very clearly there are no disagreements on any of We all feel very good about this. We really do. We see this as the right time, the right place and we're really making good progress. And this is the next step. She's ready and it's the right time. All right. Well, just a follow-up if I may for Lisa. Can you give any more color on what you mean Further simplification, does that mean layoffs? And when you talk about core IP, certainly the The 64 bit custom ARM core you're doing and announcements are big. Are there other technical technology or IP Aspects you can give some color on? Sure, Rick. So on my comment about further simplification, we really saw an opportunity to Simplify how we go to market with customers. So when we look at our traditional PC business, The microprocessor side and the traditional graphics business, we were approaching the same customers, the same large OEMs, The approach to the channel, I really saw an opportunity to simplify how we go to market. It used to be that, that computing and graphics business was 95% of AMD. So it was the company. And as we're now diversifying into new markets, it's an opportunity for us to Really optimized for the different product cadence and the different customer set and kind of the different market dynamics. So is really around getting the businesses to really focus on the markets and the customers and the right products and it's also an opportunity For us to streamline our own business operations. And any more color on the technology Targets ahead. Well, I think you mentioned a few that we have been investing in. The ARM Our products are quite important to us as well as the x86 roadmap. So I'm sure we'll be talking about that much more in the coming quarters. All right. Thanks and congrats again. Thank you, Rick. Our next question comes from Nathan Brookwood of Insight64. Please go ahead. Yes. Thanks for taking my question and let me echo the congratulations that My question involves any replacements for you not so much in your role as COO, you made that pretty clear. But basically when you announced the reorg in June, you indicated you would be looking for somebody to head up The enterprise embedded and semi custom business and you've been in that role as an acting Manager, now that you're going to be CEO, I imagine the demands on your time will be even greater. So Are you going to be stepping up the search for that? And when should we expect to see a replacement for you Thank you, Nathan for the kind words. I really appreciate it and really appreciate all the partnership with you and your team. I think relative to the leadership team, we have a strong leadership team in place. Certainly, the enterprise embedded in semi custom Business is very near and dear to my heart. So it's something that I believe is a strong growth driver for the company. We have been actively talking to people about Over the last several months and you should see a person named shortly. Very good. I can't I'm Sure. You probably want to get that position filled as much as everybody else. And again congratulations. That's true. Thanks, Nathan. Our next question comes from Christopher Rolland from FBR Capital Markets. Please go ahead. So congratulations, Lisa. We've always been huge fans of yours and we're looking forward to some great things here. So first, I guess, I'm curious on your financial philosophy just sort of personally here. How do you feel about leverage? Are you strongly geared to paying that down? Or are you thinking more about ongoing investments in the current Listen, just sort of broad based here and then sort of do you think you're a little bit more top line focused or a little bit more focused on margins? How do we sort of think about your own personal philosophy for running a business? Yes, Chris. Thanks for the comments and thanks for the There will be a lot of time for us to spend on sort of my personal financial philosophy, what we're with the company, where we would like to take the company over the next couple of years. I really prefer to defer that to we'll start with that conversation at our Q3 earnings call and then much more to come in the coming couple of quarters. So for today, we'll focus on Ship announcement and look forward to talking to you more about where we take the company. Okay, sure. And What do you sort of view as the lowest hanging fruit for change at AMD? What are some of the Perhaps easier fixes that you see out there over the next call it 1 to 2 years. Well, it's fair to say that I've been Active member of the leadership team for the last couple of years. So we've been working on quite a few, I don't know if I would call them low hanging fruit, but I would call them certainly opportunities. Look, on a serious note, I do believe that there's a lot of opportunity to improve this business. I think it does start with great technology and great products, but I've talked about what we would like to do with more strategic customer relationships. I like that because it builds a much stickier business and a more predictable business. And I also want to simplify the company. I think we have great Great engineers and we need to make it easier for us to speed the products to market and So we'll talk more about this as I talk about where we're going over the next couple of quarters. There's definitely opportunities. This is a multiyear transformation, but one where we can we have a clear view of where we need to go. Great. Congrats again. Thanks, Chris. Operator, we'd like to take 2 more callers, please. Certainly. Our next question comes from John Pitzer from Credit Suisse. Please go ahead. Yes. Good afternoon, guys. Thanks for letting me ask the question. Lisa, let me add my congratulations Rory. Best of luck Future endeavors. I hate to harp on this point, but I'm getting asked a lot of questions by investors again just on the timing of this announcement. You guys have earnings coming up in about 8 days. It seems like you could have held off making this announcement until then. I'm just kind of curious not necessarily Why now from sort of a bigger picture perspective, but why today and not why why not wait until after the earnings call or on the earnings So when the Board and I worked on the succession plan and as I mentioned earlier, John, we looked at it at the beginning of the year. We look at it in each Board meeting. We've been working through that process as part of the natural evolution of the leadership structure. When we made the decision, we have A fiduciary responsibility to share that information, because it's material and we needed to do it. We made the decision this week And we decided to execute it and share it. That's the right thing to do. That's helpful, Roy. And then, Lisa, as a follow-up, You guys have spent a lot of time over the last couple of years talking about some of the architectural changes or architectural strategies of the company. I was hoping you could talk a little bit more on some of the manufacturing strategies, especially around new Moore's Law Technologies, Action strategies, especially around new Moore's Law Technologies, Infet Foundry Partners, how important will that be as CEO to kind of focus Over the next 1 to 3 years. Thanks, John. Well, clearly, the technology is very important. I think the fact that we are Fabulous. We have 2 technology partners with GlobalFoundries and TSMC. It is very important for our leadership to be on leading edge technology nodes. We are very much investing in the key IP to put on FinFET technology and We'll continue to do that. So overall, I would say our technology foundation is strong. As I said earlier, Mark And our final question comes from Betsy Van Anne Heath from Wedbush Securities. Please go ahead. Thanks so much for taking my call and congratulations, Lisa, On the promotion, it's fantastic news. And Rory, also best of luck to you in your future endeavors. And I really hate to do this as well and I'm going to follow-up on John's question. And I think the problem that we're really struggling with here in terms of the timing the announcement. I understand the fiduciary responsibility is that in the 8 ks filing both of you are determining your So it seems as if such a huge decision being made that this would have all been laid out. I think that's what we're just really struggling with is that it just seems sudden given the 8 ks filing and not having those compensation packages. And then Of course, you do have earnings next week and you could lay out everything for us in a nice succinct package. I think that's just really what is really hitting investors And getting I'm getting pinged on and we're all getting pinged on. So I know I have a final question. Yes, no problem, Betsy. When you think about it and you think about The things that I bring to the table and the kind of work I've done in the past, the transformation, the cultural work, the execution, Those are the parts of step 12. Step 3 is about products, semiconductors. We've been working on those. We hired really Great people. We grew those people. They're ready to take that next step. And we've worked on the succession plans From the day that we began to work on this, I mean, we talked about the opportunities, Lisa, the first day we met and how we could grow the company, how we could work this together and This is well planned, well understood and we work through the natural succession process and I think it really makes sense. And I think that we all agree that it makes sense. There's no question. I mean, Lisa is a phenomenal individual and you did Amazing job from an operational prospect. I mean look at AMD is back in the black. It's just you've done a great job in That area. So it definitely makes sense. And as I said, I just think that we're just all struggling with the timing and the fact that the 8 ks filing came out and that the packages weren't negotiated and that you do have earnings next week. And I think that's just causing us to unease, but And you do have our knees next week. And I think that's just causing us the unease, but I do think that we all clearly See this as an excellent transition plan that you guys had put in place and I just think it's this timing that we just continue to be We understand what you're saying, but I just think that's what we're all having a hard time with. Yes, no worries. And Betsy, I really appreciate the warm comments The work that we've done, I'm proud to have led AMD through this unique period and challenging period. I think we've made a lot of progress. I think the Strategy is spot on. I think we've identified and rebalanced the organization. We've really focused in terms of the balance sheet. And I think we've Clearly laid out how to execute and to create a different AMD with that diverse portfolio and leadership IP. And if you look at it, this is Lisa's time and this is the right time for her to lead this company forward. Well, congratulations to both of you. Thank you, Betsy. Thanks, Betsy. Thank you, operator. That concludes today's call. If you could wrap it up, we'd appreciate it and we look to talking to everyone next week on the earnings call. Ladies and gentlemen, this does conclude today's conference. Thank you for your