Gentlemen, I'm Bruce Claflin. I'm the chairman of AMD's board of directors and the chair of the Nominating and Corporate Governance Committee. I'd like to call this meeting to order and welcome all of you to AMD's annual meeting of shareholders. I'd also like to welcome stockholders attending via our virtual meeting, which is streaming live online. We want to make our meetings as accessible as possible to stockholders, and we are pleased to give all of you the opportunity to vote, ask questions, either in person or via the internet. I'd like to introduce to you the other board of director nominees who are here today. Please stand when I call your name. Mr. Rory P. Read, President and Chief Executive Officer. Dr. W. Michael Barnes, director and chair of the Audit and Finance Committee. Mr. John E. Caldwell, director and chairman of the Compensation Committee.
Mr. Henry W.K. Chow, director. Ms. Nora M. Denzel, director. Mr. Nicholas M. D'Onofrio, director and chair of the Innovation and Technology Committee. Mr. John R. Harding, director. Mr. Michael J. Inglis, director. Mr. Ahmed Yahia, director. Mr. Martin L. Edelman, director, was unable to join today's meeting. Last, I'd like to recognize Paulett Eberhart, who after having served on AMD's board of directors since 2004, chose not to stand for re-election this year. On behalf of the board of directors, I want to thank her for her service and her dedication to AMD's board for these past 10 years. I'd also like to introduce our Senior Vice President and Chief Financial Officer, Mr. Devinder Kumar. Our Senior Vice President, General Counsel, and Secretary, Mr. Harry Wolin. This morning, we'll first take care of the formal business of the meeting, then Mr. Read will give his report.
We'll also provide time for any questions that you may have of our directors and officers. In addition, representatives of Ernst & Young, our independent auditors, are available for questions. This meeting is now called to order. As chairman, I designate Mr. Harry Wolin as secretary of the meeting. Mr. Wolin, will you now conduct the formal portion of the meeting?
Good morning. As set forth in the notice of the meeting, the official business to be conducted is as follows. First, to elect the 11 director nominees named in our proxy statement. Second, to ratify the appointment of our independent registered public accounting firm for the current fiscal year. Third, to approve the amendment and restatement of the Advanced Micro Devices, Inc. 2004 Equity Incentive Plan. Fourth, to approve, on a non-binding advisory basis, the compensation of our named executive officers. Finally, to transact any other business that may properly come before this meeting. Following the formal business of the meeting, the meeting will be concluded, and Mr. Read will deliver his report as President and Chief Executive Officer of the company. A stockholder question-and-answer session will follow his report. I'd like to point out that management may be making forward-looking statements about the company's current plans and expectations.
Actual results may differ materially from current plans and expectations, so I encourage you to review our SEC filings where we discuss the risks inherent to our business. You'll find particularly detailed discussions in our most recent quarterly report on Form 10-Q for the period ended March 29th, 2014. Please note that non-GAAP financial measures referenced during Mr. Read's report are reconciled to their most directly comparable GAAP financial measures in the slide deck posted on our website at ir.amd.com. Finally, please hold your questions until after Mr. Read's report is concluded. Now returning to the business of the meeting. I've been authorized by the board of directors to appoint Mr. Paul Ramirez of IVS Associates as Inspector of Elections for the meeting.
Mr. Ramirez will determine the number of shares represented at this meeting, the validity of proxies, the existence of a quorum, and the number of votes on all matters voted upon at this meeting. Before we proceed further, is there anyone present who has not voted by proxy, who wishes to withdraw his or her proxy, or who otherwise desires to vote in person at this meeting? Any online participants who wish to vote at this meeting should also do so now by clicking the Vote Here button. The board of directors fixed the close of business on March 10th, 2014, as the record date for the determination of stockholders entitled to notice of this meeting and entitled to vote at this meeting.
I have a list of stockholders of the company from Computershare, our transfer agent, showing approximately 761,517,519 shares outstanding on the record date and entitled to vote at this meeting. This list has been kept on file at our offices here in Sunnyvale, California, for the last 10 days and is available here at the meeting for any stockholder who wants to review it. I also have an affidavit certifying that proxy materials for this meeting were first mailed on March 28th, 2014, to all stockholders of record on March 10th, 2014. The affidavit is available for inspection at the registration desk by any stockholder who may wish to see it after the meeting.
The count immediately before the commencement of this meeting of shares present in person or by proxy indicated that 583,632,201 shares of the company's voting stock were present, representing 76.64% of the outstanding shares of common stock as of March 10th, 2014. Based on this number, a quorum is present. I now declare the polls open. I expect the polls to close in approximately 10 minutes. If there are any proxies that have not been filed, they should be filed now, or if any stockholder would like to vote personally by ballot, please see Mr. Ramirez at the back of the room. A copy of the minutes of the annual meeting of stockholders of Advanced Micro Devices held on May 16th, 2013, is at the registration desk for inspection by any stockholder who wishes to inspect it. We will dispense with the reading of those minutes this morning.
The election of directors is the first item on the agenda. The slate of directors recommended by the board of directors is described in the 2014 proxy statement. The 11 individuals that have been nominated for election are: Dr. W. Michael Barnes, Mr. John E. Caldwell, Mr. Henry W. K. Chow, Mr. Bruce L. Claflin, Ms. Nora M. Denzel, Mr. Nicholas M. D'Onofrio, Mr. Martin L. Edelman, Mr. John R. Harding, Mr. Michael J. Inglis, Mr. Rory P. Read, and Mr. Ahmed Yahia. The board of directors unanimously recommends that you vote for the election of each of these directors. AMD has adopted a majority voting standard for the election of directors with respect to uncontested elections such as this one. This standard requires each director to receive a majority of votes cast to be elected. I now declare the nominations closed.
The second item is the ratification of the appointment of Ernst & Young as independent registered public accounting firm for the company for the current year. The board of directors unanimously recommends for ratification. The third item is to approve the amendment and restatement of the Advanced Micro Devices, Inc. 2004 Equity Incentive Plan to increase the number of shares authorized for issuance under the 2004 plan by 32.5 million shares, to extend the term of the 2004 plan until July 31st, 2024, and remove the 180 million share limit for shares issued under the 2004 plan upon exercise of an award. The board of directors unanimously recommends that you vote for this amendment and restatement.
The fourth item is to approve, on a non-binding advisory basis, the compensation of our named executive officers as disclosed in the 2014 proxy statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission. The board of directors unanimously recommends that you vote for this proposal. I now direct the Inspector of Elections to conduct the voting on the items now before the meeting. The shares of any stockholder who has filed a proxy will be voted by the proxy holders in the manner specified on the proxy form. If there is anyone present who has not filed a proxy or who wishes to withdraw his or her proxy and vote personally by ballot, please see Mr. Ramirez at the back of the room. It is now 9:11 A.M. Pacific Time, and I now declare the polls to be closed.
Mr. Ramirez, could you please present the report of the Inspector of Elections?
I am pleased to announce that each of the nominees for director has been elected by the affirmative vote of a majority of the votes cast, and the appointment of Ernst & Young as the company's independent registered public accounting firm has been ratified by the affirmative vote of a majority of the shares of common stock entitled to vote and represented in person or by proxy at the meeting. The proposal regarding the Advanced Micro Devices, Inc. 2004 Amended and Restated Equity Incentive Plan passed by the affirmative vote of a majority of the shares of common stock entitled to vote and represented in person or by proxy at this meeting.
The proposal concerning the advisory vote on the compensation of named executive officers passed by the affirmative vote of a majority of the shares of common stock entitled to vote and represented in person or by proxy at this meeting. Any stockholder interested in the vote tallies on specific items may see me after the meeting for a copy of the results.
Thank you, Mr. Ramirez. The report of the Inspector of Elections will be on file for inspection by stockholders. On behalf of Mr. Claflin, the formal portion of the meeting is concluded. At this time, we will show a brief video followed by remarks from AMD's President and Chief Executive Officer, Rory Read.
We're dreamers, innovators, pioneers. Together, we are AMD. What we do is much bigger than technology. We're driven to make our industry a better place. We envision the future users want and turn those dreams into reality. We're bold, imaginative, unconstrained by convention. It's in our DNA. Together, we pioneer technology that frees people to push the limits of what is possible, because we believe that when you give people the freedom to innovate today, amazing things will happen tomorrow. At AMD, we design, we integrate, and we innovate. We do this every day, and you make it happen. We are AMD, enabling today, inspiring tomorrow.
Welcome. Thank you for joining us here. Oh, nice. Thank you for joining us here in California and around the globe on the web. Let's begin our update. Less than three years ago, I joined AMD, and at the time, over 90-plus% of our revenue was driven by the traditional PC markets. Those markets are under pressure, and they've had a declining market segment for a period of time. We began a strategy, a three-step strategy to go capture a new set of markets, to unlock our IP, to capture where the market was going in the next generation cloud era. This was a strategy based on three steps to allow us to drive 50% of our revenue in these high-growth markets within the next three years.
By the end of 2015, over 50% of our revenue will come from markets like dense server, embedded, the semi-custom market, new form factor client, and pro graphics. These are unique opportunities where we can take our IP and solutions and marry it with our customers' unique perspectives to create opportunities where our solutions can open up new revenue and new opportunities for our company, AMD. We made good progress in 2013, and we're off to a strong start in 2014. 2015 is the final year of our transformation, and when we get to 2016, AMD will be a fundamentally different company over multiple markets where our IP can unlock the future and create a different outcome for our company and our customers. This three-step transformation is based on, one, reset, restructure, where we would manage our business more efficiently, more effectively.
We would introduce in the second set a new set of products, a set of products that would begin to accelerate our business and return us to profitability as we did in 2013. Finally, over the next two years, 2014 and 2015, to ultimately diversify our portfolio. We're not only focused in the PC and discrete graphics market, but to capture those new opportunities for our company in those high-growth segments that would create long and strategic sticky relationships where we could tailor our IP with our customers' know-how and ingenuity to create solutions that would change the market. If we move forward, let's look at some of the examples and milestones that we delivered in 2013. First, we managed our cash. We kept it at the $1.1 billion level across the year, well above the $700 million minimum target.
We saw a return to revenue growth in the second half of the 2013 year and as well as a return to profitability. These were important milestones in our efforts. When we look at our expense profile from where we were in the first quarter of 2012, we reduced expenses by over 20%. This was a key factor in driving more efficiency. Yet at the same time, we were able to deliver our roadmap and our commitments to customers at a level that we had not achieved before. I think it's important also to reflect that our E to R improved from 37% to 29% in the fourth quarter, and we returned to free cash flow and profitability. That's not the only thing that was important. It's all about the kinds of products and solutions we create.
We introduced a new and exciting set of products that allowed our revenue to return to a growth pattern. You saw us ramp flawlessly our next generation APUs that were used in the Sony PS4 and the Microsoft Xbox One next-generation game consoles. You saw us record record professional graphics revenue, momentum across the business, and then most importantly, in the PC segments. What was nice about the first quarter in 2014 is that we saw every part of our strategy beginning to make important contributions to our results. We saw our revenue grow 28% in the quarter. A nice progression. Now, we also introduced our traditional product, Kabini, Richland. You saw a whole family of embedded products. This is an important event.
The embedded market is a huge opportunity for AMD, and it's a market where the strategic relationships are deep. They last for multiple years, and this means consistent revenue over an extended period of time. We introduced a set of AMD processors and APUs that allowed us to specifically target, with software and solutions, that embedded market. At the same time, we introduced the fastest and best performance GPU on the planet. We also introduced the R7 and R9s, which allowed us to have a very successful graphics business through the end of the year and into this year. I think it's most important when we look back on 2013 and the milestones that we achieved, was the kinds of customers that began to choose to do business with AMD. The market makers, the market movers, those parts of the business where we've targeted.
We want to create the long, deep relationships that create the opportunity to change the future. Look at what we did with Microsoft and Sony, with Xbox One and PlayStation 4. We married our world-class IP and design capability with that set that market makers, customers, ingenuity, and know-how, and knowledge of the market to create game-changing solutions. This is a hugely powerful event. You're going to see us continue to move that across each of these high-growth segments. You also saw Apple introduce the Mac Pro with a dual AMD FirePro GPU solution. In the dense server space, how about Verizon, where they implemented part of the world's largest public cloud with the SeaMicro dense solution? As we look forward to 2016 on this multi-year journey to transform our company, we need to think of where we're going. We want to consistently grow and consistently deliver profitability.
In order to do that, it has to be based on innovation. It's on world-class IP to create a powerhouse of IP that allows us to combine our ideas and solution to tailor that outcome with the world's market makers in each of those high-growth segments. We're going to lead in next-generation cores and processor solutions for both x86 and Arm in an ambidextrous solution. We talked about it earlier this week in San Francisco. We're also going to continue to invest in world-class graphics leadership and multimedia solutions. This combination is the right combination for this cloud era as it continues to emerge. We'll continue to focus and win in the traditional spaces of PCs, notebooks, desktops, and discrete graphics, but we need to diversify that portfolio. For too long, we were centered over consumer entry notebook.
We need to spread our portfolio in that segment to move up the stack and to look for those greenfield opportunities where growth and profitability reside. We see that in areas like commercial and in the desktop channel. We're going to capitalize on these five high-growth markets. Two years ago, when I joined the firm, 90-plus % of our revenue in the traditional segments, a declining segment. Today, as we implement a strategy by 2015 to have over 50% of our revenue from five high-growth markets means not only one or two opportunities, but five, six, seven, where we can take our leadership IP and create a multiplier effect in these high-growth segments: embedded, semi-custom, professional graphics, dense server, and new form factor client. We're not focused on the past.
We want to look to the future. There is a moment here that's an opportunity for AMD to lead as we've done in the past. This movement into the Arm 64-bit revolution is just beginning. As you may have heard, we announced an ambidextrous architecture strategy where we're able to deliver both x86 and Arm next generation cores. We're going to lead in the 64-bit Arm revolution in both server and in the embedded markets. I see a different AMD. It's beginning to emerge. You can see it taking shape. You can see it in the customers we're beginning to interact with and the kinds of solutions we're beginning to create. You can see it in the progress in terms of our revenue and our different set of differentiated IP that we can tailor solutions with those market makers to capture the opportunities of this cloud era.
That's the opportunity in front of AMD. The hard work that we've done to position us today to capture that market is real. I'm excited about our future, and I look forward to it with zeal. Now, with that, I'd like to open it up for questions for me or any member of the board. Okay. Questions in the room? We have microphones, and we also have questions on the web.
Rory, maybe we'll start with some questions from online. We have several.
Thank you.
When does AMD expect to have Kaveri notebooks in market?
Kaveri is a very important product for us because it introduces HSA solutions. Kaveri is an APU. We have a CPU and a GPU combined on a single piece of silicon. In the cloud era, you're going to see different workloads emerge. With our heterogeneous architecture, Kaveri allows workloads to go into that single chip and be processed in a traditional processor or GPU compute complex. This is a really important beginning step in our evolution across this strategy. Kaveri will be in market this quarter and throughout the balance of the year, we have very strong interest across that product.
Another one online, Rory.
Please.
Will AMD continue its big core strategy in tandem with its new Arm strategy?
One of the things that we focused on in terms of creating a different outcome over time, of course, we had to get our house in order with efficiency and manage the cash and the expense and the reset restructure and introduce a new set of products that allowed us to return to profitable growth. It's all about innovating for the future and capturing that next wave of innovation. We're going to lead in an ambidextrous architecture. No one can bring world-class graphics, an x86 compute solution, and an Arm compute solution to the market as AMD can do.
If you think about it, if we take this IP in a reusable business model, we can take this same investment that used to just go to PC and take it into one, two, three, four, five new markets and create a multiplier effect with the x86 and graphics solution. Then we add in that ambidextrous solution of Arm, and we double the TAM across those. We double the total addressable market in each of those segments with that single move. What we did is with Mark Papermaster and Jim Keller and Raja Koduri on our technology side, just to name a few of our outstanding technologists. They focused on creating reusable IP blocks, so that with a simple set of solutions where only the compute core is the only difference in a chip between an x86 and Arm solution. What a powerful extender of our IP.
That means more customers, more market makers who we can bring our solutions and technology to.
Some more questions from online, Rory.
Please.
Will AMD support cloud computing through its semi-custom business and next generation game consoles?
Sure. In the cloud era, there's no question. Repeat the question for me.
Will AMD support cloud computing-
Sure
through its semi-custom business focus and next generation game consoles?
Sure. Cloud computing is going to play an important role across all portions of our business. It's going to drive a different compute model. In the cloud era, data and application move away from the device, and they move to the cloud on large servers. The kinds of data that gets processed in the cloud era is more around visuals, search, big data. That plays very well to the GPU kinds of solutions, the HSA solutions that we have, as well as the dense server solutions that we're creating. We're going to target that cloud era in the server space. In the semi-custom space, we have a unique opportunity to bring our IP by attacking those segments where key market makers want to create a different solution. They don't have the technology or ability to create the silicon, but they don't want to buy it off the shelf.
They want to work with a partner like AMD who can bring that experience, that design knowledge to tailor a solution that differentiates it. We've had great wins in the game console space. As you know, in our earnings call, we've talked about one to two additional wins in semi-custom this year. We're looking at solutions like the home living room into the server space, into the embedded areas. These are where we see pipeline opportunities. I would expect you to see semi-custom move in that direction. I also think our ambidextrous move around Arm and x86 also introduces a unique opportunity as well. I think we have a question in the room.
Hi, my name is Deborah. I'm the individual shareholder.
Hi.
Hi.
Thank you.
I have a question for you. Before I come to the meeting, I thought I'd do the Google search. They were saying, the newer product, Ontario. Is it Ontario? Search for the netbooks, AKA mobile internet devices. Can you tell me about this product and also other product as dual processor graphic card HD 4870X2?
One of the things I think you're looking at it is in the low power arena. Where are the kinds of solutions that we're creating? We've introduced it, Kabini and Mullins and Beema this year, which are all part of the Ontario family of products. They're a low power processor based on the Jaguar family of cores. That Jaguar family of cores, we actually use as a game console solutions in our semi-custom space, as well as in embedded. What we've been working with engineers like Sam Naffziger and across the team is to identify those opportunities to drive low power into more solutions, both in embedded and the client space. When you talk about Ontario and the Jaguar family of cores, it's all about performance, low power, and a graphics solution, which makes it the APU that allows us to reach this new market.
These, we see very good interest. You should see some very good write-up about Mullins and Beema and the kinds of performance we've been able to generate in the next generation APUs in the Ontario family. At the same time, dramatically lower the power envelope. This is really important as the Internet of Things continues to expand the number of devices that now access the cloud set of data. Does that help? Thank you. Other questions? There's a question here in the front of the room.
My name is Steven Ho, a long time AMD investor and observer.
Thank you.
I have a concern or suggestion, I don't know, on the AMD margin.
Please.
When we have technical advantages over Intel or other competitor, we still give up on the margin too easily. Now we're transferring 50% of our products into other area, which we clearly have advantages, uniqueness and advantages. I just want to suggest AMD management team not to give up the margin too easily, such as the Mac Pro, that we have good graphic card on it. We should really play a good negotiation game. Everything is negotiable. Somehow, rather give up on margin on high volume, the hope of high volume, sometime we'd rather see AMD a smaller company and more profitable. In any way to not to give up margin, and I don't know how the management direction on that and the strategy to keep that advantages.
When you don't have advantages, like the PC era, sure, you shrink it and keep your business and your lights on, but when you have advantages, don't give it up.
Part of the strategy that we have, and to follow up on that concept, one of the reasons that we're tacking and targeting those market makers in each of the verticals that we see high growth in, is there's an opportunity for us to take this world-class IP and combine it with that customer's know-how to create a really differentiated solution. If you notice, one of the reasons we chose those five high growth areas, they tend to be much longer design cycles. When we were in the PC era, and we had to over-index to consumer notebook, you're on a very rapid turnover in turn of designs, six, nine months. It's all about price.
What we want to do is create a set of relationships like we did with Xbox One and PlayStation 4, where that solution's going to last five to seven years. That's how we can get value for our IP and create strategic architectural relevance with market makers. That's how I think we can create long-term value that should lift our gross margin over time. I think your advice is spot on, and thank you for your comment. Other questions here in the room or on the web? There's a question here.
Maybe, Rory, we'll wrap up with one from the web.
Sure, please.
What are the top two to three things shareholders should look for to define success in the next two to three years?
What shareholders should look for is consistent execution. We've built a better and different AMD, and we're beginning to merge as we go through this transformation. Shareholders should look for these five growth segments to contribute 50% of our revenue by next year. Look, shareholders, at the kinds of customers and the strategic relationships we build. We don't want to be on a treadmill of design a solution that lasts six months. We want to take our world-class IP and lock it with the market makers in the industry and create solutions that last two, three, five, seven years. This will create consistent revenue growth and consistent profitability. What you should also look for is success, continued momentum in embedded and in pro graphics.
Look for additional wins in the semi-custom area, and look for us to continue to build those trusted relationships with the key market makers that are emerging in this cloud era. That's fundamental. At the end of the day, look for consistent execution and delivery on commitments. We're building a foundation of that today, and we'll continue that throughout our transformation. With that, I appreciate everyone joining us for the 2014 shareholder annual meeting. I appreciate the progress that AMDers around the world have dedicated their time to make in 2013. We're off to a good start in 2014, and we're working very hard to deliver this transformational strategy. Thank you for your time today. With that, we'll conclude this meeting.