Good morning, ladies and gentlemen. It's now 9:00 A.M. Central Time. I'd like to call this meeting to order. Welcome to AMD's annual meeting of stockholders. I'm Bruce Claflin. I'm Chairman of AMD's Board of Directors and Chairman of the Nominating and Governance Committee of the board. I'd also like to introduce other board director nominees who are here today. Please stand when I call your name. Mr. Rory P. Read, Director, President, and Chief Executive Officer. Dr. W. Michael Barnes, Director and Chair of the Audit and Finance Committee. Mr. John E. Caldwell, Director. Mr. Henry W.K. Chow, Director. Mr. Nicholas M. Donofrio, Director. Ms. H. Paulett Eberhart, Director and Chair of the Compensation Committee. Mr. Ahmed Yahia, Director. Mr. John R. Harding, Director, and Mr. Martin L. Edelman, Director, were unable to join today's meeting. I'd like to recognize one other director, and that's Robert B.
Palmer. Bob Palmer served on our board of directors for 14 years. He did not stand for re-election this year, having reached the retirement age that we have in our guidelines. I want to thank Bob for his service. He was a committed, dedicated director who always had the interest of shareholders in mind. Bob, would you please stand and be recognized? I'd now also like to introduce our Senior Vice President and Chief Financial Officer, Mr. Devinder Kumar, and our Senior Vice President, General Counsel, and Corporate Secretary, Mr. Harry Wolin. At our meeting this morning, we'll first take care of the formal business of the meeting. Mr. Read will give his report. This morning, we'll also provide time for questions any of you may have for our directors and officers. In addition, representatives of Ernst & Young, our independent auditors, are available for questions.
The meeting is now called to order. As chairman, I designate Mr. Harry Wolin as secretary of the meeting. Mr. Wolin will now conduct the formal portion of the meeting.
Thank you, Bruce. Good morning.
Good morning.
As set forth in the notice of the meeting, the official business to be conducted is as follows. First, to elect the 10 director nominees named in our proxy statement. Second, to ratify the appointment of our independent auditor 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, Mr. Read will deliver his report as Chief Executive Officer of the company. A stockholder question and answer session will follow his report. I'd like to point out that management might be making forward-looking statements about the company's current plans and expectations.
Actual results may differ materially from current plans and expectations, I encourage you to review our SEC filings, where we discuss the risks inherent in our business. You will find particularly detailed discussions in our most recent quarterly report on Form 10-Q for the period ending March 30th, 2013. 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 Paul Ramirez of IVS Associates as Inspector of Elections for this 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? Okay. Turn around and see Mr. Ramirez at the back of the room. Mr. Ramirez, could you wave so everyone can see you? Thank you. The board of directors fixed the close of business on March 18th, 2013, 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 our stockholders of the company from Computershare, our transfer agent, showing approximately 714,188,012 shares outstanding on the record date and entitled to vote at this meeting.
The list has been kept on file at our offices in Sunnyvale, California, and Austin, Texas, for the last 10 days and is available here at the meeting for inspection by any stockholder. I also have an affidavit certifying that proxy materials for this meeting were first mailed on March 28th, 2013, to all stockholders of record on March 18th, 2013. The affidavit is available for inspection 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 494,708,294 shares of the company's voting stock were present, representing 69.3% of the outstanding shares of common stock as of March 18th, 2013. 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 now be filed. 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 10th, 2012, is in my possession 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 2013 proxy statement. The 10 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, Mr. Nicholas M. D'Onofrio, Ms. H. Paulett Eberhart, Mr. Martin L.
Edelman, Mr. John R. Harding, Mr. Ahmed Yahia, Mr. Rory P. Read. 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 auditors for the company for the current year. The board of directors unanimously recommends ratification. The third item is to approve the amendment and restatement of the Advanced Micro Devices, Inc.
2004 Equity Incentive Plan to amend the existing plan to increase the number of shares authorized for issuance thereunder by 16,500,000 shares, amend the definition of performance goals that may be used in connection with performance-based awards granted under the 2004 plan, implement certain administrative amendments, and satisfy stockholder approval requirements of Section 162 of the Internal Revenue Code of 1986, as amended. 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 2013 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. Are there any questions or comments from the floor on any of these items?
If there is no discussion regarding the proposals, I 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 a manner specified on the proxy form. If there is anyone 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 this time. Mr. Ramirez, can 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, the appointment of Ernst & Young as the company's independent auditors has been ratified by the affirmative vote of the majority of the shares of common stock entitled to vote and represented in person or by proxy at the meeting. The proposal concerning the advisory vote on the compensation of named executive officers passed by the affirmative vote of the majority of the shares of common stock entitled to vote and represented in person or by proxy at this meeting. In order to pass, the proposal to approve the amendment and restatement of the Advanced Micro Devices Inc.
2004 Equity Incentive Plan must receive the affirmative vote of the majority of the votes cast, the total vote cast on the proposal must represent over 50% of the outstanding common stock entitled to vote on the proposal. We have not received the votes of a sufficient number of shares on this proposal. However, it should be noted that 86% of the shares voted on this proposal voted to approve the amendment to the plan.
Thank you, Mr. Ramirez. It's now 9:12 A.M. Central Time, I now declare the polls to be closed with respect to the election of directors, the ratification of the appointment of auditors, and the advisory vote on the compensation of named executive officers. With that, I invite Mr. Claflin back to the podium.
The formal portion of the meeting is adjourned, to be continued on May 30th, 2013, 12 noon Pacific Standard Time at the offices of Advanced Micro Devices, 1 AMD Place, Sunnyvale, California. During such adjournment, the polls will continue to remain open with respect to Proposal 3, the approval of the amendment and restatement of the Advanced Micro Devices, Inc. 2004 Equity Incentive Plan. At this time, it's my pleasure to introduce AMD's President and Chief Executive Officer, Rory Read.
Thank you, Bruce. Welcome, and thank you to join today's shareholder meeting. 2012 was a difficult year for the industry and for AMD, as we saw major changes in the way the computing industry was addressing the opportunities for the market. The cloud is fundamentally changing the way data and applications interface with the customers and the devices that are proliferating across the industry. As we address these fundamental changes, we embarked on a 3-step transformation and turnaround of our business. The first step was around reset and restructure, to drive efficiency, to improve our expense model, and to manage our cash effectively to give us the opportunity to address and accelerate our turnaround with an exciting and powerful set of new products.
That first step of reset and restructuring is largely complete, and it's an exciting time for us as we move into the second phase of our turnaround strategy, a classic 3-step turnaround strategy, where we accelerate out of this reset and restructuring. That acceleration is based on execution. We must execute and deliver an exciting and powerful set of products. I'm pleased to say that the products that we're introducing for 2013 are in fact that powerful set of products. Let's start on the client side. With our new products in Kabini and Temash and Richland, we're well-positioned to effectively compete in the client space and have the opportunity to gain share in the second half. Additionally, we have introduced the fastest graphics product ever in the history of the industry and our product set.
We believe that equally positions us to accelerate in the second half in the graphics market to again capture share. As you know, it's critical with the market shifting and changing that we diversify our portfolio. Our portfolio had been almost exclusively centered around the PC market. Now, the PC market is not dead, and it's got plenty of opportunity going forward, but it's only prudent to go and continue to attack and win in that market and at the same time, go after new opportunities in high-growth segments. Areas like dense computing in terms of embedded processors in areas like industrial, medical, gaming. Areas where we see both a graphical interface and a CPU, a processing interface. That combination plays exactly to our APU fusion strategy. I think that it's very important as we look forward in 2013, we must continue to diversify that portfolio.
20% is the clear objective of our revenue by year-end in these new high-growth segments, and we're on track. You may have seen our recent announcement with the Sony Corporation around the PS4. That's a very strong validation of this move to semi-custom embedded. You'll see additional wins in that space as the year progresses. That's all part of an ongoing strategy to diversify the portfolio into high-growth segments where we can capture, innovate, and lead. Now, step one, reset and restructure, basically done. We're on our path to drive efficiency from last year of almost $600 million of expense a year to $450 million by the second half, third quarter. That's a big change, and that's driving an efficiency and productivity. Devinder and the financial team have also effectively managed our cash position, and we're well-positioned to execute the launch and ramp of these new products.
As we move forward, it's important in the second half we return to positive free cash flow. That will allow us to invest in the ultimate step 3 transformation of AMD. Think about it in terms of this. Our company has to embrace where the cloud is going, and we are. It presents a challenge, yet a unique opportunity for us to apply our unique IP and architectural prowess into this changing environment. The first step, largely done. Second step, well-positioned to accelerate into the second half and deliver a return to profitability and free cash flow, and then ultimately to take that profitability and invest it into the future that allows us to win consistently in 2015, 2016, and 2017, and to capture these high-growth segments like dense computing, embedded, and the semi-custom.
I think it's important to reflect on this challenging environment and to say we've faced it head on. We've looked at the challenges, we've reset the corporation, we've driven to a higher level of efficiency. At the same time, we've aggressively executed to deliver a strong and powerful slate of new products in 2013 in the client space, the graphic space, and the new growth segment. This should allow us to get to the goal of $450 million of expense, positive free cash flow in the second half, and allow us to accelerate into the transformation of the company, which ultimately has to be the diversification of our product set, embracing the strength of PCs, which is still a good and important market, and at the same time, taking our innovative and strong IP base to win in the new markets that are going to accelerate in this cloud era.
I think it's been a challenging journey in 2012, but I look forward to 2013 with optimism and a sense of the future is ours. We need to embrace this change in challenge as a unique opportunity for us to position AMD for long-term growth and profitability. This is fundamental. At the end of the day, we take and made the adjustments to our spend and our operating processes. We have the products, we're delivering them, we look to accelerate and ultimately to transform. That's an update from my point of view, and I'd like to open it up now for questions.
Yeah, quickie.
Yes, sir.
You've only been here a couple of years.
Correct
before you came here with respect to the cloud. Are we not late getting on board, or is this just my imagination?
No. My background is I spent 23 years at IBM, then I spent six years at Lenovo. I had experiences in the consulting area of the global services organization, IBM, as well as the COO and president of Lenovo, which embraced the move from PC only to the extended cellphone, tablet, mobility space. I come to AMD, our primary business was centered over that PC segment. About 90-plus, 95% of our business was driven in those traditional PC segments. What we've done is we've taken that graphics prowess and leadership IP, combined with our compute capability, and targeted it into key segments that we know will grow in that cloud generation. The dense server era is just beginning.
You can think of it in the sense that data centers are going to become larger and consume more power. The ability to scale and reduce the footprint is fundamental. That's key. We're just at the beginning of that transformation. Ultimately, last comment before you want to add a comment, I believe that we're equally well-positioned to attack the embedded segment and the semi-custom segment, where we're going to see players like Sony, like medical devices in the industrial sector, where they need to have the graphical experience combined with a compute solution, where we will apply our hardware technology as well as our software technology around something called heterogeneous computing, which allows the effective compute power of both the CPU and GPU to be unlocked in these new workloads that are emerging.
Sure, it'd be nice to be in mobility earlier. We see the opportunity in front of us. This cloud generation is just beginning.
Are you going to apply some of the graphics?
We already are in graphics, We'll continue to build on that graphics space. It's one of our most important IP segments, We need to continue to leverage it. Because in that cloud era, remember, data and applications move from the physical device in your hand, They move to the cloud so that they can be accessed across a diverse set of compute devices. Graphics will be key in displaying the experience that the customer is looking for, whether it's medical, gaming, et cetera. Thank you, sir. Other questions. Sir.
I was pleased to hear that AMD is investing in semi-custom solutions. I think that that's a really good match for the skill set that AMD has with the design talent. My question is on the marketing side.
Sure.
It seems like AMD was late to move to products that diversified out of the PC space. As we go into these new markets, the semi-custom market, pursuing other high-growth areas, what kind of investments have we made into the marketing team to be able to support those so that we don't wind up in a similar situation again?
One of the key points you're making is not just the idea of branding or accelerating our messaging. What we want to do is build a strong base of profitability, We'll accelerate into the traditional marketing segment of building the brand and communicating the messages as we move through this turn. What you're really after is the analysis strategically on the market opportunities in the future. We've done two things in this area that's very important. Under Dr. Lisa Su's organization, which is the business units, we've created five distinct business units with the business orientation of understanding the market and customer. Traditionally, we've been an internally focused technology firm. What we are creating with the BU organization, As you know, Dr. Su came from the Freescale experience where she did the embedded work as well as IBM.
She is building a team that's really to scan the marketplace, understand the needs of the customer, and how to apply our IP. That, working with Raj Naik, who's our strategy leader, is putting in place the game plan to see not only 2015 and 2016, but more importantly, 2017, 2018, and 2019. We're just at the beginning of this acceleration through. We need to, as you're pointing out, to call that ball in terms of where that market's going. We don't want to be late to any future parties. I believe what you'll see as we evolve through this turn, because our focus has to be 100% on returning to profitability and free cash flow. That's job one. Second part is then to take that positioning and foundation to reinvest in the transformation.
To do that properly, it's 100% about the market analysis to understand where to place those bets. We believe that we're right on schedule around dense computing. We think the semi-custom is an era that's just beginning because I believe that you're going to see this move where many players are going to look for differentiated solutions. They don't want just an off-the-shelf commercial processor. They don't have the capability to create the silicon themselves. They're going to want to work with a company like AMD who will tailor and innovate together with them to create a unique solution that allows them to differentiate in the market, because when that customer wins, we'll win. That, I believe we're just at the beginning of that opportunity.
I believe that you'll see us make those investment around the marketing analysis, and it was an active topic in our board meeting the past few days.
Thanks.
Thank you.