Status Update

Apr 4, 2011

Slides

Good morning. My name is Julie, and I'll be your conference operator for today. At this time, I would like to welcome everyone to AMD's Conference Call. All lines have been placed on a listen only mode at this time. After the speakers' remarks, you will be invited to participate in the question and answer session. 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. Good morning, and welcome to AMD's conference call and webcast to discuss an amendment to our Wafer Supply Agreement or WSA conference call today with GlobalFoundry. Today's short conference call and webcast is hosted by Thomas Seifert, our Chief Financial Officer and Interim CEO. Thomas will be accompanied this morning by Devinder Kumar, Senior Vice President of Finance and Corporate Controller, for the question and commentary on the call. Any references on this call to annual or quarterly periods should be assumed to be our fiscal conference call. I'd like to remind you that this is a live call and will be replayed via webcast on amd.com. There will also press code for both is 1,000,000,000,000,000,000,000,000 conference call today. The webcast of this event is a slide and audio event, so you're encouraged to log on to the Investor Relations homepage on amd conference call.com to view the slide presentation Thomas will be referencing. The slide presentation will also be downloadable from the Investor Communications homepage. This webcast will be archived for 30 days starting later today. Before we begin today's call, call. I'd like to caution everyone that we will be making forward looking statements about management's expectations. Investors are cautioned call. Thank you, conference call. The semiconductor industry is generally volatile and market conditions are particularly difficult to forecast, especially in light of the economy. We encourage you to review our filings with the SEC, where we discuss the risk factors that call that could cause actual results to differ materially from our expectations. You'll find detailed discussions about such risk factors in conference call. In our most recent SEC filing, AMD Annual Report on Form 10 ks for the year ended December 25, 20 conference call. Now with that, I'd like to hand the call over to Thomas. Good morning, and thank you for attending our webcast today. Committee today to address the questions you likely have on the announcement. Today's presentation is intended to address most of those questions and we will call. Conference call. So let's get started. Let's move to page 2 where I will review our cautionary statement. At conference call. At this stage, I would like to remind everyone that AMD is currently in its quiet period and we expect to announce our 1st fiscal quarter twenty quarterly results on April 21. Therefore, we'll only be discussing today's announcement on this call. We will not be discussing other conference. This morning, I'm going to cover a number of items for you. First, I will review the terms of Kuwait, the supply agreement that was in place prior to today's announcement. 2nd, I will review the terms of the amendment to commitment that we're announcing today. And last but not least, I'll discuss our expectations regarding the financial impact of the amendment. Conference. When AMD embarked on its strategy of pursuing a fabless business model through the creation of GlobalFoundries, it was about conference call. 1st, it was about ensuring that AMD has access to world class leading edge semiconductor manufacturing. This key to our growth strategy and doesn't obligate us to invest the capacity on our own. Conference call. It was about leveraging AMD's 40 plus years of semiconductor expertise, opening doors to the entire industry strategic partners in ATIC, GlobalFoundries and TSMC. So with that, let me remind you of the WSA construct that was in place conference call. The purpose of the WSA is to define the terms by which AMD purchases products Under the original WSA, we have been paying global foundries for wafers on a cost plus basis, which included fixed costs on certain GlobalFoundry fabs in Traston regardless of whether the capacity was utilized by AMD. In addition, once GlobalFoundries developed GlobalFoundries. I want to make sure it is clearly understood today, as we've said in the past, we've moved into a new phase of 32 nanometer development with GlobalFoundries. Today, 32 nanometer yields are in line with our expectations, And I'm excited to tell you this morning that Lano is now shipping for revenue. Customers are very excited about Lano coming to market and we look forward to seeing our LANO based systems in the market this quarter, the second quarter. The pricing terms of the amended WSA announced today relate to 2011 only and our 20 continued throughout the full remaining term of the WSA. And as of the 1st January 2012, we go back conference. There were 4 primary motivations for us to reach agreement with Global Frauenfries and conference call. 1st, we needed to work with GlobalFoundries to develop a pricing strategy that focus on its yield curve progress for 32 nanometer and therefore have tied the 32 nanometer pricing to paying for good 32 nanometer dyes. 3rd, we've provided for better correlation between costs and our 32 nanometer ramp. And not conference call. We wanted to ensure better protection for AMD under lower than its anticipated yield scenario. The original WSA did not have adequate provisions to compensate or alleviate the cost burden on AMD in such unforeseen conference. So what is exactly amended? The key elements are, we changed the pricing methodology applicable to wafers regarding the production of GPUs and agreed to certain commitments for chipset products at GlobalFoundries for 2011 beyond. Conference. AMD has committed to purchase a fixed number of 45 nanometer and 32 nanometer wafers per quarter in 2011 from GlobalFoundries. 1st, we'll pay GlobalFoundries a fixed price for 45 nanometer wafers delivered in call. We will also make an additional quarterly payment to GlobalFoundries during 2012 if GlobalFoundries meet specified conditions related to conference call. The total additional payments will not be more than approximately $400,000,000 and are included Q1 2019 guidance for future purchase commitments to GlobalFoundries, which I will discuss in a few moments. Conference. So in light of this amendment, what happens to gross margins? Well, 2011 gross margin guidance remains conference call. We continue to expect the range will be between 44% and 48%. And our long term gross margin guidance is call expected to be greater than 50% as we revert back to our cost plus model. This guidance is conference call. Based on our expectations regarding improved profitability via our FAPIIS model, driven by our emphasis on IP global value proposition and our leadership Fusion APUs. And 3rd, continuing to capture opportunities with growing customer demand in an open competitive market. Last year, we paid GlobalFoundries approximately 1 point current and we return to our cost plus model for payment. We expect conference call. We We currently expect to pay GlobalFoundries the additional payment of no more than approximately $400,000,000 in 20.12 with the caveat that is dependent on a number of assumptions, including certain yields and expectations regarding demand for our products. Conference call. In 2012 and beyond, we expect our purchases from GlobalFoundries will continue to be material and bound by the terms of conference call. As a reminder, we now account for GLOBALFOUNDRIES using the balance sheet called investment in GlobalFoundries, which reflects the carrying amount of our GlobalFoundries investment. In addition, as conference call. We anticipate this will be approximately $492,000,000 You will recall this conference call. This is related to the dilution of our equity interest in GlobalFoundries as a result of the combination of Charter Semiconductor current and global boundaries. It is unrelated to the WSA amendment. This is a onetime non cash gain preferred share. 1st quarter non GAAP net income, operating income and gross margin will exclude this charge. Conference. So in summary, this WSA amendment benefits AMD because it provides us with a pricing model that is better aligned call. It incentivizes GlobalFoundries to continue improving 32 nanometer yields and aligns their effort with our expectation conference call to work towards our mutual success. And last but not least, it's important that AMD continues to improve Fabry's business model and remain competitive in both upside and downside scenario. Now with that, I would like to hand the call back to Ruth for questions and answers. Hughie, we're happy to poll the audience for questions, please. Conference call. Our first questioner in queue is Doug Friedman with Glacier and Company. Please go ahead. Great. Thanks for the opportunity. Comments. If I could focus in on the dollar value of the deal and how much you're expecting to spend. If we look Deliver to Global Foundries Moving Wafers from your ATI demand over to Global Foundries. Good question. And of course, the numbers are significant and the math behind it is somewhat complex. So the increase in their 2,000 plus numbers of calls is This is a number that should be, so to speak, self funded by this performance being above comp. The yield assumptions we originally had. And then you also, of course, have product mix changes in that number call. At this point in time, I'm not going to be more specific of what growth expectations conference call. I think it's important for you to understand that despite the Where the number comes out, we think our gross margin guidance is unaffected. All right. If I cut over from the dye based pricing on 32 back to wafer based pricing. Would we be correct to assume that the new guidance. And at what point do you get that back literally on a time base? Or is there some sort of a yield trigger that Would allow you to benefit from possibly better than expected yield? Yes, good question. So From today's perspective, maybe let me go back one step. So the original discussion on this amendment was last year when the 32 nanometer ramp looked a bit more challenging from today's perspective. It's And we started to ship. Even in this model, we will benefit from better than expected progress moving forward because it would award us a higher than originally assumed volume. From today's This perspective, we the reversion back to the old agreement is just time based. But today's agreement does not preclude us from taking advantage from a better than expected yield progress. Great. And if I could go a little off topic for my last question, would you be able to offer us some progress on the CEO search conference. Thank you. Our next questioner in queue is Rohit Shah with Nomura Securities. Please go ahead. Conference. Yes. Thank you. In the press release, you stated that AMD will pay about $1,100,000,000 to $1,500,000,000 this year. That's I guess that's up 1.2% last year. So, at the midpoint, we're talking about 8% growth. So, Thomas, just assuming no change in gross margin, is that that not a proxy for what you think sales growth will be this year? No, it's not. Because, of course, you have moving from 1 technology to the next, you have that we're not in high volume last year. So you cannot make an assumption on sales forecast based on this number. Okay, thanks. And then just as a follow-up, can you discuss call, how today's announcement impacts your relationship with TSMC. As I said before, we have 2 very committed partners I think what's negotiated or started was started to negotiate in a more difficult environment last year when the ramp looked more challenging, conference. The fact that we have been able to conclude that in such a good agreement shows you that the relationship is very strong with GlobalFoundry. But as we said, moving forward, we continue to have 2 partners. Conference. Thank you. Thank you. Our next questioner in queue is Joanne Feeney, Longbow Research. Please go ahead. Yes, thanks. Good morning, folks. I guess, Thomas, clearly there was still some risk left over regarding the yields over at Global countries and the fact that you decided to go through with renegotiating the agreement suggests to us that perhaps those risks were not so trivial. So could Could you perhaps elaborate on what scope there is for GLOBALFOUNDRIES to improve yields, how much room is there and What your motivations were really for securing this agreement even though you feel like yields are now up to your expectations? Very good. Company. As I said before, renegotiating such an agreement is complex. You don't do that in a day and overnight. It was started Last year, when it looked more challenging. So from today's perspective, it's really more a downside protection, as you said. Call. The progress on the yield is good. It's on target to our expectations and that we have been able commercialization and the company's commitment to start shipment for revenue on Lano, I think is a good indication for the progress we have made. And perhaps you could let Let us know what percentage of this year's output might be 32 nanometer or at least what how much You've locked in your total supply for the year, whether there's upside if you see demand perhaps better than expected or worse than expected. What flexibility So a part of that agreement is also the additional room decrease of flexibility We have, as we said, it's a model that allows us to buy good dye Okay. Thanks. That's for me. Thank you. Our next question Q is Vivek Arya with Bank of America. Please go ahead. Thank you. Good morning, Ramesh. A couple of questions. First is, if let's arrangement. Well, it wouldn't be good demand if it doesn't help the gross margins. So Okay. And just mathematically, what kind of PC unit growth is reflected new purchase commitments. I think at the Analyst Day, you had outlined about 10% to 15 kind of PC unit growth for 2011. So how should we look at what the new commitment means in tons of BC unit growth this year, just mathematically. So we have our earnings calls coming up in a couple of days and will be more granular. But I think as I said before, we think the call gives us next questioner in queue is David Wong with Wells Fargo. Please go ahead. Thank you very much. A couple of clarifications. The first thing is the €400,000,000 for 2012. Is that the payment above the negotiated price for wafers or is it just a commitment for extra volume of wafers in 2012. So first of all, it's part of the overall range we gave for 2012. Okay. And Given your current expectations for what yields on 32 nanometers will be in 2012, does the cost per day rise, conference. Thank you. Our next questioner in queue is Uche Oje with UBS. Please go ahead. Sure. Thank you very question. So Thomas, I understand why this is good for AMD, but what's the motivation for GlobalFoundries to take more of the risk on the yield front. And would AMD have to give up anything for this? You know call. Good question. So it's probably a good point in the call to thank our conference call. But I think it also helps them to evolve their foundry model. Models that work on a good diaper base are not untypical for this environment, especially in agreement. It incentivizes GlobalFoundry also to be successful. That's where the additional payment comes into play. Conference. So by the time we move to bulk at 2820, this agreement does not apply. We go back to the cost plus model. That's the help. That is the current plan, yes. Okay. All right. Conference. Thank you. Thank you. Our next questioner in queue is Kevin Cassidy with Stifel Nicolaus. Please go ahead. Conference. Thanks for taking my questions. The 45 nanometer, that's mostly GPUs and chipsets right now? Conference. For a GlobalFoundry that is CPU only. Conference. Okay. So the GPUs, where will they be? What process node are they coming in And today they are manufactured at TSMC on the 14 nanometer node. Okay. Okay. Will any of these be transferred to the 32 nanometer guidance? The products that are manufactured They will not be transferred. That will not make sense. Okay. And in 2012, what process node do you expect to be At GlobalFoundry? Right. So we will have our main volume in 32 nanometer and we will start the ramp Our 28 nanometer node. Okay. Thank you. Thank you. Our next questioner in queue is Krishna Shankh conference. Please go ahead. Yes. Can you characterize the yield ramp on 32 nanometer for GlobalFoundries, where call. No, we are now really we are in manufacturing mode and yield And yield improvements, ramping up the yield curve is really manufacturing topics, not technology CapEx. We have been making very good progress and yield is on expectations and it allowed us to start shipment for call. Okay. And the second question on GPU and chipsets, are you implying with this modified agreement There will be significant volumes of GPU and chipsets on 32 nanometer at GlobalFoundries next year? No, next year would be too early. Okay. So this is kind of a pathway for you to potentially do GPUs on 32 nanometer beyond 2012. Yes. Okay. Thank you. Conference. Thank you. Our next question in queue is Craig Verger with FBR. Please go ahead. Hey, guys. Thanks for taking my question. Can you just help us understand where CPU market share is today? And then based on your line of design wins, where CPU share might be exiting the conference. Yes, very good question. We think market share is around 18% to 19 This is a question for our earnings call. Okay. But you'll answer that on the earnings call? I'll provide more color for it. And And what's the motivation for going to a good die pricing for 3 quarters only as opposed to extending that scenario into 2012. Very good question. So as I said, we started to negotiate the agreement conference. And it's not for the 3 quarters that are left. It's really for the whole year, including the quarter that we already have closed. We think that was the The appropriate decision to make and for the time being, I think that's the right call. Next question. Conference. Congratulations on getting the 32 nanometer yields up. The question is Intel call is about to start ramping 22 nanometer in the next couple of quarters or so. I know that AMD has Historically talked about narrowing the gap, the process technology node gap versus Intel, and it still seems to be around 6 to 7 conference call. So do you guys still expect to be able to narrow that gap over time? Or is this cadence kind of comments. Well, we said we would feel more comfortable with the gap of around 6 quarters. Group. And we think with the next technology nodes on 28 and 20 nanometer, we have a conference to get back into the distance we prefer. It's not only about when you start, it's also a matter of how fast you can call. I think we left now the 32 nanometer issues behind us and look forward to improve our mutual performance CEO search, COO search, etcetera. So it's only a CEO search and not on this call. Conference. All right. Thank you, guys. Thank you. Our next questioner in queue is Vijay Rakesh with Starn AG. Please go ahead. Hi. Call. Just a question here. What's the split between 40 and 32 and 11, if you're looking at 2011, 2012 on this agreement? I'm I'm not going to become that granular disclosing competitive information, but I think the 32 nanometer, 45 are Mature and stable, of course, and 32 nanometer today is where we wanted to be. Got it. And The question is, obviously, LANO is ramping nicely, which is very positive. Any indication on how your several trials look to be I didn't hear the second part of your question. I mean, the landline seems to be doing well. Just wondering how the next questioner in queue is Chris Caso with Cannaheus Financial. Please go ahead. Hi, thank you. Just Point of clarification, as a result of this agreement, is your assumption that AMD's I guess the share of AMD's foundry business to global foundries would increase as a result of this agreement as we go forward 20112012. The business share is also a matter not only of yield and yield performance, but also a matter of market conference of our success of our products in the marketplace. Right. But I guess as we if they hit The yield milestones, I guess larger I guess it's is it a valid conclusion that a larger committee. But as I said, it's not only does it need successfully manufactured products, it also needs the sell through on the road map for 28 nanometers, when we'd expect to have that in production? We said that we would ramp 20 Okay, great. Thank you. Thank you. Our next questioner in queue is Mike with Pacific Crest Securities. Please go ahead. Just for again clarification, so the announcement today was the result of negotiations last year just because Q1 of 2019. Today was the result of negotiations last year just because if you think about going to a per good die purchase agreement. If your yields have improved markedly at the 3 2 nanometer, you're happy with Lano and the cost structure is better on wafer cost basis. Is that the disconnect period for the wafer cost next year, Good Day this year, but current you agreed to the per good day last year. Is that the disconnect here? Because it would seem like if yields are better on Anno, you might as well just stay on a wafer cost versus agreement this year. Yes, very good question. So from today's perspective, it's more as I said a But in every yield ramp, you have a crossover. And in such a Your expectations and you're on a per good day basis. Could you is there any risk here of shortages? Conference. No. This agreement doesn't preclude us from upside. Okay. Thanks. Conference. We will take 2 more questions, please. Sure. Thanks. Our next question in queue is Sean Wessner with Macquarie. Please go ahead. Call. Great, thank you. Yes, just a couple of quick ones. For the 2011, the new range of $1,100,000,000 to $1,500,000,000 what would kind of been under the old arrangement. Well, in a part, you can do the math yourself because at High point. It would include a, of course, a fully executed incentive payment. So in the old program, Would have been more towards the high end of that range. Yes. Okay. And then on the $24,000,000 charge for COGS this Kumar, by the way, those are related accounting for some assets and equity ownership unrelated to $400,000,000 CapEx or incentive payment or whatever that is for 2012. We get pending year over year flattish spending. Does that imply that you intend to get source more of your wafers from other areas or should I not read guide into the numbers. No, you could not because as I said, the math is more complex. You have, of course, productivity improvements and scale effects global foundry that also play a part on how their overall costs for the company develop. Okay. Thank you very Scott. Thank you. And we have time for one final questioner. Our final question comes from Alex Cowen with JMP Securities. Please go ahead. Conference. Thanks for getting in here at the end. I know you addressed this question, but and in that you started this negotiation back when 32 nanometer was a little more questionable. But I'm wondering since it did come up the yield curve, why wouldn't you just continue as is scrap the deal because doesn't this come conference call. Again at 2820 because as we all know shrinks are getting harder Moore's Law is getting more difficult. So won't we be revisiting I'm not going to preclude that. We felt looking at the time horizons and the complexity of discussions that was the right thing to do. And CUP Technologies and ramp new products moving forward together. So we hope we learn from some call. Okay. And then looking forward, at least Within current expectations, at 32 nanometer and 28, what percentage of GlobalFoundries capacity do you No, I cannot give you a forecast on that because that would imply that I'm privileged Q3rd party business forecasted GlobalFoundry and I don't have any insight into that. Thanks call. Thank you. That concludes our time for questions and answer. And this also concludes today's program. Thank you for for your participation and have a wonderful day. Attendees, you may now disconnect.