Earnings Call: Q3 2010

Oct 14, 2010

Good afternoon. My name is Latif, and I will be your conference operator for today. At this time, I would like to welcome everyone to AMD's Third Quarter 20 10 Earnings Conference Call. All lines have been placed a listen only mode at this time. After the speakers' remarks, you will be invited to participate in a 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. Thank you, and welcome to AMD's 3rd quarter earnings conference call. Before we start, I would like to highlight a few dates for you. Firstly, AMD will host its Financial Analyst Day on November 9th in its company's Sunnyvale offices in California. Also, Thomas Seifert, our CFO, will present at the Credit Suisse Technology Conference on the 1st December in Arizona. And lastly, Our Q4 earnings quiet time will begin at the close of business on Friday, 10th December. Our Class Approximately 77% at the end of the 3rd quarter as a result of additional capital calls that ATIC participated in and AMD did not. As a result, AMD's ownership on a fully diluted basis also decreased to approximately 26%. Reconciliation for all non GAAP financial measures is included in our financial tables that accompany our earnings release, which is also available in the Investor Relations section of amd.com. Before we begin today's call, I'd like to caution everyone that we will be making forward looking statements about management's expectations. Investors are cautioned that Those statements are based on current beliefs, assumptions and expectations, speak only as of the current date and involve risks and uncertainties that could cause actual results to differ The semiconductor industry is generally volatile and market conditions are particularly difficult to forecast, especially in light of the current state of the economy. We encourage you to review our filings with the SEC, where we discuss the risk factors that could cause actual results You'll find detailed discussions about such risk factors in our most recent SEC filings, AMD's quarterly report on Form 10 Q for the quarter ended June 26, 2010. Now with that, I'd like to turn the call over to Dirk. Thanks, Ruth, and good afternoon to all of you on the call this afternoon. AMD's 3rd quarter performance was a good demonstration of our capacity to execute profitably in the context of our fabless business model. Despite an environment of weaker than expected consumer demand, We improved operating income and non GAAP adjusted free cash flow sequentially by continuing to focus on growth in the largest margin pools in our industry. In our client business, we set an all time record for notebook MPU shipments in the quarter. We saw sequential revenue gains in both our Desktop and notebook processor product lines and an improved mix in our notebook offerings. Our vision campaign continues to pay dividends across our client As you may remember, Vision is designed to both differentiate AMD based platforms and platforms accounted for roughly half of Vision branded sales. In our server business, we were pleased to add IBM to the list of customers offering AMD Optron 6 1,000 based systems in the 3rd quarter. AMD OEM server partners led by HP and Dell Now offer more than 46,000 series platforms and over 24,000 series platforms as of the end of this past quarter. In graphics, we are about to complete our 1st full year of top to bottom DX11 enabled products. We're very pleased that Apple refreshed their Mac and Mac Pro desktop computers with our new Radeon GPU line, Customer and partner enthusiasm continues to grow for the industry's 1st accelerated processing units or what we call AMD Fusion family of APUs. Our first APU platforms code named Brazos and based on our Zicate and Ontario Processors Are expected to bring many of the vivid digital computing experiences once reserved for high end PCs to value in mainstream notebooks and desktops Early next year. Brazos is ahead of schedule with customer shipments on track for the Q4 and customer systems available early next year. The AMD Fusion family is a game changer that will significantly expand our addressable market and is already Changing the way the industry harnesses the power of the GPU. Production shipments of Lano, our 32 nanometer APUs Our plan to occur in the first half of next year as well. Meanwhile, industry anticipation of our new Bulldozer core is high and growing. We remain on track to ship Bulldozer based server and desktop processors next year. So to summarize, AMD's 3rd quarter demonstrated a number of important and positive aspects of our plans for future success. Our new business model is solid as we showed improving margins and free cash flow in a softer than anticipated consumer PC environment. Our Our vision program is working as we emphasize graphics and end user experience to differentiate our offerings and sell up the stack. And our AMD Fusion strategy is changing the industry as the revolutionary potential of vivid GPU accelerated applications is becoming a reality And the performance value and power efficiency of AMD Fusion platforms starting with Brazos will be compelling. We remain focused on growth inside the largest margin pools in our industry, and our combination of intellectual property, Customer relationships and design and marketing expertise gives us increasing confidence in our capacity to thrive while developing that opportunity in the years ahead. With that, I'll turn it over to Thomas. Thank you, Dirk. 3rd quarter revenue was $1,620,000,000 Down 2% compared to the Q2 of 2010 and up 16% compared to the same period a year ago. We reported non GAAP net income of $108,000,000 in the Q3 of 2010. To calculate the non GAAP net income, we excluded our share financial results and other equity accounting adjustments related to GlobalFoundries, a non On cash loss of $186,000,000 As usual, we also excluded the $16,000,000 amortization of acquired tangible assets and a $24,000,000 charge related to our repurchase of $800,000,000 of our 6% notes in August. Our non GAAP diluted EPS of $0.15 in the 3rd quarter is calculated using 731,000,000 shares. 3rd quarter non GAAP operating income was $144,000,000 excluding the amortization charge I mentioned already. Gross margin for the quarter was 46%, up 1 percentage point compared to last quarter. Expenses in the quarter were $595,000,000 R and D was $359,000,000 and SG was $236,000,000 which includes the marketing expense accrual impact of approximately 30,000,000 Spending came in lower than our OpEx guidance of $630,000,000 as we was $245,000,000 up $1,000,000 from the previous quarter. Non GAAP adjusted free cash flow $91,000,000 resulting in $344,000,000 of non GAAP adjusted free cash flow year to date. Now switching to the business segments. In the Computing Solutions segment, 3rd quarter revenue was $1,230,000,000 We recorded our 2nd straight record quarter of mobile processor unit shipments. Notebook processor ASB was up sequentially as AMD based multicore notebook platforms continue to penetrate higher priced market segments. We saw a single digit sequential gain in desktop processor revenue, primarily driven by channel sales in China, the Americas and Europe. Optoron 60004000 series processors continue to gain traction, representing nearly half of server processor revenue in the quarter. Overall, microprocessor ASP declined slightly compared to last quarter but increased year over year. Computing Solutions segment operating income was $164,000,000 compared with $128,000,000 in the In the Graphics segment, revenue for the quarter was 3 $20,000,000 down 11% sequentially. The sequential decrease was driven primarily by lower mobile GPU shipments in the quarter, GPU ASP decreased sequentially due to greater mix of value segment products, but increased year over year. We reserved next generation GPUs in the quarter while in development, which we expect to sell in the 4th quarter. Operating Income was $1,000,000 compared with $33,000,000 in the second quarter. Now turning to the balance sheet. Cash, cash equivalents and marketable securities balance at the end of the quarter was $1,730,000,000 The Decrease from the Q2 was primarily due to the repurchase of $800,000,000 of our 6% convertible senior notes, Offset by non GAAP adjusted free cash flow and proceeds from our issuance of $500,000,000 of 7.75 percent senior notes, which are due in 2020. Long Debt as of the end of the third quarter was down to $2,200,000,000 This quarter, There's a new line item on the balance sheet related to our investment balance in GlobalFoundries called accumulated loss in excess of investment in GlobalFoundries. As of the Q3, this balance turned negative and is therefore reflected on the liability side of the balance sheet. Based on the current structure of our wafer supply agreement and our ownership and governance relationship, The following statements concerning AMD are forward looking and actual results could differ materially from current expectations. For the Q4 of 2010, we expect revenue to be approximately flat as compared to the 3rd quarter. Operating expenses are expected to be approximately $610,000,000 which includes the remaining impact of program expenses accrual we introduced in the Q2. Recall that we now accrue marketing expenses earlier and close in line with Revenue development. The transition to the new marketing program is expected to be completed in the Q4. Interest Expense is expected to be lower moving forward due to the re profiling of our debt maturities, which reduced our approximate quarterly interest Expense to $48,000,000 This results in a quarterly savings of about $8,000,000 We expect tax provision in the Q4 to be 0. In conclusion, we continue to drive profitability At our Financial Analyst Day on November 9. At this point, I would like to turn it back to Ruth for Q and A. Operator, we'd be happy to take some questions please from participants. If you could pull the Our first question comes from Usha Ojji. Thank you Well, first of all, congratulations on keeping the expenses aside as you did and the numbers you put out. Let me just I'm just trying to understand if the U. S. Was weak and Western Europe was weak when you preannounced, what kind of drove the strength in notebooks? And also if you can talk about how much of the mix is multi core, quad core notebooks and what sort of applications are compelling people to buy this kind of quad core notebooks? Well, sure. First of all, as we said in our pre announcement, we saw as compared to our beginning of quarter plans Relative weakness in North America and Western Europe consumer markets for notebooks. That's not to say that the markets were Experiencing negative growth on a PC consumption basis simply PC consumption was weaker than the plans that we had That said, emerging markets still represented a pretty good source of growth in particular. China was still strongly growing market in Q3, although the growth rate there was again lower than what we saw in the first half. Your second question was pertaining to the mix of the ambient notebook platform and The fraction of our shipments that were triple and quad core and we don't go into specifics on that other than to say, As I said in my opening remarks, we did see a relatively richer mix of triple and quad core Phenom Vision branded notebooks, which contributed to an increase in ASP. And our message there and motivation to get consumers to is really around the multimedia experience for these machines, particularly around video processing, the codecs And just let me ask you about service, Magnecode last quarter you mentioned That's the uptick was a little disappointing. I just want to understand what progress you've made there. And then also switching to graphics, You can talk about how you see yourself with Fusion against Sandy Bridge and the key concern we have with the graphics business is that the value added It's evolving through the introduction of those products. Thank you. Sure. I'll take the second one first and that was around graphics. From my perspective To the extent that the industry conversation is increasingly a conversation around graphics, I think that's just awesome news for AMD, since we've got the world's best graphics. And clearly, graphics capability is increasingly important To consumers given what they do with these machines. The chatter in the industry is of course that That to be true, we also expect that that capability is not going to be at the leading edge of capability that Consumers demand, example, the modern graphic standard these days is the Windows 7 DX11 standard, It's our understanding that the Sandy Bridge doesn't support. So the information that we get from our OEMs suggest that the OEMs are Interested in having a discrete graphics step up for their SKUs, so that they can in the market sell a richer mix So does that answer your second question? It does. I mean, what about our tax rates for graphics in If you bring in these capabilities for like Fusion as well as the Sandy Bridge, does that do you think that we see attach rates fall? We're not really planning that in the near term, meaning in the next couple of quarters. I think as you look out over time And speculate as to how we and Intel use increasing effective silicon area from Technology node to technology node, you might assume that more and more of that die area gets devoted to graphics, Which could over time eat into the low end of the discrete GPU market, but I think that's more of an out in time sort of phenomenon, certainly not in next year situation. Okay. And the question on servers? Yes, your next question on servers, I'll first remind you of the picture. So the MagnaCore Technology was launched in effect by us in March. The Optron 6000 platforms from our OEMs really only came online at the end of Q2 And of course the Optron 4000 platforms started showing up from our OEM partners really in the end of Q3. So in a lot of ways, we're a quarter in Seeing OEM platforms in the market. As Thomas said, we did see a pretty good ramp of 6,000 platforms within our product line and that platform represents about half of our unit shipments in the current quarter. So, I think Aptron 6000 is ramping pretty well. The next opportunity of course is around for us to ramp the Aptron 4000 platform, which is really Just becoming available and represented hardly any of our shipments in the current quarter. So now that we walk into Q4 with what I'll call the full arsenal, I think we'll be in a position to benefit from some share growth. That said, I would characterize the ramp So far as good, but not as good as we think we can do given the great value proposition of these platforms. So with that, if we look into the quarter Guidance of flat revenues, with that kind of mix, what kind of impact to margin should we be anticipating for next quarter? Well, I don't think we want to forecast margin specifically, but we are forecasting flat and I think we got an opportunity to do better than flat in servers. Thank you. Thank you. Our next question comes from John Pitzer of Credit Suisse. Yes. Good afternoon, Congratulations. Dirk, maybe as a follow on to that last comment you just made, I'm just kind of curious relative to that flat revenue guidance, how you see graphics trending after Kind of the pause in the September quarter and then mobile desktop and I guess you're flat. Is that assuming that you trend in line with market conditions or The Q4 is still a share gain quarter for you? Yes. We don't typically well, we don't forecast share gains, but I can give you some color on the thinking 1st, I think it's very clear that PC OEMs worldwide Really and the entire supply chain leaving Q2 was really thinking and planning for continued, Into Q3, I think we saw a reaction across the supply chain aimed at bringing down or preventing an inventory Bill, we don't think that process is complete as of the end of Q3 and in fact will continue going into Q4. And That's why we're guiding flat on a sales in basis, though we still do see positive sequential growth for PC consumption. Now it's kind of hard to pick it apart of a component by component GPU and CPU, and I think we'll refrain from doing that. Well, Dirk, just a little bit of color. The sequential decline in graphics, is that just the case that you were able to gain share in TPU and your graphic share is pretty static and so you followed the graphics market in the September quarter? Yes, let me I think your question is probably okay. What happened with Discrete notebook graphics, why are we saying we were down? That's the spirit of your question. Yes. Yes. And it's a Good question. And I think there's probably 3 factors and it's really hard to assign a number to the 3. But first of all, I think with the benefit In hindsight, we probably saw in Q2 some customers double ordering from us. It was chatter in the industry that our Supplier for GPUs was short. Our supplies were short and therefore we probably saw OEMs try I'm sure that enough inventory to cover whatever demand scenario unfolded. And therefore, as demand weakened a little bit, OEMs want to start to drain their notebook GPU inventory. So that's factor number 1. Factor number 2, I think there's probably no capable notebook platforms just to protect their position and ability to ship. So, it's possible we suffered a little bit of share loss in the quarter. And finally, We saw at least anecdotal evidence of OEMs defeaturing the discrete graphics option In response to the dramatic weakening of the euro that occurred 90 days ago, so the OEMs have Price points committed in the market and therefore want to reduce their costs to protect their margins. So I think we saw a little bit of that in Europe for sure. Hard to assign percentages to each of those, but those are the three factors, I would say. That's helpful. If I could sneak one last one in, just kind of curious around Ontario, Help us understand kind of the ASP and gross margin and is there any update on kind of Lano from a manufacturing standpoint? Yes. Second one first, the plan is still to ship Llano in the first half of next year as we cited 90 days ago on this call. And I think I'll refrain from giving you a lot of specifics on Brazos because we're a mere 3 weeks away from our Financial Analyst Day, where we'll give Great. Thanks guys. Okay. Thank you. Our next question comes from Glenn Young from Citi. Thanks. Dirk, I now may be barking up the wrong tree given your last comment, but I'll ask it anyways. When you look At the netbook opportunity, and I think Brazos is initially going to be oriented there. How do you see that opportunity shaping up for AMD? And maybe as you respond to that, any perspective you may have on the impact of tablets on the growth or potential in that market next year? Yes. So, first, the technology that we put under the broad umbrella of the Brazos platform has 2 CPU SKUs, one code named Ontario that's targeted netbooks, the other is a CATE that's targeted at more full featured Mainstream notebooks, although low cost mainstream notebooks 14 inches to 15 inches display. It turns out a lot of our browsers design wins are really in the low end of the So there what we see is really a substitution and new technology, inform factors and price points where we Today though probably with components that are better suited to those price points that is lower cost. Netbooks represent the other big chunk of the design wins we see. Clearly, that's a category that we barely participated in. So that's all, I'll say, the SAM expansion For us, last question was what's the tablet factor? And I think clearly the last quarter and 2, the tablet has represented A disruption in the notebook market, if you ask 5 people in the industry, you'll get 5 different answers as to what degree there's been cannibalization By tablets of either netbooks or notebooks, I personally think the answer is both given the pretty high price points of the iPad, there's probably some We still believe in the long term that tablet form factor is accretive The market opportunity for companies like AMD. So hopefully that answers your question. No, that's helpful. I mean, can I just ask Follow-up on net book opportunity? Do you think that you can sort of get the same amount of share in net books that you enjoy in notebooks overall? Do you The Ontario offering is that good, the reviews seem quite good. Well, as a reference point, our notebook It's pretty low at 13%, 14%, which I don't find very inspiring and I would certainly hope we can do even better than that, not only in notebooks over time, but also in netbooks. So the answer is yes with all capital. Good to know. One last question here is got to do with We've now had the first half or Q1 of 2011 notebook designs completed. And I wondered if you had any sense within I think you may have said this earlier, but just double checking. Any sense within that as to whether or not attach rates for notebooks look to have impacted at all by some of these hybrid type microprocessors going in? I think it's too early Call because what matters of course is sell out. Right. And we're not going to know that until we're there. As I said in response to a prior question, we continue to see OEMs expressing Interest in having a SKU lineup that includes a step up to discrete graphics. Okay. And that remains true next year. Okay. That's helpful. All right. Thanks a lot. Yes. Thank you. Our next question comes from Jim Covello of Goldman Sachs. Great, guys. If I could just follow-up on the tablet or the iPad question. I guess one concern or thought is The areas of weakness this quarter were the only areas where the tablet was shipping in terms of consumer in the established markets. Now that the tablet Chipping into some of the emerging markets, it could have a more significant impact. I guess the question is how much have you worked that into your guidance for the out quarter? Ross, certainly we certainly factored in every environmental factor we know of including that one. So that would be the short answer. I would say again going beyond that, there's no question that the tablet phenomenon has been a source of volatility Relative to any of our customers' ability to predict the market, but as you'll see or hear from us when we have the Financial Analyst Day, Still, tablet aside looking at a prospect based on everything we can tell of pretty healthy notebook growth next year and we'll give you more detail in a couple of weeks. Okay. And if I could just follow-up on that, there's a slight difference now it's not huge, but a slight difference in the sequential guidance for yourselves and your competitor. Do you think maybe you guidance for yourselves and your competitor. Do you think maybe you guys are taking a little more of a cautious or conservative approach relative to the Tablet cannibalization or do you think it has something to do with graphics or there are other factors or maybe just small enough that it just kind of falls into the noise factor? From everything know that 3% difference roughly is noise and within the air bars of any prediction. Okay. So nothing specific that you would be kind of making Call on is different from what your competitors are saying. Okay, great. Thanks very much. Thank Our next question comes from Doug Friedman of Bleacher. Great. Thanks for taking my question and congratulations on holding on to the strong margins. Dirk, if you could focus a little bit on the GPU product line, I believe you guys are due to refresh that product line. Can you give us any idea of Timing when we're going to see that and what impact you might expect to see out of that? Sure. As I said in my opening remarks, Doug, we'll We'll be introducing our 2nd generation of DX11 technology into the market with some launch activities actually next week. We'll be shipping All the family members of that product line, I'll call it, By the end of this quarter and total volume, think in the terms of several 100,000 or 100 of 1000 of units. Do you think that there was any sort of a pause in front of your products refreshing given the fact that many of them have been in the market for quite a while? No, I don't really think that was the factor. As we said, the one area of sequential weakness we saw Was in notebooks and we attribute that to the three factors I outlined earlier, not a market stall waiting for new technology. Okay. And moving on, if We look at the APUs and their introduction to the market. You've already commented a bunch on the impact on GPU attached. How about your ability To garner dollar share in the systems, what are you expecting the APUs to do as far as ASPs? And if you could give us some idea if they're having any incremental benefit around the margins that you achieve as well? Yes. I mean, and we'll talk about this in greater length, Doug, in Financial Analyst Day. But in a We expect the APUs to provide an opportunity for us to get more platform design wins And get a greater percentage of sell out based on the differentiated value proposition, which comes really in 2 Number 1, superior graphics performance at better price points and better power points than is available from the competition and as And as well as a little bit initially increasingly over time, the ability of the APU For not only better share, but a richer mix and more sell up based on our APU technology. Terrific. And my last question really, you've already touched on a bit the tablet market. Can you give us an When your products will be able to go after this market and what are the processing demands whether it be a power envelope If the tablet market is seeking and how long will it be before you have a product for that market? Yes, good question. And again, I expect we're going to see tablets of various form factors and thicknesses over time. From everything we understand today, which is still pretty new market, a tablet would optimally have a maximum power a patient of 2 to 3 watts, which is a little more than half of what I'll call it a fanless netbook Would tolerate, though I expect that customers will take components that were really designed with the net book in mind and put them in tablets. And I think you'll even you'll see AMD based solutions in tablets in the next couple of years for that reason. Our overall strategy with respect to tablets is to first observe that that's a form factor that we think is going to grow over time and be important over As I said and be accretive and one which will devote specific R and D energy towards when the market is big enough to justify that investment. Frankly, we're still so small in the notebook market that given all the opportunities in front of us, it doesn't make And then you can anticipate we'll show up with a differentiated offering with great graphics and video technology and so on. And we'll talk in a little bit more detail at Financial Analyst Day on Great. Thanks so much. Thank you. Our next question comes from Tim Luke, Barclays Capital. Thanks so much. I hope you can hear me. I see that Uche set the tone with the question. So I'll try and keep my questions to single digits tonight. I just was curious, it sounds like you're Guiding for your server to be up somewhat. With the other segment, are they largely anticipated to be flat? Or are we factoring in that the one of the sort of notebook desktop or graphics is likely to be somewhat lower? And then maybe for Thomas, could you give us some sense of what you think the key variables going forward maybe Yes, Tim, it's a good question. I respect it, but I think You're assigning a little bit too much weight to my concluding comment. Overall, our guidance is flat quarter on quarter. Look at our server business and I think there's reasons to believe we can do better than that, but we're not giving guidance on a per product line basis, notebook, Desktop, server, GPU. So therefore, I really don't want you to put too much weight on color commentary that I'm trying to give beneath the overall headline, which is Flat guidance quarter on quarter for AMD, the company. Okay. Yes. So let me comment on the gross Margin for the quarter. So there are gives and takes this quarter. We will face a little bit of headwind coming out of the exchange Great volatility in the last couple of weeks. So, the euro has strengthened significantly, so we have to deal with that. And we also will see some Headwinds from the product mix in the Q4, which is generally more consumer driven. On the other side, we have been rather successful the last two quarters, Putting significant effort on increasing productivity and getting manufacturing costs down, and we'll continue in that direction also this quarter. And then we'll see some positive effects from the first APU shipments that will help our gross margin expansion. So those The gives and takes for the quarter, and we are quite optimistic that we are in good shape. Lastly, if I may, you said that the Lano product is still on track for the first half of next year. Could you give us any color on what you think is going to be sort of key in terms of getting that product to market in that timeframe and what you think some of the key variables may be? Thank you. Yes, we'll go into more detail in a couple of weeks, Tim, but the signpost, I'll say, are volume samples of customers In Q1, followed by a steep production ramp in shipments in the first half. Thank you very much. Thank you. Our next question comes from Sean Webster of Macquarie. Great. Thank you. I was wondering if you could give us an update on the utilization And how those may what those did in Q3 and how you expect them to change or evolve moving forward the next couple of quarters? Yes. So and since our volume pretty much was flat Q2 to Q3, utilization rates We have not changed in a meaningful way in the Q3. And keeping our guidance in mind for the Q4, we Still that as we go into Q2 next year, the benefit you'll get from taking the underutilization charges out will be 50 to 100 basis The mechanics are not going to change because of the demand questions. I'm not I don't want to really comment now on But for the Q4, you should not expect any big swings. Okay. And then Within the segments, did server revenue increase sequentially? And can you give us an update on the chipset part of your business? What how the business Sure. Server revenues were roughly flat sequentially and chipset revenues were down. Okay. And then, how do you find the you said that you had slight declines in average pricing, How is the pricing environment now for the last 3 to 4 weeks? Some of us have heard that pricing has been more competitive than usual. Would you describe it as The same as always or more or less competitive? Yes, I wouldn't say that there's anything exceptional in the environment. Okay. Then maybe the last one for me is when things look really lean out there as we went through Q1, Q2, but then it looked like there was excess inventory building. Where do you see the excess inventory now? Is it in the channel? Is it at OEM customers, distributors? Where do you guys see the excess? In our case, can't speak for the whole market, but the component distribution channel seems relatively Where we saw, I'll say a reaction was more across the notebook Supply chain from ODMs all the way through OEMs into our OEM channels. So across Our next question comes from Ross Seymore of Deutsche Bank. Hey, Dirk, kind of following on that last question, you mentioned that you expected the inventory adjustment to continue in the Q4. Do you think it will be finished in the Q4? We do. So, we expect to see sequential growth of PC consumption in Q4. And We're forecasting roughly flat with the anticipation that we're kind of normalized certainly by the end of the quarter. And A little bit more for Thomas. What do you expect your internal inventory to do sequentially? Well, we had a slight buildup, modest buildup In Q3, we tried to keep it flat in the Q4. Great. And then on the GPU side, when you talked about, I guess, on the CPU side that your notebook units were not as good as you hoped, but still positive in the quarter. In the quarter, did somebody some of the bundling that you had expected to do kind of break down as part of the GPU weakness? No, I don't think so. Again, we saw unit growth sequentially in MPUs And I would just attribute the notebook GPU situation to the three factors I outlined earlier as opposed to say there was some sort of bundling breakdown. And I guess the last one for me. One of those three features that you mentioned or one of the three factors you mentioned was the defeaturing specifically in Europe. What's Thoughts on that either ending or continuing as we go into the Q4? Well, the euro has strengthened again here. And again, what I referenced are anecdotal examples, and therefore, it was hard for me to characterize how strong a factor that was. I wouldn't Highlighted as a factor for Q4. Great. Thank you. Thank you. Our next question comes from Chris Danely of JPMorgan. Hey, thanks. Hey, Derek. So you said that pricing is, I guess, more or less normal. With things slowing down a little bit this quarter and then heading into the seasonally weaker time of year in the first half of next year, should We are or would you expect pricing to get a little more squishy or do you think it would hold up? Well, We're of course the small player in the market. So, I can only tell you what our strategy is and that is Protect and grow our margins and not have a bloody fight for share. So, our strategy is certainly to Good value from the product, have a good footprint in the marketplace, but protect our margins. Sure. No, that's fine. And then Question is your competitors throughout a mid teens PC growth for next year. Is that something you feel comfortable Do you think that that's reasonable? I think we'll give you a finer point on it in Financial Analyst Day, but certainly a Double digit growth seems reasonable for next year. Great. And then last question, which is a little more, I guess, futuristic. So if we're sitting here a Couple of years from now, how much of your business would ideally be made up of APUs? At what point in time, I'm sorry? Let's just say a couple of years out when things after it's been out for a while. Oh, boy, that's really not even a next year question, but a beyond next year question, which I really want to punt to the Financial Analyst Day in 3 weeks. I'll take next Instead if you got that. We'll wait for 3 weeks. All right. Thanks a lot. Thank you. Our Next question comes from Ambrish Srivastava of Banker Montreal. Hi, thank you. Just a question on the reported quarter. And Dirk, if you did mention it, I apologize, I probably didn't get it. On the server side, did you give color On the units and ASPs and then I had a quick follow-up. We didn't, but I can tell you that sequentially, We were roughly flat in all dimensions revenue units and ASPs. Okay. And then switching to graphics, the Profitability is pretty volatile, but over the last three quarters, it's been sequentially down very consistently. So Now we are at roughly no operating income. Does that turn around or what is the outlook Over the next couple of quarters for that. Good question. So Dirk already mentioned it, profitability is the big focus, And we put that focus also on our traffic business. However, the Q3 was a bit special. We saw a significant And sequential decline in revenue and with that a loss in gross margin that we could not compensate for. And then we also mentioned that We had a inventory adjustment in terms of building up a reserve for the new products that had not been qualified yet, but We'll be shipping this quarter, so we are just a week or so away from launching our 2nd generation of DX11 products. Those two effects, I think you have to keep in mind when you look at the profitability of the aircraft segment. However, moving forward, we'll put enough focus into So what my interpretation is that We're not looking at a near term or protracted price war? No. Now that both of you are kind of competitive products out there? Yes. Thank you. Thank you. Thank you. Our next question comes from Patrick Wang of Wedbush Great. Thanks and congrats on the nice quarter. So my first question is just on the 32 nanometer fusion parts that are coming out here. You talked about some challenges when you updated your product launch schedule last quarter. Just curious how pleased you've been with the yields? How does it ramped just Well, the high order answer is that we can't say We're pleased in the sense that we announced last quarter that the yields were not at the level of maturity that we had planned. And for that Reason as well as a few others we mentioned, we moved the ramp back into next year. If your question is what Progress we're making, I'll say that over the last 90 days, the GlobalFoundries team has made progress, are building momentum And we need to see that progress continue into next year and we expect them to do so. Okay. So no real change off of your most recent update? Correct. Okay, got you. And then when we think about your upcoming bulldozer core, are there any particular milestones that you start thinking about? You're probably asking milestones that will be externally visible or that we'll talk about? Yes. Yes. We'll start Generating limited samples to customers before the end of this year, volume samples in the first half of next year in support of production next year. I see. Got you. And then it seems like your microprocessor mix could have improved a little bit last quarter, but yet your ASPs declined. Can you help characterize where you saw some lower pricing? Well, the decline, first of all, wasn't very big. As I said, the server ASPs were roughly flat. Notebook as a result of richer mix of triple and quad core came down largely through mix shifts and puts and takes across those three factors resulting in a modest decrease Sequentially and overall in BUASPs. Okay, got you. And then last question just on graphics here. I'm just kind of curious how much of an impact did you see last quarter from I guess the high volume desktop part from your competitor. And then I guess when you look into the next few months leading into the holiday season, How do you feel that you're positioned with your 40 nanometer refresh? Thank you. Well, clearly, NVIDIA came out with some, I'll call it more competitive DX11 products finally and those had some Operator, we'll take 2 more questions, please. Yes, ma'am. Our next question comes from David Wong of Wells Fargo. Thanks very much. With your current schedules, will Lano appear in systems and ramp Before the bulldozer desktop and server chips or after the bulldozer desktop and server chips? Before. Lana will be before. Okay. Thanks. And just a clarification on something you said earlier. Did you say that desktop processor revenues grew sequentially in the quarter? Yes. Great. And my last question, server ASPs are flattish. Are you seeing a transition to MagnaCore In the four way space, so is there something else that's offsetting the lower four way price of MagnaCore or is that transition happening relatively slowly, which is why Very ASPs are not going down. Good question. So the 6000 series replaces the 4000 and the 2000. So, I would say there is a positive effect on ASPs to the extent the 6000 replaces 8000 sorry, a negative effect, but a Positive effect is the 6,000 replaces the 2,000. And at least in the past quarter, the two effects canceled and we remained roughly flat. Great. Thanks. Thank you. Our next question comes from Stacy Rasgon of Sanford Bernstein. Hi, guys. Thanks for squeezing me in. Just a couple of quick questions. Number 1, around the inventory. So it was up 7% I'm just curious to the extent that that inventory build might have contributed to higher utilization and a little bit of margin support this quarter. And given that you're guiding to inventory dollars, I assume about flat next quarter, is there a potential utilization hit given flat revenues as well? And what are the implications on margins in Neglectable, I would say. So we did not really benefit on the gross margin side This quarter from the inventory effects, I think we did keeping the revenue development in mind, a pretty good job keeping inventory growth at a modest level. And I don't Next question around the servers. So we had server, I guess, units ASPs and revenues all about flat compared with your competitor We're up a bit and maybe units as well. I know you guys lost a bit of share in calendar Q2. Does this sort of imply that you were maybe Continuing to lose a bit of server share in Q3 as well and I'm wondering when it sounds like you're looking for a bit more share gain maybe in Q4, but if you could just give us a little more color on where Share went in Q3, I think that'd be helpful. Well, I mean, I think you summarized the situation as well as I could. And And as I said in response to a previous question, the opportunity for us is to do an even better job of getting the end users to To understand the great value proposition that we have around the 6000 series as well as the opportunity we have with the 4000 series Why do you think you haven't been so successful with that yet? Well, I just think that it's a big market and with products Only in the market for roughly 90 days, there's a seed program, a certification cycle Before enterprise buyers really start to buy. So this is not a consumer marketplace where, boom, the product's there and everybody turns on to it immediately. Got it. And one more quick question. Can you just let me know how big the capital call was and how it was funded in terms of was it 80% Class A equity, 20% Class B or? 3 So we did not participate. The Capital calls in total were about $300,000,000 Got it. And in terms of how it was funded just so I can make sure my capital structure model is right? The way you mentioned it, 80% 80% Class A, 20 percent Class A, great. Thank you, guys. Appreciate it. Thank you. Operator, that concludes our earnings conference call. We'd like to thank everybody for participating and look forward to seeing you at our Analyst