AGM 2016

May 12, 2016

Slides

Good morning, ladies and gentlemen. I'm Bruce Claflin, Chairman of A&D's Board of Directors. I'd like to call this meeting to order and welcome you to A and D's Annual Meeting of Stockholders. I'd also like to welcome stockholders attending our virtual meeting, which is streaming live online. We want to make our meeting as accessible as possible to stockholders, and we're pleased to give all of you the opportunity to vote and ask questions either in person or via the Internet. I'd like to introduce my other fellow Board of Directors. When I call your name, please stand to be recognized: Doctor. Lisa Su, Director, President and Chief Executive Officer Mr. John Caldwell, Director and Chair of the Compensation Leadership Resources Committee Mr. Nicholas D'Onofrio, Director and Chair of the Innovation and Technology Committee Mr. Martin Edelman, Director Mr. Mike Inglis, Director and Mr. Ahmed Yahir, Director. Ms. Nora Denzel and Joseph Householder were unable to join today's meeting. And before continuing, I'd like to recognize Mr. Henry Chow, Mr. Jack Harding, who after having served on AMD's Board of Directors since 2011 'twelve, respectively, will not stand for reelection this year. I'd like to thank Henry and Jack for their years of service and their dedication to AMD. I'd also like to introduce our Senior Vice President and Chief Financial Officer, Mr. Devinder Kumar and our Senior Vice President and General Counsel, whose birthday is today, Mr. Harry Wollan and our Corporate Vice President and Secretary, Ms. Bez Osman. This morning, we will first take care of the formal business of the meeting, then Doctor. Sue will give her report. We will also provide time for any questions that you may have of our directors or officers. In addition, representatives of Ernst and Young, our independent auditors, are available for questions. The meeting is now called to order. As Chairman, I designate Ms. Ozman as Secretary of the meeting. Ms. Ozman will 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 today is as follows: 1st, to elect the 9 Director nominees named in our proxy statement 2nd, to ratify the appointment of our independent registered public accounting firm for the current fiscal year 3rd, to approve the amendment and restatement of the Advanced Micro Devices Inc. 2,004 Equity Incentive Plan 4th, to approve the amendment and restatement of the Advanced Micro Devices Inc. Executive Incentive Plan 5th, to approve on a non binding advisory basis the compensation of our named executive officers and 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 Doctor. Sue will deliver her report as President and Executive Officer of the company. A stockholder question and answer session will follow her report. I would 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 will find particularly detailed discussions in our quarterly report on Form 10 Q for the period ended March 26, 2016. And finally, please hold your questions until after Doctor. Sue's report is concluded. Now returning to the business of the meeting. I have been authorized by the Board of Directors to appoint Mr. William Marsh of IVS Associates as Inspector of Elections for this meeting. Mr. Marsh 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 14, 2016, as the record date for the determination of stockholders entitled to notice at this meeting and entitled to vote at this meeting. I have a list of stockholders at the company from Computershare, our transfer agent, showing approximately 793,493,758 shares outstanding on the record date and thus entitled to vote at this meeting. This list has been kept at our headquarters in Sunnyvale, California 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 30, 2016, to all stockholders of record. 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 623,000,000,117,352 shares of the company's voting stock were present, representing 78% of the outstanding shares of common stock as of March 14, 2016. Based on this number, a quorum is present. I now declare the polls open. I expect the polls to close in approximately 10 minutes. A copy of the minutes of the Annual Meeting of Stockholders of Advanced Micro Devices held on April 29, 2015, is at the registration desk for inspection by any stockholder who wishes to do so. 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 2016 proxy statement. The 9 individuals who have been nominated for election are Mr. John E. Caldwell Mr. Bruce L. Claflin Ms. Nora M. Denzel Mr. Nicholas M. D'Onofrio Mr. Martin L. Edelman Mr. Joseph A. Householder Mr. Michael J. Ingalls, Doctor. Lisa T. Hsu, Mr. Ahmed Yahia. The Board of Directors unanimously recommends that you vote for the election of these directors. AMB 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 and Young as the independent registered public accounting firm for the company for the current year. The vote required to approve this proposal is 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 Board of Directors unanimously recommends for ratification. The 3rd item is to approve the amendment and restatement the Advanced Micro Devices Inc. 2,004 Equity Incentive Plan to amend the existing plan to, 1, increase the number of shares authorized for issuance under the 2004 plan by 38,000,000 shares and 2, to limit the aggregate grant date fair value for financial reporting purposes of equity compensation awarded to non employee directors, outside directors in a calendar year, taken together with the cash fees paid during the calendar year so as not to exceed, a, dollars 500,000 in total value in the case of outside directors other than the Chairman of the Board and b, $1,000,000 in total value in the case of an outside director who is also the Chairman of the Board. The vote required to approve this proposal is the affirmative vote of a majority of the shares of common stock entitled to vote and represent it in person or by proxy at the meeting. The Board of Directors unanimously recommends that you vote for this amendment and restatement. The 4th item is to approve the amendment and restatement of the 2016 Executive Incentive Plan to satisfy the stockholder approval requirements of Section 162 of the Internal Revenue Code of 1986 as amended. The vote required to approve this proposal is 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 Board of Directors unanimously recommends that you vote for this amendment and restatement. The 5th item is to approve on a non binding advisory basis the compensation of our named executive officers, as disclosed in the 2016 proxy statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission. The vote required to approve this proposal on a non binding advisory basis is 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 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 and wishes to do so, please do so now. If there is anyone present who wishes to withdraw his or her proxy and vote personally by ballot, please see Mr. Marsh at the back of the room. Any online participants who wish to vote at this meeting should also do so now by clicking the Vote Here button. It is now 9:12 a. M. Pacific Time, and I now declare the polls to be closed. Mr. Marsh, 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 majority of votes cast, and the appointment of Ernst and 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. 2,004 Amended and Restated Equity Incentive Plan passed by the affirmative vote of majority of the shares entitled to vote and represented in person or by proxy at this meeting. The proposal regarding the Advanced Micro Devices Inc. 2016 amended and restated Executive 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 regarding the Advanced Micro Devices Inc. 2016 amended and restated executive incentive plan was 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 at this meeting. At this meeting. That concludes my report. Thank you, Mr. Marsh. The report of the Inspector of Elections will be on file for inspection by the 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, Doctor. Lisa Tzu. Okay. Good morning. Thank you all for joining us here at our headquarters in Sunnyvale and to all of those who are attending on the online webcast. What I'd like to do today is give you a brief overview of where we are with the strategy of the company as well as our execution and what we should expect going forward in 2016. So I've been honored to be CEO for the last 18 months, and it has been a very, very busy time. Our focus has always been a heritage of technology, and we're continuing very much that heritage of technology. When you look at our mission in life, it's really around three things. It's around building great products, and that is really about ensuring that our technology gets into the most exciting applications in the marketplace. Driving deep customer relationships that enable us to partner with our customers and add value in a way that 1 plus 1 is greater than 3 and really simplifying our business and focusing on our core of what makes us a great technology company. We did a Financial Analyst Day about in May last year where we talked about where the market is going over the next 5 years, and that picture is very much a very exciting picture. And it starts with the fact that there will be over 50,000,000,000 interconnected devices in the next 5 years. And when you think about what that drives, that drives an incredible amount of computing power and an incredible amount of semiconductor usage, really broken up into endpoints, the infrastructure that connects those endpoints and then the cloud and the data center that really processes all of the data from the endpoints. What we believe is that, that market is actually segmented into 2 places on the endpoint side. There is a set of devices, which are, let's call it, I would call it sensor driven data collection or lower end endpoints that are just there collecting data. And then there is a higher level of intelligent devices that are for control as well as immersive devices. And from that view, the AMD opportunity that we have really covers a majority of this space and frankly, it's all of the high performing pieces of this space. It's over a $60,000,000,000 TAM and it's a very exciting part of the market. There are some places that we won't play and we probably won't play in the low end of the endpoints because that's not where our technology fits the best. There is an incredibly large area where our technology can be very applicable and that's the excitement for the industry and for us. Now when you look at our game plan, we laid out a 3 step game plan. And as with any technology, especially in semiconductors, the technology bets that we make today really show up 3 to 5 years from now. Our 3 step game plan started in 2015 with building a foundation. It is true that 2015 was a difficult year for us financially if you just look at some of the operating results. But it was a very key foundational year to rebuild our technology, rebuild our business foundation and really set us up for what we can do over the next 3 years. In 2015, we did stabilize the PC business. Although the PC business has seen some declines over the last few years, It's still a tremendously large market and it's a real opportunity for us to use our technology. Stabilizing that business was very important to us. Prioritizing our investments to where we know we can create unique technology differentiation that doesn't exist with other competitors. And then really sharpening our focus on our crown jewels, and so I'll talk more about that as we go through the presentation. 2016 is a very important year for us as well because that's where we really turned the corner in terms of both our technology as well as our financial performance. And then we have a strong opportunity to grow as we go into the markets in 2017 2018. So this is what this was the plan that we laid out last May, and I'm happy to report we are on track for that plan. Now a little bit of what we did in 2015. The Computing and Graphics segment is a traditional portion of AMD's business. We are right now about 50%, half and half between the Computing and Graphics segment and the Enterprise Embedded and Semi Custom segment. And the Computing and Graphics segment has gone through a lot of change. When we look at what's happened over the last 3 or 4 years, there has been a decline in the PC market and there has been a change in the shift of where the devices and where the innovation is. I will say that in the second half of twenty fifteen, we actually did have some very nice performance in the Computing and Graphics segment. We grew 2 straight quarters, double digit percentage revenue growth. We believe we regained market share on both the x86 client side as well as the desktop graphics side. And we increased and diversified our mix of business, which used to be very, very heavily in low end consumer. We've now moved to a mix that has higher end products as well as a broader mix into the commercial space. We've launched some very, very innovative products on the graphics side, including the 1st graphics processor out with high bandwidth memory. From a channel business, which has historically been very important to AMD, we did spend quite a bit of time ensuring that we cleaned up the channel, ensured that our inventory levels were back to regular levels and that has brought a lot of stability to this business. One of the most important changes that we made towards the end of last year was the formation of the Radion Technologies Group. If you think about where technology is going over the next 5 years, there is an incredible need for better visualization, better graphics capability and really harnessing all of that power. We wanted to make sure that graphics was on equal footing computing for AMD and the formation of the Radeon Technologies Group has really gathered all of the resources within AMD and all of our unique technologies into one focused effort to ensure that we are powering the most important graphics applications over the next 5 years. You've seen us launch Radeon Pro Duo, which is the most powerful graphics processor out there in the industry. That was something that we did just about a month ago, and we are on track to launch our next generation Polaris graphics processors the middle of the year as we stated previously. And then moving on to our Enterprise Embedded and Semi Custom segment, it really has been a fantastic growth business for us. Over the last 3 years, we've built this to over $2,000,000,000 business. We are the number one player in the game console market. We've shipped over 50,000,000 units of game consoles by the end of 2015. We believe this market will continue to grow. We now see game consoles growing year on year from 2016 into 2016. We've also made nice progress with new business. We are on track to launch to ramp new semi custom business starting in the second half of 2016. And we're also making progress in very targeted embedded segments where graphics and computing are key, things like medical imaging, digital signage and industrial controls, these are areas where our technology can add unique value and it's also AMD. So our priorities for 2016, again, very, very busy year for us. It really is all about ensuring that our product investments pay off in terms of market share gains as well as operating profitability. So we must gain share in graphics in the second half of the year, gaining share in client compute. We have a very strategic effort to drive our return into data center. That is a multiyear effort that is on track. We have our 1st ZEN silicon in the lab, and it is looking good. We are on track to priority sample that to customers this quarter, in the Q2 of 2016, and that will turn into revenue in 2017. And very importantly, we're also making progress in expanding our technology reach into not just our own products, but ensuring that our IP gets broader technology leverage. So in terms of our big technology investments, our Board has been incredibly supportive of our mission in terms of building great products and ensuring that we invest in our technology. We are investing in 3 key things: high performance graphics technology, high performance CPU technology and then the platform solutions that allow us to put all of that together. In terms of our CPU investments, we've talked a lot about the importance of high performance CPUs, particularly as we go into the next generation in data centers. We have invested for the last several years in Zen, our high performance new core. It is new microarchitecture, new process technology as well as using quite a bit of the learnings that we have done over the last few years in terms of power capability, performance capability and so on and so forth. We're very proud of this effort. It was a very ambitious effort to do in 1 generation a 40% improvement in IPC from our previous generation. And as I said earlier, we believe we are on track to ship this, as we said, in data centers in 2017. So the last part of our update is around our IP monetization strategy. AMD has been in a very unique position in that we have one of the strongest IP portfolios in the industry. We have over 10,000 patents, many of them foundational in microprocessors, graphics and circuit technology. And last year, we kicked off a holistic approach at how we look at utilizing that IP, not just to improve our financial returns, but more importantly, also to improve our technology reach and our IP reach into the marketplace. We've had some success with this. We recently announced at our Q1 earnings, a joint venture with Thadic to form a server JV focused on the Chinese market. It's a very exciting development for us. Thatic is a consortium led by the Chinese Academy of Sciences. We believe the combination of our technology with their market knowledge gives us a unique ability to innovate in data centers in China, the 2nd largest server market out there. We believe there are additional opportunities for us in this space, and we'll continue to update our shareholders on that over time. So in terms of our overall financial goals, these are all very important goals for us and key to showing that inflection point and that turn in our financial performance. Our current outlook for 2016 is our revenue will be up year over year. Our cash will be up as well within our optimal zone of $600,000,000,000 to $1,000,000,000 Our operating expenses will be roughly flattish, but we will invest more in R and D in specific segments, particularly in areas such as graphics, while declining in overall SG and A spending. Our goal is to return to non GAAP operating profitability in the second half of twenty sixteen and to show free cash flow from operations positive in 2016, so excluding the joint venture that we did with our back end of line assets. So these are all very important. The entire AMD team is committed to these and we believe we are on track to achieve these. So with that, I want to thank you for your time and your attendance today. We do believe that there are significant market opportunities for us. The market is very exciting. Our technology is well on track for what we promised. And it is all about prioritizing our technology investments and then building a true roadmap for profitable and sustainable growth for our company. So thank you very much for your attention. And with that, we will open it up for questions. And not only for myself, our Board of Directors, Ernst and Young as well as others are open to take questions. Thank you. At this time, we have some people with microphones in the room. If anybody would like to ask a question, please raise your hand. While people here we go, we have a question, Lisa. Timur Polyszev, Radian Technology Group. Last time, in our all hands, Roger mentioned automotive market. And this automotive market becoming largely robotic and computer vision market. And he also mentioned that our chips perfectly match probably best silicon ever made, which actually match requirements of automotive market. Would we go over there? Thank you. I'm sorry, the question was relative to the automotive market? We go to would we go to automotive market as well? Yes, because we have a lot of things in like computer our compute libraries and computer vision staff support. And only like we don't have proper libraries to support the industrial development? Yes. Okay. So the question was relative to our strategy of investments with graphics into the automotive market given our hardware and software investments. Look, we graphics overall, whether you're talking about consumer graphics, professional graphics, automotive, machine learning, AI, it's all incredibly exciting and our technology is very applicable to those areas. So what we will do is prioritize our investments. I think we have very, very clear priorities around gaining share in the consumer space and in the professional workstation space. And then you will see us make some investments in the automotive area as well over a period of time. Thank you. So in regards to expanding into the workstation environment as well as also the sort of data centers as well, where is sort of the road map for open source drivers or proprietary drivers on the Linux sub like kernels because it's not really in that great of a state right now? So Yes. I think it's very clear that with all of these applications, the software infrastructure is very important. As you may know, we launched the GPU Open initiative in the Q1 of this year, and it's gotten a lot of traction. Actually, there's a lot of excitement. Our view, sort of our strategy is really about open innovation. So with open innovation, we can not only leverage AMD's capabilities, but we can leverage the capabilities of a whole host of developers out there. Developers to our technology and we will also continue to invest in our own obviously Linux drivers and other tools and capabilities necessary to ensure that they service those spaces. Thank you. Lisa, maybe we'll go to a question online. Recently, we've seen the company enter into a couple of joint ventures. Is that a trend we can expect from AMD as we look into the future? Yes. So we have entered into 2 joint ventures in the last couple of months. And I think they were very, very good opportunities for us, frankly, 1, on the back end assets, leveraging our manufacturing capability together with a leader in the OSAT market, Nantong Fujitsu Microelectronics and the second in our server joint venture with Thadic. I don't know if I would call it a trend. What I would say is, we will look for opportunities to partner and monetize our IP and monetize our technology assets. So joint ventures are one way to do it. There are other ways to partner and collaborate in the marketplace as well. So the overall focus on ensuring that our technology and IP get the broadest of getting of getting that done. One other online question. The outlook for your semi custom business seems to be good this year. Can you talk a little bit about that, please? Yes. So the game consoles, which are the majority of our semi custom business, have gone through a very positive cycle. I think both the Sony PlayStation 4 as well as the Microsoft Xbox 1 have done very well. The current outlook and visibility that we have is that we do believe that semi custom business will be up year over year on strength of new game titles at launch and the overall console market. Thank you, Lisa. There are no further questions online. Any additional questions in the room? Back to you, Lisa. Thank you. Very good. Thank you all very much for attending. We appreciate your support, and we look forward to giving you further updates on AMD on a quarterly basis. Thank you.