AMD Q3
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AMD Q3
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(FOOL CONFERENCE CALL SYNOPSIS)* By Debora Tidwell (MF Debit)
Advanced Micro Devices <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMD)") else Response.Write("(NYSE: AMD)") end if %> BACKGROUND AMD competes with Intel in the Microsoft Windows compatible microprocessor market. They also make flash memory, erasable programmable read-only memory, Ethernet products, programmable logic devices, DRAMs, SRAMs, and other types of integrated circuits. The company was founded in 1969 and went public in 1972. They have about a 9% market share in PC microprocessors, are the #1 supplier of integrated circuits for devices that connect computer networks, and are a major supplier to the public communications infrastructure.
UNION CITY, Ca., October 7, 1996/FOOLWIRE/ --- Advanced Micro Devices (AMD) reported Q3 1996 results after the market close today. The company had a net loss of $38,362,000 on sales of $456,862,000. The loss amounted to -$0.28 per share, which beat analyst consensus estimates of -$0.37 per share by $0.09. The results included a $6 million charge for employee severance and benefits associated with a headcount reduction.
MANAGEMENT REMARKS: FINANCIAL HIGHIGHTS
As some background information, depreciation in the quarter was $85 million and capital spending was $143 million as AMD continued to put equipment into their Fab 25 to support their commitments to the Windows microprocessor business.
Headcount at the end of the quarter was 12,388, down from 12,535 at the end of last quarter. This does not include the effect of the headcount reduction AMD had in the last week of the quarter.
International sales were 54%, up 1% from last quarter. The breakout of sales by product group is as follows: communications and components group was 62% (down from 64% last quarter) as they had growth in the flash and communications and components products and a significant decrease in EPROMs. Computational products were 25%, up from 23% last quarter as they had growth in K5s. Programmable logic was 13%, flat with last quarter.
Included in the P&L for the quarter was a $6 million charge for severance cost associated with the headcount reduction mentioned earlier.
They also included in their press release the non-GAAP P&L which puts the pre-tax effect of the FASL joint venture back into cost of sales to more appropriately show its affect. The pre-tax affect on the joint venture in the quarter was $11.3 million compared to $19.9 million in Q2. This reflects lower flash prices that they began to see in Q2.
On just a $2 million increase in sales they were able to reduce operating loss by $15 million, even with the severance cost included. They are happy with their cost control efforts.
Last quarter they had a $16 million gain on the sale of securities. There is no such gain this quarter. EBITDA excluding FASL was a positive $7.8 million in the quarter.
Turning to the Balance Sheet, cash was $361 million at the end of the quarter. This includes $400 million in new long-term debt that they closed in August and includes the pay-off of $150 million in bank debt.
They also entered into an agreement with 3 commercial banks which provided them a committed $400 million term loan and revolving credit facility. None of this facility was used in Q3. The net effect was $250 million in cash and additional debt.
They continued to reduce inventory with a $12 million reduction in the quarter. They continue to feel that they have a very conservative inventory valuation practices. Deferred income on shipment to distributors were $8 million in the quarter as they reduced distributors' inventory worldwide.
PERFORMANCE HIGHLIGHTS BY PRODUCT LINE
In PLDs, sales were slightly down compared with Q2. The CMOS small PLDs were soft with excess inventories still in distributors' and their customers' hands and they believe starting to be converted to higher density PLDs. The MOS product line, the complex PLD sales, remain at near record levels and bookings were a record during the quarter. Since the establishment of a new dedicated sales force and the introduction of their new MACH 5 family of mid-density PLDs, and the universal software product offerings earlier this year, they have seen significantly increased activity and more design wins which shows the promise of their wholly owned subsidiary strategy. During Q3, shipments of MACH were greater than 45% of the total PLD product line, and bookings of MACH were higher than the small PLDs for the first time, being over 55% of total PLD bookings. This means they will look more and more like a mid-density CPLD product line as they go forward.
In LAN products, sales were soft due to inventory at their customers both in the desktop Ethernet and Ethernet hubs, the private infrastructure. In public infrastructure, they had record sales of their SLIC and SLAC line card ICs. Sales remain strong and have remained strong throughout the downturn that has beset their industry. Microcontroller sales were at near record levels with record unit volumes.
In non-volatile memory (flash and EPROM products), there was a slight decline in sales and the decline was more than accounted for by a sharp decrease in EPROM shipments in the soft market. However, flash sales which are the future of this division are growing again. Customers' inventories are in better shape and they have expanded their customer base now that they have sufficient capacity to satisfy them. Unit sales are up sharply quarter over quarter by more than 30% from the low point last quarter to record levels. Prices are down significantly, approximately 50% from the peak of this cycle which was in Q1, but has stabilized and they expect normal learning curve prices going forward. Their architecture, the single power supply 5 volt and 2.7 volt only products constituted about 85% of the total sales of flash memories. As reported last time, their 2.7 volt family is getting excellent reception in the market place for battery powered products. They are on schedule for commencement of conversion to .35 micron this quarter in their FASL Fab area, which will take them into next year and the conversion will be completed as they go forward.
In the computer products group, the Texas microprocessor division, sales were higher on increased unit volume of K5 microprocessors to the $80 million level, up about 20% from Q2. Unit volume of K5s more than doubled to the 500,000 unit level, the K5 100mHz part being the dominant product, versus 200,000 units in Q2. Their 4th generation product, the 486s and their X5, reached the 2 million unit level during Q3, compared to 1.9 million units last quarter. So this total of 2.5 million X86 units keeps AMD on their 10 million unit yearly run rate, giving them significant presence in the marketplace as their bridge to higher performance processors. In Q3 they shipped 75, 90, and 100mHz products and in Q4 they will add 120, 133 and 150 PR rating products. At the present time, their K5 products address approximately 70% of the desktop PC market and in Q1 of 1997 they will add the PR166 product.
Their 6th generation microprocessor code named K6 is on schedule for sampling this quarter and commence production Q1 1997. As a review, the K6 is a plug-in replacement for a Pentium socket 7 motherboard. It uses existing infrastructure to provide 6th generation performance with the 5th generation infrastructure. Its performance is designed to be competitive with the forthcoming Pentium Pro Klamath product and much higher performance than the Pentium P55C. It includes the MMX instruction extensions and is a great opportunity for AMD to have this part essentially at the same time as the Intel offering.
In summary, excluding the PC market, overall demand remains weak. There are signs of recovery in their non-microprocessor product line and they expect this to continue gradually. Their Microsoft Windows microprocessor product line will benefit if they can continue to ramp their K5 sales volume with more desireable higher performance products during the bridge to K6.
Q3 OVERVIEW AND INDUSTRY DISCUSSION
Q3 unfolded essentially as AMD expected:
-- Revenues were up nominally and they were in a more promising mix.
-- Microsoft Windows compatible microprocessor sales grew in units and in dollars.
-- They shipped 500,000 K5s with the K5 PR100 being the largest contributor to 5th generation microprocessor revenues as they had predicted.
-- Flash revenues increased on record unit sales but are still well below historic highs on sharply lower prices which are now experiencing a more normal pattern.
-- MACH sales and prospects remain strong.
-- They reduced their operating loss significantly even while absorbing a $6 million charge for a modest reduction in force.
-- They reduced inventory at distributors and at the factory.
They believe their business troughed in Q2. There is evidence of recovery in their Q3 results. They expect recovery for AMD to continue at a modest pace in the current quarter, accelerating in 1997.
Their businesses, excluding Microsoft Windows compatible microprocessors, are profitable today. Return to overall profitability will be determined by their progress increasing those microprocessor revenues. Success there will be contingent upon their ability to continue to increase the performance competitiveness of their product offerings.
They have widely sampled K5 PR133s which have demonstrated the promise of their proprietary K86 superscaler architecture. On Winstone 96 benchmarks, a K5 running at 100mHz is superior to or equivalent to a 133mHz Pentium.
They are ramping production for current quarter delivery of the K5 PR120, the K5 PR133, and the K5 PR 150. The engineering to enable K5 PR166s is on track for Q1 delivery. Finally, the K6 development is on schedule for Q4 sampling and Q1 production commencement.
JERRY SANDERS QUOTE OF THE QUARTER
Sanders was asked to elaborate on expected growth in the 100mHz clockspeed versus the 133mHz K5 products in Q4. Sanders explained that they have shipped 750,000 K5s so far. They started out shipping 75mHz, then 90s, then last quarter they shipped more 100s than they did 75s or 90s.
This quarter (Q4), they expect they will be shipping mostly 100mHz product and will see the first contribution of revenues from the higher speed parts. The transition from Q3 to Q4 will be significant because they will be in production through all of Q4 on the K5s that yield the higher performance parts. They were not in production on those parts in Q3. So, the bulk of the revenues in Q4 will still come from the 100mHz parts which will now be selling at lower prices because they follow Intel's price reductions.
The analyst asked if what he was basically saying is that the average selling price would not go up much in Q4.
Sanders responded, "No, I didn't say that. What I just said is that our [product] mix is such that, until we start to get more contemporaneous with Intel's mainstream product, our prices suck." * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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Copyright 1996, The Motley Fool |