AMD Reports Third Quarter Results

AMD (NYSE:AMD) today reported third quarter 2007 revenue of $1.632 billion, an 18 percent increase compared to the second quarter of 2007 and a 23 percent improvement compared to the third quarter of 20061. In the third quarter, AMD reported an operating loss of $226 million, and a net loss of $396 million, or $0.71 per share. Third quarter results include a negative impact of $120 million, or $0.22 per share, due to ATI acquisition-related, integration and severance charges and impairment of assets. In the second quarter of 2007, AMD reported revenue of $1.378 billion and an operating loss of $457 million. In the third quarter of 2006, AMD reported revenue of $1.328 billion and operating income of $121 million. "We are encouraged by the progress we made in our third quarter financial results. We delivered a strong revenue increase, gained 8 percentage points of gross margin and reduced our operating loss by more than half,” said Robert J. Rivet, AMD’s Chief Financial Officer. "We sold a record number of microprocessors through our distribution channel and began revenue shipments of Quad-core AMD Opteron™ processors in the quarter. "Graphics segment revenue increased 29 percent sequentially, as customers increasingly adopted AMD’s new ATI Radeon HD™ 2000 series of graphics processors.” Third quarter charges of $120 million consisted of ATI acquisition-related, integration and severance charges of $78 million and asset impairments of $42 million associated with our ownership of Spansion, Inc. common stock. ($ millions)   Q3-07   Q2-07   Q3-061 Revenue $ 1,632   $ 1,378   $ 1,328 GAAP Operating income (loss) $ (226 ) $ (457 ) $ 121 Acquisition-related, integration and severance charges (ARC) $ 78   $ 94   $ 6 Non-GAAP Operating income (loss) 2 3 $ (148 ) $ (363 ) $ 127 Third quarter 2007 gross margin was 41 percent, compared to 33 percent in the second quarter of 2007 and 51 percent in the third quarter of 2006. The increase from the prior quarter was due to increased microprocessor unit shipments, manufacturing efficiencies, improved inventory management, and a richer product mix in the Computing Solutions and Graphics segments. Computing Solutions Third quarter Computing Solutions segment revenue was $1.283 billion, a 17 percent sequential increase. The increase was driven primarily by a 19 percent increase in microprocessor revenue. Microprocessor unit shipments increased 16 percent sequentially. Mobile processor unit shipment growth remained strong, increasing 41 percent sequentially and 68 percent year-over-year. Graphics Graphics segment revenue of $252 million grew 29 percent from the second quarter of 2007. The success of the new ATI Radeon HD 2000 series of graphics processors led to increased unit shipments and revenue. Consumer Electronics Third quarter Consumer Electronics segment revenue was $97 million, compared with $85 million in the second quarter of 2007 driven by improved handheld unit sales and increased game console royalties. Current Outlook AMD’s outlook statements are based on current expectations. The following statements are forward looking, and actual results could differ materially depending on market conditions and the factors set forth under "Cautionary Statement” below. In the seasonally up fourth quarter, AMD expects revenue to increase in line with seasonality. Additional Highlights AMD introduced the world’s most advanced x86 processor, the Quad-Core AMD Opteron processor. HP, Lenovo, NEC, Packard Bell, Samsung and Toshiba introduced new AMD platforms featuring the combination of AMD processors and the AMD690 chipset. Dell, HP, Lenovo, and Toshiba, among others, began offering desktop and notebook systems featuring the ATI Radeon HD 2000 series of graphics processors. AMD was named Best-in-Class Supplier for Standard Silicon in Sun Microsystems’ 2007 Supplier Awards program, was also awarded CMP Channel’s VAR Business 2007 Tech Innovator of the Year award for the server category, and AMD’s quad-core processor technology won 2007 Best of VMworld Awards for the Green Computing category. AMD licensed graphics technology to Freescale Semiconductor and Qualcomm. AMD completed a $1.5 billion convertible debt offering and used the net proceeds, together with available cash, to repay in full the $1.7 billion outstanding balance of the term loan used to acquire ATI. AMD Teleconference AMD will hold a conference call for the financial community at 2:00 p.m. PT (5:00 p.m. ET) today to discuss third quarter financial results. AMD will provide a real-time audio broadcast of the teleconference on the Investor Relations page of its web site at www.amd.com. The webcast will be available for 10 days after the conference call. About AMD Advanced Micro Devices (NYSE:AMD) is a leading global provider of innovative processing solutions in the computing, graphics and consumer electronics markets. AMD is dedicated to driving open innovation, choice and industry growth by delivering superior customer-centric solutions that empower consumers and businesses worldwide. For more information, visit www.amd.com. Cautionary Statement This release contains a forward-looking statement concerning revenue for the fourth quarter of 2007 which is made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are commonly identified by words such as "would,” "may,” "expects,” "believes,” "plans,” "intends,” "projects,” and other terms with similar meaning. Investors are cautioned that the forward-looking statements in this release are based on current beliefs, assumptions and expectations, speak only as of the date of this release and involve risks and uncertainties that could cause actual results to differ materially from current expectations. Risks include the possibility that Intel Corporation’s pricing, marketing and rebating programs, product bundling, standard setting, new product introductions or other activities targeting the company’s business will prevent attainment of the company’s current plans; the company will require additional funding and may not be able to raise funds on favorable terms or at all; the company’s cost reduction efforts will not be effective; customers stop buying the company’s products or materially reduce their operations or demand for its products; the company will be unable to develop, launch and ramp new products and technologies in the volumes and mix required by the market and at mature yields on a timely basis; the company’s competitors, customers and suppliers may take actions that will negate the anticipated benefits of the company’s acquisition of ATI; demand for computers and consumer electronics products and, in turn, demand for the company’s products will be lower than currently expected; global business and economic conditions will worsen, resulting in lower than currently expected revenue in the fourth quarter of 2007 and beyond; there will be unexpected variations in market growth and demand for the company’s products and technologies in light of the product mix that it may have available at any particular time or a decline in demand; the company will be unable to transition to advanced manufacturing process technologies in a timely and effective way, consistent with planned capital expenditures; the company will be unable to maintain the level of investment in research and development and capacity that is required to remain competitive; and the company will be unable to obtain sufficient manufacturing capacity or components to meet demand for its products or will under-utilize its microprocessor manufacturing facilities. Investors are urged to review in detail the risks and uncertainties in the company’s Securities and Exchange Commission filings, including but not limited to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. AMD, the AMD Arrow logo, AMD Opteron, and combinations thereof, and ATI, the ATI logo, and Radeon are trademarks of Advanced Micro Devices, Inc. Other names are for informational purposes only and used to identify companies and products and may be trademarks of their respective owners. 1 As a result of the acquisition of ATI, 2006 financial results only include the results of the former ATI operations from October 25 through December 31, 2006. Therefore, financial results for the third quarter 2007 do not correlate directly to those for the third quarter 2006. 2 In this press release, AMD has provided non-GAAP financial measures for operating income (loss) to reflect its financial results without acquisition-related, integration and severance charges. Management believes this non-GAAP presentation makes it easier for investors to compare current and historical period operating results. 3 Includes stock-based compensation expense. ADVANCED MICRO DEVICES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Millions except per share amounts and percentages)                     Quarter Ended Nine Months Ended Sept. 29, June 30, Oct. 1, Sept. 29, Oct. 1, 2007 2007 2006 2007 2006       (Unaudited)   (Unaudited)   (Unaudited) (Unaudited)   (Unaudited)   Net revenue $ 1,632 $ 1,378 $ 1,328 $ 4,243 $ 3,876   Cost of sales 963 917 645 2,766 1,724                         Gross margin 669 461 683 1,477 2,152   Gross margin % 41 % 33 % 51 % 35 % 56 %   Research and devel-opment 467 475 277 1,374 820   Marketing, general and adminis-trative 352 365 279 1,052 844   Amort-ization of acquired intan-gible assets and inte-gration charges 76 78 6 238 6                         Operating income (loss) (226 ) (457 ) 121 (1,187 ) 482   Interest income 19 19 31 54 94 Interest expense (95 ) (99 ) (18 ) (272 ) (59 ) Other income (ex-pense), net (1 ) (9 ) (2 ) (8 ) (15 )                         Income (loss) before minority interest, equity in net loss of Spansion Inc. and other and income taxes (303 ) (546 ) 132 (1,413 ) 502   Minority interest in consol-idated subsid-iaries (9 ) (9 ) (7 ) (26 ) (20 )   Equity in net loss of Spansion Inc. and other (57 ) (13 ) (10 ) (86 ) (40 )                         Income (loss) before income taxes (369 ) (568 ) 115 (1,525 ) 442   Provision (benefit) for income taxes 27 32 (21 ) 82 32                         Net income (loss) $ (396 ) $ (600 ) $ 136 $ (1,607 ) $ 410                         Net income (loss) per common share   Basic $ (0.71 ) $ (1.09 ) $ 0.28 $ (2.92 ) $ 0.86   Diluted $ (0.71 ) $ (1.09 ) $ 0.27 $ (2.92 ) $ 0.82                         Shares used in per share calcu-lation   Basic 554 552 486 551 478 Diluted 554 552 497 551 497 ADVANCED MICRO DEVICES, INC. CONSOLIDATED BALANCE SHEETS (Millions)   Sept. 29,   June 30,   Dec. 31, 2007 2007 2006(a)           (Unaudited)   (Unaudited)       Assets   Current assets: Cash, cash equivalents and marketable securities $ 1,528 $ 1,594 $ 1,541 Accounts receivable, net 682 648 1,140   Inventories 839 892 814 Prepaid expenses and other current assets 432 410 443 Deferred income taxes 62 54 25                       Total current assets 3,543   3,598   3,963     Property, plant and equipment, net 4,725 4,575 3,987 Goodwill 3,165 3,180 3,217   Investment in Spansion Inc. - 326 371 Acquisition related intangible assets, net 994 1,065 1,207 Other assets 507 480 402                       Total Assets   $ 12,934     $ 13,224     $ 13,147     Liabilities and Stockholders' Equity   Current liabilities: Accounts payable $ 1,064 $ 985 $ 1,338 Accrued compensation and benefits 198 192 177 Accrued liabilities 833 768 716 Deferred income on shipments to distributors 106 92 169 Current portion of long-term debt and capital lease obligations 218 219 125   Other current liabilities     283       220       327     Total current liabilities 2,702   2,476   2,852     Deferred income taxes 32 56 31 Long-term debt and capital lease obligations, less current portion 5,117 5,318 3,672 Other long-term liabilities 650 610 517 Minority interest in consolidated subsidiaries 308 292 290   Stockholders' equity: Capital stock: Common stock, par value 6 6 5 Capital in excess of par value 5,280 5,237 5,316 Retained earnings (deficit) (1,328 ) (932 ) 308   Accumulated other comprehensive income     167       161       156     Total stockholders' equity 4,125   4,472   5,785                         Total Liabilities and Stockholders' Equity   $ 12,934     $ 13,224     $ 13,147     (a) Amounts as of December 31, 2006 were derived from the December 31, 2006 audited financial statements. ADVANCED MICRO DEVICES, INC. SELECTED CORPORATE DATA (Unaudited) (Millions except headcount and percentages)                       Quarter Ended   Nine Months Ended Sept. 29, June 30, Oct. 1, Sept. 29, Oct. 1, Segment Information (1) 2007 2007 2006 2007 2006                           Computing Solutions (2) Net revenue $ 1,283 $ 1,098 $ 1,328 $ 3,299 $ 3,880 Operating income (loss) $ (112 ) $ (258 ) $ 167 $ (691 ) $ 615   Graphics (3) Net revenue 252 195 - 644 - Operating income (loss) (3 ) (50 ) - (88 ) -   Consumer Electronics (4) Net revenue 97 85 - 300 - Operating income (loss) (3 ) (22 ) - (29 ) -   All Other (5) Net revenue - - - - (4 ) Operating income (loss) (108 ) (127 ) (46 ) (379 ) (133 )   Total AMD Net revenue $ 1,632 $ 1,378 $ 1,328 $ 4,243 $ 3,876 Operating income (loss) $ (226 ) $ (457 ) $ 121 $ (1,187 ) $ 482                             Other Data   Depreciation & amortization (excluding amortization of acquired intangible assets) $ 263 $ 255 $ 200 $ 761 $ 567   Capital additions $ 419 $ 414 $ 425 $ 1,419 $ 1,191   Headcount 16,498 16,719 11,609 16,498 11,609                           Adjusted EBITDA (6) $ 60 $ (143 ) $ 333 $ (279 ) $ 1,068                             (1)   Starting in Q406, the Company no longer allocates employee stock-based compensation and profit sharing expenses to its segments. These expenses are recorded in the All Other category. Prior period information has been restated to conform to current period presentation. (2)   Computing Solutions segment includes what was formerly the Computation Products segment and the Embedded Products segment as well as revenue from sales of chipsets sold by ATI prior to AMD's acquisition of ATI. (3)   Graphics segment includes graphics, video and multimedia products developed for use in desktop and notebook computers, including home media PCs, professional workstations and servers. (4)   Consumer Electronics segment includes products and revenue related to mobile phones and PDAs, digital televisions and other consumer electronics and revenue for royalties received in connection with sales of game console systems that incorporate the Company’s products. (5)   All Other category includes employee stock-based compensation expense, profit sharing expense, certain operating expenses and credits that are not allocated to the operating segments, and Personal Internet Communicator (PIC) related activities in Q306 and for nine months ended Q306. Also included in this category are the ATI acquisition-related, integration, and severance charges. Details of the ATI acquisition-related, integration and severance charges and employee stock-based compensation expense are shown below.         ATI acquisition-related, integration and severance charges: Employee stock-based compensation expense:   Quarter Ended   Nine Months Ended   Quarter Ended   Nine Months Ended Q307   Q207   Q306 Q307   Q306 Q307   Q207   Q306 Q307   Q306 Amortization of acquired intangible assets $ 71 $ 71 $ - $ 213 $ - Cost of sales $ 2 $ 2 $ 2 $ 6 $ 6 Integration charges   5   7   6   25   6 Research and development 14 14 6 42 17 ATI acquisition-related and integration charges $ 76 $ 78 $ 6 $ 238 $ 6 Marketing, general and administrative   11   15   9   38   27 Severance   2   16   -   18   - $ 27 $ 31 $ 17 $ 86 $ 50 Total $ 78 $ 94 $ 6 $ 256 $ 6   (6) Reconciliation of Net income (loss) to Adjusted EBITDA(b) Quarter Ended Nine Months Ended Q307 Q207 Q306 Q307 Q306 Net income (loss) $ (396 ) $ (600 ) $ 136 $ (1,607 ) $ 410 Depreciation and amortization 263 255 200 761 567 Amortization of acquired intangible assets 71 71 - 213 - Interest expense 95 99 18 272 59 Provision (benefit) for income taxes   27     32     (21 )   82     32 Adjusted EBITDA $ 60   $ (143 ) $ 333   $ (279 ) $ 1,068   (b) The Company defines Adjusted EBITDA as net income (loss) adjusted for depreciation and amortization, amortization of acquired intangible assets, interest expense and taxes. The Company calculated and communicated Adjusted EBITDA because management believes it is of interest to investors and lenders in relation to its overall capital structure and its ability to borrow additional funds. The Company’s calculation of Adjusted EBITDA may or may not be consistent with the calculation of this measure by other companies in the same industry. Investors should not view Adjusted EBITDA as an alternative to the U.S. GAAP operating measure of net income or U.S. GAAP liquidity measures of cash flows from operating, investing and financing activities. In addition, Adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows.