Source: Seeking Alpha
Advanced Micro Devices, Inc. (NYSE:AMD)
Q2 2014 Earnings Conference Call
July 17, 2014 05:30 PM ET
Ruth Cotter – CVP of IR
Rory Read – President and CEO
Devinder Kumar – SVP and CFO
Lisa Su – SVP and COO
Mark Lipacis – Jefferies & Company
David Wong – Wells Fargo
John Pitzer – Credit Suisse
Ross Seymore – Deutsche Bank
Christopher Rolland – FBR Capital Markets
Joe Moore – Morgan Stanley
Stacy Rasgon – Sanford Bernstein
Matt Ramsay – Canaccord Genuity
Betsy Van Hees – Wedbush Securities
Romit Shah – Nomura
Jim Covello – Goldman Sachs
Mike McConnell – Pacific Crest
Good day ladies and gentlemen. Thank you for standing by. And welcome to the Advanced Micro Devices’ Q2 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.
I would now like to turn the conference to our host Ms. Ruth Cotter, Corporate Vice President of Investor Relations.
Ruth Cotter – CVP of IR
Thank you, and welcome to AMD’s second quarter earnings conference call. By now you should have had the opportunity to review a copy of our earnings release and the CFO commentary and slides. If you’ve not reviewed these documents, they can be found on AMD’s Web site at ir.amd.com.
Speakers on today’s conference call are Rory Read, our President and Chief Executive Officer; and Devinder Kumar, our Senior Vice President and Chief Financial Officer. Lisa Su, our Senior Vice President and Chief Operating Officer will be present for the QA portion of the call.
This is a live call and will be replayed via webcast on amd.com.
I’d like to take the opportunity to highlight a few dates for you. Devinder Kumar will attend the Jefferies Semiconductors, Hardware & Communications Infrastructure Summit on August 27th in Chicago. Rory Read will attend the Deutsche Bank Technology Conference on September 9th in Las Vegas. Our third quarter quiet time will begin at the close of business on Friday, September 12th and lastly we intend to announce third quarter earnings on October 16th.
Please note that non-GAAP financial measures referenced during this call are reconciled to their most directly comparable GAAP financial measure in the press release and CFO commentary posted on our Web site at quarterlyearnings.amd.com.
Before we begin, let me remind everyone that today’s discussions contains forward looking statements based on the environment as we currently see it. Those statements are based on current beliefs, assumptions and expectations, speak only as of the current date, and as such involve risks and uncertainties that could cause actual results to differ materially from our current expectations.
Please refer to the cautionary statements in today’s earnings press release and CFO commentary for more information. You’ll also find detailed discussions around our risk factors in our filings with the SEC and in particular AMD’s quarterly report on Form 10-Quarter for the quarter ended March 29, 2014.
Now, with that, I’ll hand the call over to Rory. Rory?
Rory Read – President and CEO
Thank you, Ruth. The second quarter capped off a solid first half of the year for AMD. We have made significant progress in transforming our Company. This was highlighted by our second quarter results including; revenue of $1.44 billion, an increase of 24% from the year ago period; and non-GAAP EPS of $0.02, an improvement of $0.11 compared to the same period last year.
We are clearly executing our strategy, building a stronger AMD business model and enhancing our ability to deliver consistent performance. We have diligently managed expense and lowered our cost structure, significantly reducing operating expense, while strategically investing in innovations that will fuel our future growth. At the same time we have relentlessly focused on improving and consistently executing, hitting our key products, milestones and ensuring we deliver on our commitments to our customers.
We have improved our balance sheet by re-profiling debt at lower rates, which we expect will reduce our interest expense with no significant debt coming due until 2019. We have driven our AMD leadership processing and graphics technology into new markets. And we are currently on track to generate approximately 40% of our revenue from these high growth markets for the full year 2014. And we also remained on track to deliver 50% of our revenue from these high growth markets by year-end 2015.
As a result, for the first six months of 2014, AMD’s revenue increased 26% and our non-GAAP EPS improved by $0.26 compared to the first half of 2013. We have now delivered four consecutive quarters of non-GAAP profitability and we remained on track to deliver on our commitment of non-GAAP profitability and revenue growth for the full year 2014.
Now let’s turn our attention to our business achievements in the second quarter. Semi-custom SoC shipments increased from the prior quarter as we continued to see strong demand for AMD-powered game consoles. We had record semi-custom unit shipments in the second quarter, and we expect to continue to ramp shipments into the third quarter, our peak quarter as Microsoft and Sony prepare for the holiday cycle.
In our embedded business, revenue increased by double-digit percentage from the previous quarter as new design wins started to ramp in this key growth market. We launched several new products in the quarter and announced win with HP’s thin clients, as well as Boeing’s next generation advanced cockpit display systems to name just a few.
Most importantly looking at our embedded pipeline, our design win momentum accelerated in the first half of this year across our key target markets of thin client, gaming and industrial controls.
In our professional graphics business, unit shipments increased significantly from the prior period as we continue to grow our FirePro business with Apple, Dell and HP. We look forward to driving either more share gains in this margin accretive market.
In our dense server business, first half 2014 revenues more than doubled compared to the year ago period. And we are actively sampling Seattle, the industry’s first 28-nanometer 64-bit ARM server processor and remain on track for launch in the fourth quarter.
Now let’s turn to the PC market. The overall PC market has shown signs of improvement, largely driven by the commercial refresh cycle. However, the consumer market remains under pressure. And we expect the overall PC market is going to continue to be down by 5% to 7% for the year 2014. In the second quarter AMD’s overall microprocessor unit shipments increased sequentially for the first time in four quarters, driven by the introduction of new notebook from Acer, Dell, HP, Lenovo and others powered by our latest Vima and Kaveri APUs. We also launched AMD’s Pro A-Series APU in the quarter and remain on track to more than double the number of AMD-based commercial offerings available by the end of the year. HP has already announced a full range of elite commercial offerings powered by AMD and additional OEMs will begin rolling out AMD-powered commercial offerings this quarter.
In the desktop space, demand for our desktop APUs was strong from our OEMs; however, the desktop component channel was softer than we expected. We believe that with the expansion of our A-series APU portfolio and continued ramp of our first lower-powered socketed desktop APU, this business was strengthened over the coming quarters. Overall, we saw the first sequential revenue increase for our computing solution segment in four quarters. Our PC strategy remains focused on developing profitability by diversifying into the commercial stabilizing the overall PC business and leveraging the channel to deliver profitability.
Now let’s turn to graphics. In graphics, we saw a strong growth in our notebook GPUs as OEM design wins began to ramp in the quarter. This was offset by a decline for our enthusiast class offering in the AIB channel as demand from cryptocurrency miners abated. We expect to increase GPU shipments this quarter as market pricing for our R7 and R9 offerings become more consistent and as we head into the, what is typically the stronger second half of the year for GPUs. Regaining graphics market share remain a priority and we are confidence that our products go-to-market programs and design wins can drive gains throughout the coming quarters.