AMD CFO Seifert speaks out: We're making money!
11/12/2009 by: Darleen Hartley
Thomas Seifert, the new CFO [chief financial officer] of AMD gave a brief presentation at the Financial Analyst Day. His information was succinct, delivered with a positive, forward-looking attitude and plan.
He began by saying that 2009 was, without a doubt, about achievements in a weak macro environment. He stressed that AMD is a product-focused company now – a brief nod to the GlobalFoundries spinoff. AMD launched the sexa-core AMD Opteron processor, Istanbul, five months ahead of schedule. Earlier speakers spoke proudly of several delivered-on-time projects. The CFO gave AMD credit for creating an ultrathin notebook market segment and were the first to go to market with 40nm supporting DirectX 11. He left the remaining product announcements and technology references to his co-presenters in the breakout sessions.
CFO Seifert, second from left, and GlobalFoundries CFO Bruce McDougal, second from right, take time out from balance sheet analysis to view six-display gaming demo during AMD presentations
Seifert’s job is finance, and he is focused on spending controls, bringing down operating expenses. He told us that they have made a significant reduction in capital expenditures and are following a lean business model. They are seeing the first positive effect on their balance sheet. While keeping roadmaps intact, they are reducing SG&A [selling, general and administrative] expenses with cost controls. He admits that operational efficiencies still need improvement, though.
AMD finally turned a quarter positively - 56M profit in third quarter 2009 [$2M GAAP]
Seifert says they are increasing cash and reducing debt. Cash is at $1.5 billion, but they are still saddled with a large debt burden, that matures in 2012 and 2015. They plan to reduce the debt in phases, addressing 2012 maturities to minimize cash interest impact. AMD will use excess cash and free cash flow for that debt reduction. Given that AMD has 3.67 billion USD of debt, we would not be surprised if that financial hole eats up all the 1.25 billion dollars paid by Intel. Then again, from the report here we saw that AMD did not receive any early debt repay bonus like we were lead to believe. Thus, we expect to see debt reduced to 2.42 billion, with additional 110-180 million replay that will reduce the profit level. Overall, we would expect that AMD exits 2010 with less than two billion dollars in debt, on course of repaying that debt by 2013, in line with majority of that debt being due in 2012 and 2015.
The plan for 2010 is consistent profitability. "Keeping our nose above water" is the primary focus of the organization according to Seifert. They want to keep liquidity, because capital markets are not stable enough. He feels that current market conditions favor AMD. However, an equity offering is "unattractive at current levels" and "it is not the right time for such a step."
They expect the market to grow 10 to 15 percent. AMD, who is already experiencing gross margins of 40 to 45 percent, plans to benefit from that growth. They are keeping R&D (research and development) at 20 to 23 percent. Capital expenditures will stay at the current level of $120 million. SG&A costs were 14 to 17 percent. Seifert says they reached their break-even model with conservation, disciplined cash management and expense control. They are aiming long term at reducing R&D to 16 to 19 percent and bringing SG&A down to 11 to 14 percent.
Beyond 2010, they are counting on unique platforms, AMD Fusion, and 32nm transition which may take gross margins beyond 45 percent.
Dirk Meyer, CEO, added some thoughts. He agreed that they are changing the company and repeated the theme of the day, that AMD is Changing The Game, just as the inclusion of the forward pass in football changed that game. He cited three dimensions for ongoing success: compelling offerings which focus on usage; differentiating with GPU (graphic processing unit); and winning with AMD Fusion. "Fusion will bring the forward pass to the computer business.”
Meyer says they are "building deeper relationships, winning platforms, and a fair competitive environment." Meyer emphasized that AMD’s success in the market is hampered by anti-competitive behavior [read Intel]. Today’s news may be a good omen, at least the stock market thought so. AMD shares shot up by almost 22 percent to $6.48 [+21.8%], increasing the market cap of the company to 4.34 billion dollars, only 10 million dollar shy of a whole billion dollar mkt. cap gain [AMD closed yesterday valued at $3.35 billion].
Dirk Meyer, Thomas Seifert, AMD, Advanced Micro Devices, Fusion, GPU, gross margin, stock market, debt, cash flow, GlobalFoundries, 40nm, DirectX 11, Bruce McDougal
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