Lisa Su, the SVP and GM of Global Business Units for Advanced Micro Devices, Inc (NYSE: AMD) along with Ruth Cotter, the Director of Investor Relations, have just given a presentation at the JPMorgan Global Technology, Media and Telecom Conference that investors in the company along with Intel Corporation (NASDAQ: INTC) and NVIDIA Corporation (NASDAQ: NVDA) might want to take a look at. I should first mention that we previously had an open position in Advanced Micro Devices in our SmallCap Network Elite Opportunity (SCN EO) portfolio from roughly last summer up until late January when we locked in a small loss. We got out not because we don't believe in AMD's long term potential, but because our SCN EO is a trading portfolio rather than a long term buy and hold portfolio. In addition, AMD's shares had sunk again after the company reported earnings – a repeat performance of what happened after the last three previous earnings reports. With that in mind, here are some highlights from the AMD presentation at the JPMorgan Global Technology, Media and Telecom Conference (Note: There is a transcript available on SeekingAlpha here):
Product Transition. Followers of Advanced Micro Devices will probably already know this bit of info, but its also worth reiterating:
"If you look in 2012, our business was probably over 95% index to the PC market. And we know that the PC market has continued to have volatility, particularly on the consumer side. We have said that in 2013 due to our ramp in game consoles that we've been able to diversify our business, so about 30% outside of the PC business; 70% still in the PC business. And by the end of 2015 what you will see from us is that we'll have about a 50-50 mix between PC business and growth markets."
Could AMD Go Into Mobile? When asked about whether Advanced Micro Devices could go into mobile, Lisa answered:
"So I think to your question of could AMD go into mobile, we could. When you look at mobile though, we should distinguish let's called smartphones and let's call it higher end tablets two-in-ones notebook PCs. We're not selecting smartphones as a market for AMD. And it's a relatively crowded market and it's not a place that we can uniquely differentiate in a standard product. However, when you look at the higher end of new form factor notebooks, tablets two-in-ones, other mobile devices I think you will see AMD in those and you will us there with both x86 and ARM."
The Server Market. Lisa was asked whether there is a "number in mind of the server market that you think could be ARM in say five years" with her reply being:
"So this is like a crystal ball that none of us -- whatever number we put out there is probably going to be wrong. But let's say our view is it could be 20%, 25% of the market in the 2018, 2019 timeframe. And very important for to be double digits, very important to get the early adopters to demonstrate the capability, but I think from everything that we see, from everything that I see talking to customers, there is a strong, both interest as well as desire to commit resources to making that software investment."
The PC Market and End of XP. On the subject of the PC market, Lisa said:
"…when we ended last year, we were actually planning for pretty conservative PC condition, so we had talked about perhaps down 10% in 2014. We recently updated that and we think it's a little bit better than that, maybe somewhere 7% to 10%.The big season for PCs is going to be the second half of the year as it always is. So from everything we see in the first half of the year, it's behaving as we would expect. Customers are building up now for the back-to-school cycle and looking at how the holiday season will perform."
The Balance Sheet. Regarding AMD's balance sheet and debt load, Ruth stated:
"So, we are very focused on reducing our debt profile. Our debt today is about $2 billion. Our optimal cash balance, just to keep cash about $1 billion dollar. But we have a minimum threshold of about $600 million. We've consistently kept it at $1 billion for the last five quarters. In terms of free cash flow generation, it's our expectation that we'll continue to generate free cash flow this year and incremental dollars above the $1 billion threshold, we would like to prefer that towards debt reduction and in time and that we'll continue to focus on the balance between our core and growth businesses as we think about attributing those incremental dollars towards [desk]."
She then said that AMD hasn't stated a leverage target yet and that there is a CFO who has been in place for about 12 months now.
"And the primary goal was to show stability in the balance sheet in terms of cash maintenance and debt maintenance. And we've just pushed out some of our debt -- our near-term debt. We have $500 million due coming up. So we've pushed that out. In terms of the near-term debt maturities, now we've pushed to three years, in three years time. And as I say, I think as you see the stability that meets our reference to the overall business model and sustainable profitability and we'll then look at how we start reducing that $2 billion goal."
The Evolving Data Center. During the Q and A, someone commented that there is talk about how some big firms with their own data centers want to design their own server chips. Lisa responded by saying:
"My belief is that it's the following: It's very expensive to maintain your own chip design team. If you think about chip design and manufacturing, there are few companies who can do that in a fully integrated manner. Apple and Samsung are two of them in the consumer space. I don't think you see so many in the enterprise space. So I think the likely spectrum is there will be customization. And I think from our standpoint, we think AMD is a great partner because of the IP that we bring to the table. The customization could be in the avenue of special IP or could be in the avenue of special software or could be a fully custom chip. And I think the more flexibility that we can offer the customer set, the better they can make a trade off in their business model."
Share Performance. On Tuesday, small cap Advanced Micro Devices fell 0.98% to $4.05 (AMD has a 52 week trading range of $3.04 to $4.65 a share) for a market cap of $3.09B plus the stock is up 5.2% since the start of the year, down 0.49% over the past year and up 1% over the past five years.
Finally, here are the latest technical charts for Advanced Micro Devices along with Intel Corporation and NVIDIA Corporation:
SmallCap Network Elite Opportunity (SCN EO) had an open position in AMD. To find out what other open positions SCN EO currently has, and to learn why so many traders and investors are relying on this premium subscription service, click here to find out more.
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