AMD’s Plan to Reach Financial Freedom

SUNNYVALE, Calif. – Advanced Micro Devices (AMD) today spelled out plans for a wide range of new products in 2010 and 2011 as well as discussed how it would get its financial house in order following the brutal 2009 and spin-off of its fabrication plants.

Speaking to an audience of industry and Wall Street analysts here, Thomas Seifert, AMD’s (NYSE: AMD) new CFO, addressed the company’s $3.6 billion in debt, which matures in 2012. AMD got a nice cash infusion from Abu Dhabi when it sold off its fabrication plants as a stand-alone business but it still has racked up a fairly burdensome debt.

Those plants were definitely a strain on the company’s finances. In Q4 2008, operating expenses were $733 million. In Q3 2009, with the fabs spun off as Globalfoundries, opex was just $480 million. Capital expenditures in Q4 2008 were $112 million; in Q3 2009 they were $19 million.

“It leads to a lean business model with a significantly lower break-even point while keeping the product roadmap on track,” said Siefert. “It has helped us to improve drastically our execution performance.”

Priorities for 2010 are consistent profitability, debt reduction, liquidity, operational efficiencies and expense control. AMD projects the CPU and GPU market will both grow around 10 to 15 percent, and the company is targeting gross margins in the range of 40 to 45 percent and being free cash flow positive.

AMD is the only chip company with all three major chip components of a PC – the CPU, GPU and controller chipset – under one roof. Intel is working on a discrete GPU called Larrabee which it reportedly is struggling to bring to market, a charge the company denies. nVidia has a GPU and chipset business but no CPU.

AMD has only recently made strides toward putting the pieces of the puzzle together, but it looks like it’s hitting the home stretch. Nigel Dessau, AMD’s senior vice president and chief marketing officer, said that 90 percent of all AMD-powered laptops coming to market have the AMD VISION logo, meaning they use an AMD chipset and graphics, not just the CPU.

Dessau also said that AMD will launch a similar VISION program for desktop PCs next year.

Globalfoundries takes wing

While Globalfoundries is a company spun out of AMD and AMD is its largest customer, the chip fabrication company wants to leave the nest and establish itself as a premier foundry as soon as possible.

In a session following the main briefing, Globalfoundries said it is already ramping up manufacturing of 32nm CPUs and is targeting 28nm for GPUs to begin in the fourth quarter of 2010, according to CEO Doug Grose. The move to 32nm means moving to high-k metal tech materials, something Intel did two years ago with the Penryn generation of processors.

In 2010, Globalfoundries’ main goals are to support AMD, begin customer engagement at 40nm and 28nm bulk, execute on 300mm wafer capacity, expand the Dresden facilities and integrate with Chartered Semiconductor, which it is in the purchase of acquiring.

The company had been working on 40nm manufacturing but halted it after the economic turndown. Now things are picking up and it’s too late for the company to get into the market, since it can take a year or more to get a line fully running. It will have some 40nm manufacturing, but not in time to help AMD with its current supply issues. The main focus now is on getting ready for 28nm, said Grose.

After the close of the Chartered deal, AMD and Chartered will be one company. Chartered comes with 150 customers and Global has two, AMD and STMicroelectronics. “We will have one brand, one go-to-market strategy, one customer facing element and one operational capability. So we will look like one overall company to customers today,” said Grose.

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