AMD Reports Third Quarter Results

AMD (NYSE:AMD) today reported sales of $1.33 billion, operating income of $119 million, and net income of $134 million, or $0.27 per share, for the quarter ended October 1, 2006. These results include $16.5 million of employee stock-based compensation expense. In the third quarter of 2005, excluding the Memory Products segment1, AMD reported sales of $1.01 billion and operating income of $129 million. In the second quarter of 2006, AMD reported sales of $1.22 billion and operating income of $102 million.   Change   Q3-06 Q2-06 Q3-051 Q3-06 vs Q2-06 Q3-06 vs Q3-05 Net Sales (billions) $1.33  $1.22  $1.01  9% 32% Operating Income (millions) $119  $102  $129  17% (8)% Gross Margin 51.4% 56.8% 55.4% (5.4)% points (4.0)% points "Third quarter sales increased nine percent from the prior quarter, and 32 percent year-over-year, due to strong demand for all AMD processor brands,” said Robert J. Rivet, AMD’s chief financial officer. "Microprocessor unit shipments grew 18 percent sequentially as customers continued leveraging AMD’s open platform approach. Demand for AMD Turion™ 64 mobile processors was especially strong, resulting in record mobile processor sales and unit shipments coupled with increased average selling prices (ASPs). Record AMD Opteron™ processor sales resulted from continued adoption of dual core processors, record unit shipments and improved ASPs.” Desktop processor sales were flat sequentially with increased unit shipments offset by decreased ASPs. AMD continued to successfully ramp production in both Fab 36 and Chartered Semiconductor. The conversion to 65 nanometer production in Fab 36 is on track, with revenue shipments planned for the fourth quarter. Third quarter gross margin was 51.4 percent, compared to 56.8 percent in the second quarter of 2006 and 55.4 percent in the third quarter of 2005. The gross margin decrease was largely due to lower desktop processor ASPs which caused a decline in overall processor ASPs. ADDITIONAL HIGHLIGHTS   --  AMD and ATI announced plans to join forces to create a processing powerhouse. The transaction has received all of the required regulatory and shareholder approvals necessary for close and is expected to be completed the week of October 23rd.   --  Customer highlights in the third quarter included:   --  Dell launched its first AMD64 processor-based Dimension desktop systems for consumers and small businesses.   --  Founder, China's second largest PC provider and the seventh largest global desktop PC provider, announced plans to launch a full range of AMD64-based desktop, notebook and server systems throughout China.   --  IBM unveiled five new AMD Opteron-based mainstream server platforms that are quad-core ready.   --  Commercial adoption of AMD Athlon(TM) 64 processor-based desktop systems continued, with Acer, HP, Lenovo, and NEC Computers announcing new AMD-powered platforms. The HP and Lenovo solutions are their first AMD client systems targeted at large enterprise customers.   --  More than 150 AMD Turion 64 platforms are shipping or in development worldwide from the leading PC manufacturers.   --  AMD announced broad support for its Torrenza Initiative by leading server manufacturers including Cray, Dell, Fujitsu Siemens Computers, HP, IBM and Sun Microsystems. Torrenza is the industry's first open x86 innovation platform, capitalizing on the unique advantages of the AMD's Direct Connect Architecture and HyperTransport(TM) technology to enable partners to innovate within a common ecosystem.   --  AMD introduced its next-generation AMD Opteron processor family, the only x86 server processor with planned upgradeability to native quad-core within the same thermal design power envelope.   --  More than 60 percent of the top 500 of the Forbes Global 2000 companies or their subsidiaries are using AMD64 technology. Companies that have recently joined these growing ranks include Allianz Group, Linde Group, Merck KGAA, Schering AG, and Quest Diagnostics. Additionally, government organizations that adopted AMD64 technology in the quarter include the U.S. Air Force, the U.S. Department of Census, the U.S. Navy SPAWAR, the Defense Contract Management Agency, the National Institute of Health, and the Defense Information Systems Agency (DISA).   --  AMD expanded its global research and development operations, opening the Shanghai Research and Development Center to drive next-generation platform innovation and an advanced microprocessor development facility in Fort Collins, CO named the "Mile High Design Center." CURRENT OUTLOOK AMD’s outlook statements are based on current expectations and exclude ATI operations and ATI acquisition-related charges. 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. AMD expects demand for its products to be seasonally strong in the fourth quarter and sales to increase sequentially. AMD TELECONFERENCE AMD will hold a conference call for the financial community at 2:30 p.m. PDT 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 microprocessor solutions for computing, communications and consumer electronics markets. Founded in 1969, AMD is dedicated to delivering superior computing solutions based on customer needs that empower users worldwide. For more information visit www.amd.com. CAUTIONARY STATEMENT This release contains forward-looking statements concerning sales for the fourth quarter of 2006, AMD’s technology and capacity introduction schedule and the timing of the completion of the planned acquisition of ATI Technologies, Inc, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements in this release involve risks and uncertainties that could cause actual results to differ materially from the company’s current expectations. Risks include the possibility that competitors, customers and suppliers of AMD or ATI may take actions that may negate the impact of the anticipated benefits of AMD’s acquisition of ATI; revenue, cost savings, growth prospects and any or other synergies expected from the planned acquisition will not be fully realized or will take longer to realize than expected; the planned acquisition will not be accretive as expected; the company will not achieve any year-end or longer-term targeted gross margins, research and development expenses, selling, general or administrative expenses, operating margins, capital structure or debt-to-capitalization ratio; there will be delays associated with integrating the companies, including employees and operations, after the planned acquisition is completed; goodwill and other long-lived assets resulting from the planned acquisition and the resulting impact on the company’s assets and earnings will be impaired; global business and economic conditions will worsen, resulting in lower than currently expected sales in the fourth quarter of 2006 and beyond; Intel Corporation’s pricing, marketing programs, product bundling, new product introductions or other activities targeting the company’s business will prevent attainment of the company’s current sales plans; demand for computers and, in turn, demand for the company’s products will be lower than currently expected; the company will not achieve its current product and technology introduction schedules; the company will require additional capital and will not be able to raise sufficient capital, on favorable terms or at all; the company will not be able to obtain sufficient manufacturing capacity or components to meet demand for its products; solutions providers will not provide the infrastructure to support the company’s AMD64 technology in a timely fashion; and unfavorable results of operations of Spansion will adversely impact the company’s results of operations. We urge investors to review in detail the risks and uncertainties in the company’s Securities and Exchange Commission filings, including but not limited to the Annual Report on From 10-K for the year ended December 25, 2005 and AMD’s quarterly report on Form 10-Q for the quarter ended July 2, 2006. AMD, the AMD Arrow logo, AMD Athlon, AMD Opteron, AMD Turion, and combinations thereof are trademarks of Advanced Micro Devices, Inc. Spansion is a trademark of Spansion, Inc. Other names used are for identification purposes only and may be trademarks of their respective owners. 1 As a result of Spansion Inc.’s initial public offering (IPO) in December 2005, financial results for periods in 2006 compared to periods in 2005 do not correlate directly. In this press release, all references to and comparisons with periods in 2005 exclude the results of the company’s former Memory Products segment. Advanced Micro Devices, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (Thousands except per share amounts)       Quarter Ended Nine Months Ended Oct. 1, Jul. 2, Sept. 25, Oct. 1, Sept. 25, 2006  2006  2005  2006  2005      (Unaudited)   (Unaudited)   (Unaudited) (Unaudited)   (Unaudited)   Net sales $ 1,327,622  $ 1,216,367  $ 1,522,755  $ 3,876,147  $ 4,009,301    Cost of sales (includes stock-based compensation expense of $1,932 for Q3 FY'06; $2,200 for Q2 FY'06 and $0 for Q3 FY'05; $5,920 for nine months ended Oct. 1, 2006 and $0 for nine months ended Sept. 25, 2005) 645,264  526,059  896,261  1,724,663  2,469,663                        Gross margin 682,358  690,308  626,494  2,151,484  1,539,638    Gross margin % 51.4% 56.8% 41.1% 55.5% 38.4%   Research and development (includes stock-based compensation expense of $6,110 for Q3 FY'06; $6,834 for Q2 FY'06 and $0 for Q3 FY'05; $17,039 for nine months ended Oct. 1, 2006 and $0 for nine months ended Sept. 25, 2005) 277,380  278,674  289,018  820,230  814,724    Marketing, general and administrative (includes stock-based compensation expense of $8,468 for Q3 FY'06; $9,020 for Q2 FY'06; $ 277 for Q3 FY'05; $26,650 for nine months ended Oct. 1, 2006 and $743 for nine months ended Sept. 25, 2005) 285,806  309,525  258,748  851,373  698,974                        Operating income 119,172  102,109  78,728  479,881  25,940    Interest income 31,188  35,308  9,510  94,658  23,589  Interest expense (17,637) (17,859) (30,615) (58,743) (80,513) Other income (expense), net (1,975) 7,240  (3,456) (13,863) (10,463)                       Income (loss) before minority interest, equity in net loss of Spansion Inc. and income taxes 130,748  126,798  54,167  501,933  (41,447)   Minority interest of consolidated subsidiaries (6,941) (7,183) 21,227  (20,471) 105,985    Equity in net loss of Spansion Inc. (10,204) (12,467) -  (40,914) -    Provision (benefit) for income taxes (20,852) 18,301  (606) 32,722  (5,358)                         Net income $ 134,455  $ 88,847  $ 76,000  $ 407,826  $ 69,896                        Net income per common share   Basic $ 0.28  $ 0.18  $ 0.19  $ 0.85  $ 0.18    Diluted $ 0.27  $ 0.18  $ 0.18  $ 0.82  $ 0.17                        Shares used in per share calculation   Basic 486,331  484,541  399,025  478,318  395,839  Diluted 496,772  500,176  443,681  497,332  409,586  Advanced Micro Devices, Inc. CONSOLIDATED BALANCE SHEETS (Thousands) Oct. 1, Jul. 2, Dec. 25, 2006  2006  2005(a)         (Unaudited)   (Unaudited)         Assets   Current assets: Cash, cash equivalents and marketable securities $ 2,356,903  $ 2,530,062  $ 1,794,766  Accounts receivable, net 688,023  571,539  805,531  Inventories 465,716  405,285  388,631  Prepaid expenses and other current assets 326,238  308,323  477,302  Deferred income taxes 74,981  90,323  92,606                        Total current assets 3,911,861  3,905,532  3,558,836    Property, plant and equipment, net 3,403,878  3,163,181  2,701,000    Net investment in Spansion Inc. 671,249  686,984  721,342    Other assets 392,255  306,198  306,601                        Total Assets $ 8,379,243  $ 8,061,895  $ 7,287,779    Liabilities and Stockholders' Equity   Current liabilities: Accounts payable 901,349  706,454  855,834  Accrued compensation and benefits 147,250  161,547  226,874  Accrued liabilities 473,477  429,843  388,998  Income taxes payable 17,790  45,567  3,326  Deferred income on shipments to distributors 115,571  189,992  141,898  Current portion of long-term debt and capital lease obligations 44,950  45,139  43,224    Other current liabilities   191,824      175,947      161,807      Total current liabilities 1,892,211  1,754,489  1,821,961    Deferred income taxes 75,861  90,323  92,606  Long-term debt and capital lease obligations 644,357  647,109  1,327,065  Other long-term liabilities 482,204  450,289  459,322  Minority interest in consolidated subsidiaries 272,116  267,095  234,988    Stockholders' equity: Capital stock: Common stock, par value 4,870  4,856  4,355  Capital in excess of par value 3,958,680  3,921,784  2,710,168  Retained earnings 881,631  747,160  473,678    Accumulated other comprehensive income   167,313      178,790      163,636      Total stockholders' equity 5,012,494  4,852,590  3,351,837                        Total Liabilities and Stockholders' Equity $ 8,379,243  $ 8,061,895  $ 7,287,779      (a)Derived from the December 25, 2005 audited financial statements of Advanced Micro Devices, Inc. Advanced Micro Devices, Inc. SELECTED CORPORATE DATA (Unaudited) (Millions except headcount and percentages)         Quarter Ended Nine Months Ended Oct. 1, Jul. 2, Sept. 25, Oct. 1, Sept. 25, Segment Information (6) 2006  2006  2005  2006  2005                          Computation Products (2) Net sales $ 1,290  $ 1,172  $ 969  $ 3,761  $ 2,486  Operating income 133  113  149  531  331    Embedded Products (3) Net sales 38  44  35  120  95  Operating loss (1) (6) (14) (18) (40)   All Other (4) Net sales -  -  3  (5) 3  Operating loss (13) (5) (6) (33) (16)   Subtotal (excluding Memory Products segment) Net sales 1,328  1,216  1,007  3,876  2,584  Operating income 119  102  129  480  275    Memory Products (5) Net sales -  -  516  -  1,425  Operating loss -  -  (50) -  (249)   Total AMD Net sales 1,328  1,216  1,523  3,876  4,009  Operating income 119  102  79  480  26                            Other Data (AMD excluding Memory Products segment)     Gross margin % 51.4% 56.8% 55.4% 55.5% 55.4%   Research and development expenses $ 277  $ 279  $ 216  $ 820  $ 598    Marketing, general and administrative expenses $ 286  $ 310  $ 214  $ 851  $ 559    Depreciation & amortization $ 200  $ 193  $ 154  $ 567  $ 515    Capital additions $ 425  $ 455  $ 177  $ 1,190  $ 859    Headcount 11,609  10,967  9,530  11,609  9,530    International sales % 70.9% 70.2% 72.5% 70.2% 70.7%                         EBITDA (1) $ 331  $ 318  $ 397  $ 1,066  $ 1,087                            (1) RECONCILIATION OF NET INCOME TO EBITDA(a)   Net income $ 134  $ 89  $ 76  $ 408  $ 70  Depreciation and amortization 200  193  291  567  942  Interest expense 18  18  31  59  81  Provision (benefit) for income taxes (21) 18  (1) 33  (5)                     EBITDA $ 331  $ 318  $ 397  $ 1,066  $ 1,087      (a) Starting Q106, the Company defines EBITDA as net income adjusted for interest expense, tax, depreciation and amortization. Prior period information has been restated to conform to current period presentation.     (2) Computation Products segment includes PC processors and Chipsets. (3) Embedded Products segment, formerly known as Personal Connectivity Solution Products, includes Embedded Processors and Products for global commercial and consumer markets. (4) The All Other category includes certain operating expenses and credits that are not allocated to the operating segments and, starting Q305, includes Personal Internet Communicator (PIC) products. (5) Memory Products segment included Flash memory products of AMD and Spansion. Spansion closed its IPO on Dec 21, 2005. Since that time, AMD uses the equity method of accounting to reflect its proportionate share of Spansion's net income (loss). (6) Starting Q405, the Company allocates bonus and profit sharing expenses to the segments. Prior period information has been restated to conform to current period presentation.   Note: Figures may not foot due to rounding