AMD Reports Fourth Quarter and Annual 2018 Financial Results

Wafer Supply Agreement Update
Today AMD announced it entered into a seventh amendment to its wafer supply agreement with GLOBALFOUNDRIES Inc. (GF). GF continues to be a long-term strategic partner to AMD for the 12nm node and above and the amendment establishes purchase commitments and pricing at 12nm and above for the years 2019 through 2021. The amendment provides AMD full flexibility for wafer purchases from any foundry at the 7nm node and beyond without any one-time payments or royalties.

Recent PR Highlights

  • At CES 2019, AMD highlighted leaps in computing, gaming and visualization technologies expected this year based on a combination of the advanced computing and graphics designs and leading-edge 7nm manufacturing.
    • AMD unveiled the Radeon™ VII graphics card, the world’s first 7nm gaming GPU, which features 2X the memory and 2.1X the memory bandwidth and is designed to deliver up to 29 percent higher gaming performance and up to 36 percent higher content creation performance compared to the previous generation.  It is expected to be available February 2019.
    • AMD delivered the first public demonstration of its 3rd Generation AMD Ryzen™ processor, a high performance and highly efficient desktop processor expected to be available in mid-2019.
    • AMD announced a comprehensive notebook processor line up that further expands the company’s footprint in this growing PC market segment:
      • 2nd Gen AMD Ryzen™ 3000 Series Mobile Processors for ultrathin notebooks
      • AMD Athlon™ 300 Series Mobile Processors for mainstream notebooks based on the “Zen” core architecture
      • AMD 7th Generation A-Series processors, the company’s first-ever solutions targeting the growing Chromebook market. Acer and HP both launched products based on these new processors at the tradeshow.
    • AMD also demonstrated the next generation AMD EPYC processors, delivering a significant increase in datacenter processing performance compared to current server processors. The next generation AMD EPYC processor is on track to start shipping in mid-2019.
  • AMD joined the NASDAQ-100® Index composed of the 100 largest non-financial companies listed on The NASDAQ Stock Market® based on market capitalization.
  • At AMD’s Next Horizon event in November, the Company demonstrated 7nm compute and graphics products delivering datacenter innovation:
    • AMD launched the world’s first 7nm datacenter GPUs, the AMD Radeon Instinct™ MI60 and MI50 accelerators, designed for deep learning, HPC, cloud computing and rendering workloads.
    • AMD shared new details on its upcoming “Zen 2” processor core architecture, including its revolutionary chiplet-based x86 CPU design which leverages AMD Infinity Fabric interconnect to link separate pieces of silicon within a single processor package.  AMD provided the first public demonstration of the “Zen 2” core with its upcoming next-generation AMD EPYC processor, offering up to 64-cores per socket and revolutionary I/O.
    • AMD announced ROCm 2.0, a new version of its open-source software platform that allows customers to deploy high-performance, energy-efficient heterogeneous computing systems in an open environment.
  • New datacenter design wins and deployments demonstrate the power of AMD EPYC and AMD Radeon Instinct products for high-performance computing applications:
    • Amazon Web Services announced the availability of the first EPYC processor-based instances on Amazon Elastic Compute Cloud.
    • Lawrence Livermore National Laboratories and the High-Performance Computing Center of the University of Stuttgart selected AMD EPYC CPUs and AMD Radeon Instinct™ GPUs to power their new supercomputers.
    • The Department of Energy announced the new AMD EPYC processor-powered NERSC-9 supercomputer, “Perlmutter,” scheduled for delivery in 2020.
  • AMD further expanded the number one selling high-end desktop processor family with the availability of new AMD Ryzen™ Threadripper™  processors, powering the ultimate computing experiences for gamers, creators and enthusiasts. AMD also introduced new AMD Athlon™ processors with Radeon™ Vega graphics.
  • AMD provided gamers and creators with powerful new graphics and software solutions:
    • AMD unveiled AMD Radeon™ Vega Mobile graphics processors, including the AMD Radeon™ Pro Vega 20 and Radeon™ Pro Vega 16 graphics, which are available in Apple’s 15-inch MacBook Pro. Radeon Vega Mobile graphics enable creators with amazing performance in creative applications and deliver stunning 1080p HD gaming.
    • AMD introduced the Radeon™ RX 590, an advanced 12nm GPU powered by the AMD “Polaris” architecture, delivering amazing gaming experiences and outstanding performance for the latest AAA, esports and VR game titles.
    • AMD released the next generation of its consumer-focused software suite for Radeon GPUs, AMD Radeon™ Software Adrenalin 2019 Edition, delivering up to 15 percent average higher performance for some of today’s top game titles compared to the previous version, and new features such as device-independent wireless PC-to-VR streaming.

Current Outlook
AMD’s outlook statements are based on current expectations. 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.

For the first quarter of 2019, AMD expects revenue to be approximately $1.25 billion, plus or minus $50 million, a decrease of approximately 12 percent sequentially and 24 percent year-over-year.  The sequential decrease is expected to be primarily driven by continued softness in the graphics channel and seasonality across the business.  The year-over-year decrease is expected to be primarily driven by lower graphics sales due to excess channel inventory, the absence of blockchain-related GPU revenue and lower memory sales.  In addition, semi-custom revenue is expected to be lower year-over-year while Ryzen, EPYC and Radeon datacenter GPU product sales are expected to increase.  AMD expects non-GAAP gross margin to be approximately 41 percent in the first quarter of 2019.  In addition, the Company expects to record a $60 million IP licensing gain which will be a benefit to operating income and recorded on the licensing gain line of the P&L.

For full year 2019, AMD expects high single digit percentage revenue growth driven by Ryzen, EPYC and Radeon datacenter GPU product sales as the Company ramps 7nm products throughout the year.  AMD expects non-GAAP gross margin to be greater than 41 percent for 2019.

AMD Teleconference
AMD will hold a conference call for the financial community at 2:30 p.m. PT (5:30 p.m. ET) today to discuss its fourth quarter and fiscal year 2018 financial results. AMD will provide a real-time audio broadcast of the teleconference on the Investor Relations page of its website at www.amd.com. The webcast will be available for 12 months after the conference call.


RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES    
 (In millions, except per share data)  Three Months Ended  Year Ended
   December 29,
2018
  September 29,
2018
  December 30,
2017
  December 29,
2018
  December 30,
2017
GAAP gross margin   $ 537     $ 661     $ 452     $ 2,447     $ 1,787  
GAAP gross margin %   38 %   40 %   34 %   38 %   34 %
Impairment of technology licenses   45             45      
Stock-based compensation   1     1         4     2  
Non-GAAP gross margin   $ 583     $ 662     $ 452     $ 2,496     $ 1,789  
Non-GAAP gross margin %   41 %   40 %   34 %   39 %   34 %
                     
GAAP operating expenses   $ 509     $ 511     $ 454     $ 1,996     $ 1,712  
Stock-based compensation   35     35     21     133     95  
Non-GAAP operating expenses   $ 474     $ 476     $ 433     $ 1,863     $ 1,617  
                     
GAAP operating income (loss)   $ 28     $ 150     $ (2 )   $ 451     $ 127  
Impairment of technology licenses   45             45      
Stock-based compensation   36     36     21     137     97  
Non-GAAP operating income   $ 109     $ 186     $ 19     $ 633     $ 224  

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