AMD - Advanced Micro Devices, Inc. - Credit Suisse 2013 Technology Conference Transcript

    Analyst

    And then your product roadmap again very robust this year, how do we think about the roadmap going forward from here in the core PC market?

    Devinder Kumar

    Chief Financial Officer
    The one thing that we have done in the last year in particularly and I think there have been concerns as we've taken down. Our OpEx used to be closer to $600 million in the Q1, 2012 timeframe. We took it down as we projected a year ago to 450 and actually lower than 450 in Q3.

    But IP reuse, making the R&D organization more effective, more efficient, using the IP technology that we have in all of the different products that you mentioned whether it's Kaveri that's coming up and we have Mullins and Vima coming out in 2014 we are going to continue doing that. But it is a competitive market, we are going to be focus within the PC space, desktop has been pretty stable, we have refocus our attention in that area. In the channel market going back to 2011 we have just stumbled with the Nano introduction of the product, that is an easier way we have built explicitly pretty well this year.

    And then the one area not that we have acknowledged, we just haven't been competitive and then because of the roadmap is we have pre focused on the consumer client space, which we see actually as a stable or growth space as we go into 2014. Notebook consumer which has been our suite spot and where we have feed over index from an overall spend point is the easier way there is competition one from the tablet space and then from the competitor as you talked about taking that space pretty aggressively.

    Analyst

    What's your view or your prospects within the tablet space now that you have to - at the market place. Is that an area where you think you can get 5 million to 10 million users next year or in terms of targets you can talk to.

    Devinder Kumar

    Senior Vice President and Chief Financial Officer
    I am not going to get to the unit numbers but the mash was in the market before the competitor came up with their product. So, there is traction from a customer standpoint a lot of interest but it's very competitive from a viewpoint of our competitor having to get back market share that they are focused on. And so, we are looking to defend then from a unit standpoint, but I can tell you from a discipline standpoint, when we are not going to take business or try to maintain this at any cost , we are not in the business of doing that. We want to be very disciplined from an OpEx standpoint and from a P&L standpoint.

    And therefore, not going to chase the business at all costs. There is obviously price competition in the area, we do have a product that's coming up which is the Mullins products that's a follow-up to Tamash. That's actually going to take the follow envelope down to watts which is going to be competitive not just with Mullins but also with we've made trails from that standpoint. And I think that bodes well to play into the tablet space as we enter 2014.

    Analyst

    Gaming has been a success story for you guys especially this last couple of weeks with the introduction of the new Sony PlayStation, the New Microsoft X-box. How should we as investors think about the profit opportunity there? Because there are some moving pieces to that puzzle because you have had historical exposure to that space with very high margin IP business And so, if we start to think about a 30 to 40 million unit TAM per year. How does that look profit wise versus what you had two quarters ago?

    Devinder Kumar

    Senior Vice President and Chief Financial Officer
    I think you want to look at that gaming opportunity first of all is that back and say how did the product going about. Two and two and a half years ago we were engaged with the customers that are going to introduce game consoles in 2013 and we engaged with them very early on and it's a NRE-based model whereby we went to the customers and said, okay, we have this IP we can use our products it's you get graphics and you go to CPU compute power, we put it on the same chip and you could use that for the next generation game consoles. Essentially the dollars for the customization work gets funded by the customer. So the R&D work is done.

    Now that the products are introduced as you just said, very exciting, the marketing and sales dollars spend for that portion of the business is zero. We don't need to spend anything there. So the flow through you have from the gross margin standpoint or the operating margin is significant. Now even if you get to the top line we expect ASPs anywhere between $60 and $100, we haven't been specific in terms of what those ASPs are but these are multi-year contracts.

    Now there are opportunities to improve the gross margin both in terms of dollars and percentages based upon improving use in the process technology at the foundries as well as we have backend factories, assembly test mark factories China and Malaysia, there the union footprint has been pretty dramatic, very good from an execution standpoint. We supplied millions of units in Q3, continues supply and even more in Q4 than Q3 and that would help us from a revenue standpoint. And then the fall through if you improve the yield, the gross margin line is significant.

    And then the last piece I will mention is having had success with Xbox One and PlayStation4 for Sony and Microsoft, the engagement with these customers follow on products and other customers that have now become interview say what they could use AMD's APU for, is very high. And we are looking for opportunities of scale, the semi custom business led by essentially the same OpEx dollars, the scale of the business would generate more operating margin dollars.

    Analyst

    So, you talked about a 20% margin target for this portion of business. When do you think you get there especially given which usually pretty aggressive negative seasonality in the first half of the year for gaming. Is that out margin target really something we should think about for the back half of calendar year '14 or how does that dynamic play out?


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