Advanced Micro Devices' CEO Hosts 2013 Annual Meeting of Stockholders Conference (Transcript)

| About: Advanced Micro (AMD)

Advanced Micro Devices, Inc. (NYSE:AMD)

2013 Annual Meeting of Stockholders Conference Call

May 16, 2013, 10:00 am ET


Bruce Claflin - Chairman

Rory Read - President & CEO

Harry Wolin - SVP, General Counsel & Secretary

Paul Ramirez - IVS Associates


Bruce Claflin

Good morning, ladies and gentlemen. Now 9 AM Central Time and I would like to call this meeting to order. Welcome to AMD’s Annual Meeting of Stockholders; I am Bruce Claflin, I am Chairman of AMD’s Board of Directors, Chairman of the nominating and the governance committee of the board.

I would also like to introduce other board of director nominees who are here today. Please stand when I call your name. Mr. Rory P. Read, Director, President and Chief Executive Officer; Dr. W. Michael Barnes, Director and Chair of the audit and finance committee; Mr. John E. Cadwell, Director; Mr. Henry WK Chow, Director; Mr. Nicholas M. Donofrio, Director; Ms. H. Paulett Eberhart, Director and Chair of the compensation committee; Mr. Ahmed Yahia, Director; Mr. John R. Harding, Director and Mr. Martin L. Edelman, Director were unable to join today’s meeting and I would like to recognize one other director and that’s Robert B. Palmer, Bob Palmer served on our board of directors for 14 years, he did not stand for re-election this year having reached the retirement age that we have in our guidelines. I want to thank Bob for his service, he was a committed, dedicated director who always had the interest of shareholders in mind, Bob would you please stand and be recognized.

I would now also like to introduce our Senior Vice President and Chief Financial Officer, Mr. Devinder Kumar and our Senior Vice President, General Counsel and Corporate Secretary Mr. Harry Wolin.

At our meeting this morning, we will first take care of the formal business of the meeting then Mr. Read will give his report. This morning we will also provide time for questions any of you may have for our directors and officer. In addition, representatives of Ernst & Young, our independent auditors are available for question. The meeting is now called to order.

As Chairman, I designate Mr. Harry Wolin as Secretary of the meeting. Mr. Wolin will now conduct the formal portion of the meeting.

Harry Wolin

Thank you, Bruce. Good morning. As set forth in the notice of the meeting the official business to be conducted is as follows. First, to elect the 10 director nominees named in our proxy statement. Second, to ratify the appointment of our independent auditor for the current fiscal year. Third, to approve the amendment and restatement of the Advanced Micro Devices Inc., 2004 Equity Incentive Plan. Fourth, to approve on a non-binding advisory basis the compensation of our named executive officers. And finally, to transact any other business as may properly come before this meeting.

Following the formal business of the meeting, Mr. Read will deliver his report as Chief Executive Officer of the company. A stockholder question-and-answer session will follow his report.

I would like to point out the management might be making forward-looking statements about the company's current plans and expectation. The actual results may differ materially from current plans and expectation. So I encourage you to review our SEC filings where we discuss the risk inherent in our business. You will find particularly detailed discussion in our most recent quarterly report on Form 10-Q for the period ended March 30, 2013. And finally, please hold your questions until after Mr. Read’s report is concluded.

Now returning to the business of the meeting; I've been authorized by the Board of Directors to appoint Paul Ramirez of IVS Associates as inspector of election for this meeting. Mr. Ramirez will determine the number of shares represented at this meeting, the validity of proxies, the existence of a quorum and the number of votes on all matters voted upon at this meeting.

Before we proceed further, is there anyone present who is not voted by proxy who wishes to withdraw his or her proxy or who otherwise desires to vote in person at this meeting? Come around and see Mr. Ramirez at the back of the room, so where everyone can see you. Thank you.

The Board of Directors fixed the close of business on March 18, 2013 as the record date for the determination of stockholders and filed the notice of this meeting and entitled the vote at this meeting. I have a list of our stockholders of the company from Computershare, our transfer agent going approximately 714,188,012 shares outstanding on the record date and entitled to vote at this meeting. The list is being kept on file at our offices in Sunnyvale, California and Austin, Texas for the last 10 days and is available here at the meeting for inspection by any stockholder.

I also have an affidavit certifying that proxy materials for this meeting were first mailed on March 28, 2013 to all stockholders of record on March 18, 2013. The affidavit is available for inspection by any stockholder who may wish to see it after the meeting. The count immediately before the commencement of this meeting of shares present in person or by proxy indicated at 494,708,294 shares of the company's voting stock were present representing 69.3 of the outstanding shares of common stock as of March 18, 2013. Based on this number a quorum is present. I now declare the polls open. I expect the polls to close in approximately 10 minutes. If there are any proxy that have not been filed they should now be filed or if any stockholder would like to vote personally by ballot please see Mr. Ramirez at the back of the room. A copy of the minutes of the annual meeting of stockholders of Advanced Micro Devices held on May 10, 2012 is in my possession for inspection by any stockholder who wishes to inspect it. We will dispense with the reading of those minutes this morning. The election of directors is the first item on the agenda. The slate of directors recommended by the Board of Directors is described in the 2013 proxy statement. The 10 individuals that have been nominated for election are Dr. W. Michael Barnes, Mr. John E. Caldwell, Mr. Henry WK Chow, Mr. Bruce L. Claflin, Mr. Nicholas M. Donofrio, Ms. H. Paulett Eberhart, Mr. Martin L. Edelman, Mr. John R. Harding, Mr. Ahmed Yahia, Mr. Rory P. Read.

AMD has adopted a majority voting standard for the election of directors with respect to on uncontested election such as this one. This standard requires each director to receive a majority of votes cast to be elected. I now declare the nominations close. The second item is ratification of the appointment of Ernst & Young as independent auditor for the company for the current year. The Board of Directors unanimously recommend ratification. The third item is to approve the amendment and restatement of the Advanced Micro Devices Inc. 2004 equity incentive plan to amend the existing plan to increase the number of shares authorized [positions] they are under by 16,500,000 shares, amend the definition of performance goals that maybe used in connection with performance based award granted under the 2004 plan, implement certain administrative amendments and satisfy stockholder approval requirement of section 162M of the internal revenue code of 1986 as amended. The Board of Directors unanimously recommend that you vote for this amendment and restatement.

The fourth item is to approve on a non-binding advisory basis, the compensation of our named executive officer as disclosed in the 2013 proxy statement pursuant to the compensation disclosure rule of the Securities and Exchange Commission. The Board of Directors unanimously recommend that you vote for this proposal. Are there any questions or comments on the floor on any of these items? If there is no discussion regarding a proposal, I direct the inspector of election to conduct the voting on the items now before the meeting. The shares of any stockholders and who has filed a proxy will be voted by the proxy holder in a manner specified on the proxy form. If there is any one who has not filed a proxy or who wishes to withdraw his or her proxy in both personally by ballot, please see Mr. Ramirez at this time.

Mr. Ramirez can you please present the report of the inspector of elections.

Paul Ramirez

I am pleased to announce that each of the nominees for director has been elected by the affirmative vote of a majority of the votes count. And the appointment of Ernst & Young as the company’s independent auditors has been ratified by the affirmative vote of the majority of the shares of common stock entitled to vote and represented in person or by proxy at the meeting. The proposal concerning the advisory vote on the compensation of named executive officers passed by the affirmative vote of the majority of the shares of common stock entitled to vote and represented in person or by proxy at this meeting. In order to pass the proposal to approve the amendment in lease payment of the Advanced Micro Devices Inc. 2004 equity incentive plan must precede the affirmative vote of the majority of the votes cast and the total vote cast in proposal must represent over 50% of the outstanding common stock entitled to vote on the proposal. We have not received a votes of a sufficient number shares on this proposal. However, it should be noted that 86% of the shares voted in this proposal, voted to approve the amendment to the plan.

Harry Wolin

Thank you, Mr. Ramirez. It's now 9.12 AM Central Time and I now declare the poll to be closed with the respect to the election of directors, the ratification of appointment of auditors and the advisory vote on the compensation of named executive officers. With that I would like to Mr. Claffin back to podium.

Bruce Claflin

Formal portion of the meeting is adjourned, to be continued on May 30, 2013 12:00 noon Pacific Standard time at the officers of Advanced Micro Devices, One AMD Place Sunnyvale, California. During such adjournment the polls will continue to remain open with respect to proposal three, the approval of the amendment and restatement of the Advanced Micro Devices Inc., 2004 equity incentive plan. At this time, its my pleasure to review AMD's President and Chief Executive Officer, Rory Read.

Rory Read

Thank you, Bruce. Welcome and thank you to join today's shareholder meeting. 2012 was the difficult year for the industry and for AMD as we saw a major change in the way of computing industry was addressing the opportunities of the market. The cloud is fundamentally changing the way data and applications interface with the customers and the devices that are proliferating across the industry. As we address these fundamental changes, we embarked on a three step transformation and turnaround of our business. The first step was around reset and restructure, to drive efficiency, to improve our expense model and to manage our cash effectively to give us the opportunity to address and accelerate our turnaround with an exciting and powerful set of new products.

That first step of reset and restructuring is largely complete and it’s an exciting time for us as we move into the second phase of our turnaround strategy, our classic three step turnaround strategy where we accelerate out of this reset and restructuring. That acceleration is based on execution. We must execute and deliver an exciting and power set of products. I am pleased to say that the product that we are introducing for 2013 are in fact a powerful set of products. Let's start in the client side; with our new products in Kabini and Temash and Richland, we are well positioned to effectively compete in the client space and have the opportunity to gain share in the second half. Additionally, we have introduced the plastics graphics product ever in the history of the industry and our product set. We believe that equally positions us to accelerate in the second half in the graphics market to again capture share. And as you know it’s critical with the market shifting and changing that we diversify our portfolio.

Our portfolio had been exclusively almost exclusively centered around the PC market. Now the PC market is not dead, and it’s got plenty of opportunities going forward, but its only prudent to go and continue to attack and win in that market and at the same time going after new opportunities in high growth segments. Areas like dense computing in terms of embedded processors in areas like industrial, medical, gaming, areas where we see both a graphical interface and a CPU across the interface. That combination plays exactly through an APU fusion strategy. I think it’s a very important as we look forward in 2013, we must continue to diversify that portfolio. 20% is a clear objective of our revenue by year end in these new high growth segment and we are on track. You may have seen our recent announcement with the Sony Corporation around the PS4. That's a very strong validation of this move to semi-custom embedded. And you will see additional winds in that space as the year progresses. That's all part of an ongoing strategy to diversify the portfolio into high growth segments where we can capture, innovate and lead.

Now step one reset and restructure basically done. We are on our path to drive efficiency from last year of almost $600 million of expense a year to $450 million by the second half third quarter. That's a big change and that's driving an efficiency and productivity. Devinder and the financial team have also effectively managed our cash position and we are well positioned to execute the launch and ramp of these new products.

As we move forward, it’s important in the second half we return to positive free cash flow. That will allow us to invest in the ultimate step three transformation of AMD, think about it in terms of this. Our company has to embrace where the cloud is going and we are and it presents a challenge, yet a unique opportunity for us to apply our unique IP and architectural prowess into this changing environment. The first step largely done, second step well positioned to accelerate into the second half and deliver return to profitability and free cash flow, and then ultimately to take that profitability and invest it into the future that allows us to win consistently in ’15, ’16 and ’17 and to capture these high growth segments like in computing embedded and the semi-custom.

I think it’s important to reflect on this challenging environment and to say we've faced it head on. We've looked at the challenges. We've reset the corporation. We've driven to a higher level of efficiencies. At the same time, we've aggressively executed to deliver a strong and powerful slate of new products in 2013 in the client space, the graphic space and the new growth segments. This should allow us to get to the goal of $450 million of expense, positive free cash flow in the second half and allow us to accelerate in to the transformation of the company which ultimately has to be the diversification of our product set, embracing the strength of PCs which is fill a good and important market and at the same time taking our innovative and strong IP base to win in the new markets that are going to accelerate in this cloud era.

I think it's been a challenging journey in ’12, but I look forward to ‘13 with optimism and essence of the future is our. We need to embrace this change in challenge as a unique opportunity for us to position AMD for a long-term growth and profitability. This is fundamental. At the end of the day, we made the adjustments to our expense and our operating processes. We have the product. We are delivering them. We look to accelerate and ultimately to transform.

That’s an update from my point of view and I’d like to open it up now for questions.

Question-and-Answer Session

Unidentified Analyst

(Inaudible) before you came here with respect to the cloud, are we not late getting onboard or is it just my imagination?

Rory Read

No, so my background is I spent 23 years at IBM and then I spent six years at Lenovo. I had experiences in the consulting area of the global services organization, as well as the COO and President of Lenovo which embrace the move from PC only to the extended cell phone, tablet mobility space. As I come to AMD, our primary business was centered over that PC segment, about 90% plus, 95% of our business was driven in those traditional PC segment. What we have done is we have taken that graphics prowess and leadership IP combined with our compute capability and targeted it into key segment that we know will grow in that cloud generation.

The dense server era is just beginning. You can think of it in the sense that datacenters are going to become larger and consume more power and the ability to scale and reduce the footprint is fundamental, that’s key and we are just at the beginning of that transformation. And then ultimately let’s comment before you want to add-up comment.

I believe that we are equally well-positioned to attack the embedded segment and the semi-custom segments where we are going to see players like Sony, like Medical Devices in the industrial sector where they need to have the graphical experience combined with the compute solution, where we will apply our hardware technology as well as our software technology around something called heterogeneous computing, which allows the effect of compute power of both the CPU and GPU to be unlocked in this new workloads that are emerging. Sure to be nice to be in mobility earlier, but we see the opportunity in front of us and this cloud generation is just beginning.

Unidentified Analyst

(Question Inaudible)

Rory Read

We already are in graphics and we will continue to build on that graphics space, it's one of our most important IP segments and we need to continue to leverage it because in that cloud era remember data and applications move from the physical device in your hand and they move to the cloud so that they can be accessed across a diverse set of compute devices. Graphics will be key in displaying the experience that the customers are looking for whether it’s medical, gaming etcetera. Thank you, sir. Other questions.

Unidentified Analyst

I was pleased to hear that AMD is investing in semi-custom solutions. I think that that’s a really good match for the skill sets that AMD has with the design talent. My question is on the marketing side, again it seems like AMD was late to move to products that diversify out of the PC space. And as we go into these new markets, the semi-custom market pursuing other high growth areas, what kind of investments have we made into the marketing team to be able to support those so that we don't wind up in a similar situation again?

Rory Read

So one of the key points you are making is not just the idea of branding or accelerating or messaging, what we want to do is build the strong base of profitability and we will accelerate into the traditional marketing segments building the brand and communicating the messages as we move through this turn.

What you really after is the analysis strategically on the market opportunities in the future and we've done two things into this area that is very important. Under Dr. Lisa Su's organization which is the business unit, we’ve created five to six business units with the business orientation of understanding the market and customer.

Traditionally we have been internally focused technology firm. What we are creating with the BU organization and as you know Dr. Su came from, the free scale experience where she did the embedded work as well as IBM. She is building a team that really to scan the marketplace, understand the needs of the customer and how to apply our IP. That working with Raj Naik who is our strategy leader is putting in place the game plan to see not only ’15 and ’16 but importantly ’17, ’18 and ’19 because we are just at the beginning of this acceleration through. We needed as you are pointing out a call that ball in terms of where that market’s going and we don't want to delay to any future parties and I believe what you will see as we evolve through this turn is our focus has to be 100% on returning to profitability and free cash flow. That's job one.

Second part is then to take that positioning and foundation to reinvest in the transformation. To do that properly, it’s a 100% about the market analysis to understand where the place goes bad. We believe that we are right on schedule around dense computing. We think the semi-custom is an era that's just beginning because I believe that you are going to see this move where many players are going to look for differentiated solutions, they don't want just an off-the-shelf commercial processor, they don't have the capability to create the silicon themselves, they are going to want to work with a company like AMD who will tailor and innovate together with them to create a unique solution that allows them to differentiate in the market because when that customer wins we will win and that I believe we are just at the beginning of that opportunity. So I believe that you will see us make those investments around the marketing analysis and that was an active topic in our board meeting the past few days. Thank you. Other questions?

Okay, well thank you very much. I appreciate it.

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