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Executives

Ruth Cotter - Director

Rory P. Read - Chief Executive Officer, President, Interim Chief Sales Officer and Member of The Board of Directors

Thomas Seifert - Chief Financial officer, Principal Accounting officer and Senior Vice President

Analysts

Sanjay Chaurasia - Nomura Securities Co. Ltd., Research Division

Uche X. Orji - UBS Investment Bank, Research Division

Patrick Walsh

Glen Yeung - Citigroup Inc, Research Division

Stacy A. Rasgon - Sanford C. Bernstein & Co., LLC., Research Division

JoAnne Feeney - Longbow Research LLC

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Mark Lipacis - Jefferies & Company, Inc., Research Division

Cody G. Acree - Williams Financial Group, Inc., Research Division

David M. Wong - Wells Fargo Securities, LLC, Research Division

Hans C. Mosesmann - Raymond James & Associates, Inc., Research Division

Patrick Wang - Evercore Partners Inc., Research Division

Dean Grumlose - Stifel, Nicolaus & Co., Inc., Research Division

Advanced Micro Devices (AMD) Q1 2012 Earnings Call April 19, 2012 5:00 PM ET

Operator

Good afternoon. My name is Huey, and I'll be your conference operator for today. At this time, I'd like to welcome everyone to AMD's First Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today.

I would now like to turn the call over to Ms. Ruth Cotter, Vice President of Investor Relations for AMD. Please go ahead.

Ruth Cotter

Thank you, and welcome to AMD's First Quarter Earnings Conference Call. By now, you should have had the opportunity to review a copy of our earnings release and the CFO commentary. If you've not reviewed these documents, they can be found on AMD's website at quarterlyearnings.amd.com.

The participants on our call today are Rory Read, President and Chief Executive Officer; and Thomas Seifert, our Senior Vice President and Chief Financial Officer of AMD. This is a live call and it will be replayed via webcast on amd.com. The replay will be available for the next 10 days starting later this evening.

Before we begin today, I'd like to highlight a few dates of interest for you. Mark Papermaster, our Senior Vice President and Chief Technology Officer, will present at the Jefferies Global Media and Telecom Conference on May 7 in New York. Thomas Seifert will present at the Bank of America Merrill Lynch Technology Conference in San Francisco on the 8th of May. Rory Read will present at the JPMorgan Technology, Media and Telecom Conference in Boston on May 15. And our second quarter quiet time will begin the close of business on Friday, June 15.

Lastly, we intend to announce our second quarter earnings on July 19.

As a result of the 2012 amendment to the Wafer Supply Agreement with GLOBALFOUNDRIES, as of March 5, 2012, AMD no longer has equity ownership in GLOBALFOUNDRIES.

I'd like to take this opportunity to remind everyone that today's discussion contains forward-looking statements based on the environment as we currently see it. Those statements are based on current beliefs, assumptions and expectations, speak only as of the current date, and as such, includes risks and uncertainties that could cause actual results to differ materially from our current expectations. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially from our current expectations. You'll also find detailed discussions about such risk factors in our filings with the SEC, and in particular, AMD's annual report on Form 10-K for the year ended December 31, 2011. Finally, any non-GAAP financial measures or references on this call are reconciled in the CFO-written commentary posted on our website.

Now with that, I'd like to hand the call over to Rory. Rory?

Rory P. Read

Thank you, Ruth. Q1 was a solid quarter for AMD. We made good progress improving our execution, becoming more consistent and building trust with our customers and partners. We have taken steps to position the company to seize the opportunities in front of us, both in the high-growth markets and in the product categories, where our innovative technology provides us with leadership opportunities.

Our improved execution resulted in better-than-expected revenue of $1.59 billion for the seasonally down first quarter, a 6% sequential decrease and a 2% decrease year-over-year. First quarter non-GAAP income was $92 million. This is a 64% improvement from the year-ago period, which was driven by gross margin improvements resulting from a richer product mix and operational efficiencies.

A steady supply of 32-nanometer products allowed us to meet our customer commitment in the quarter. Consistent execution that builds trust with our customers remains the fundamental part of our near-term growth strategy. We are also pleased with our 28-nanometer graphics product ramp. We met our new product introduction commitments in the quarter and we are now the only company offering a top-to-bottom family of 28-nanometer discrete desktop GPU offerings. Customer demand for these industry-leading graphic products is strong.

Adoption of our APUs continues to accelerate. APUs account for nearly 100% of our mobile unit shipments in the quarter, helping drive an approximate 30% increase in mobile processor unit shipments and significant mobile revenue growth from a year ago.

We saw a strong success in the critical 400 to 700 mainstream retail notebook price band, which accounts for nearly 50% of all notebooks sold in retail in 2011. For example, the best-selling premium notebook SKU of the first quarter at Best Buy was in fact powered by our AMD AA APU.

Our next-generation Trinity APU for mainstream notebook extends our leadership opportunity in this large and growing price band. Trinity improves on virtually every aspect of our current A-Series APUs while doubling the performance per watt. By integrating a discrete level GPU into the die, Trinity enables outstanding video and gaming experiences with superior battery life. Trinity is a great value, excelling at running the types of software increasingly used by our consumers buying these mainstream notebooks. We are successfully ramping production of Trinity APUs as customers prepared to launch a record number of AMD notebook designs beginning this quarter.

Our momentum with Brazos continued in the quarter as well, helping drive a double-digit percentage increase in emerging market revenue from the period one year ago. Brazos delivers an unmatched value proposition and experience for consumers in these emerging markets.

The introduction of Brazos 2.0 this quarter builds on the momentum. Thanks to many new features and improved performance and extended battery life, we have made it easy for customers to take advantage of these advancements by simplifying platform transitions and reducing their time to market. Trinity and Brazos 2.0 systems will be available globally this quarter and we expect broad availability for the key back-to-school period.

Our Server business continues to make steady progress. We achieved our third consecutive quarter of server processor unit shipment growth, driven by increased adoption of our Bulldozer-based offerings. For the first time, Bulldozer processors accounted for more than 50% of server revenue and unit shipments in the quarter. We are strengthening our server customer relationships, refining our capabilities and methodically laying the foundation required to build long-term growth and leadership. We are fully committed to build this business step-by-step over the long term.

We accelerated our disruptive server strategy in the quarter with the acquisition of SeaMicro. This acquisition positioned AMD to take the leadership position in the fast-growing cloud data center market and sets the stage for AMD to provide unmatched low-power, high-bandwidth server solution that expands our market opportunity. This is an exciting area of the business that I look forward to discussing more in future calls.

In Graphics, solid demand for our next-generation AMD Radeon 7000 graphic cards, particularly in the channel, grew sequential GPU revenue increases. We are focused on growing the profitability of our Graphics business by attacking and winning more channel business. We will introduce our first 28-nanometer notebook discrete graphics chips this quarter. And we expect to quickly transition the majority of our product mix to these industry-leading products.

So in summary, we're excited about the opportunities in front of us. And we know we have the right ingredients to win and grow. First, we're refreshing our entire portfolio of APO offerings, strengthening our growth opportunity in high-volume segments and fast-growing markets. Next, we have amended our Wafer Supply Agreement with GLOBALFOUNDRIES to create a win-win business arrangement. We are also seeing continuous improvement in 32-nanometer yields, helping ensure we have the right products to meet customer demands. And then, step-by-step, we're becoming a more consistent execution engine. We're building more trust with our customers and partners and having a greater opportunity to win more of their business.

We're seeing results with our efforts. For example, with the strong adoption of our Trinity APU for ultrathin notebooks. Customers are excited that Trinity fits into virtually any ultrathin design, providing unmatched visual experience, superior battery life at a very attractive mainstream price point. Trinity-based ultrathins provide superior performance and value for all customers, not just a small portion of the market buying expensive, premium notebooks.

We have a number of high-volume, ultrathin design wins across our customer base, setting the stage for continued growth as mainstream notebooks continue their transition to these thinner and lighter designs that will dominate the market in the years to come.

With that, I'll turn it over to Thomas, who will cover our financials for the first quarter.

Thomas Seifert

Thank you, Rory. Revenue for the first quarter of 2012 was $1.59 billion, down 6% sequentially driven by the seasonal decline in the Computing Solutions segment. The Graphics segment revenue was sequentially flat in a typically down quarter. Non-GAAP gross margin was 46%, flat sequentially and a point higher than expected. The delta to guidance is a result of higher-than-anticipated demand for certain 32-nanometer line of products, particularly in emerging markets.

Non-GAAP gross margin for the quarter was calculated net of the $703 million one-time charge related to the 28-nanometer product, limited wafer of exclusivity from GLOBALFOUNDRIES, associated with the 2012 amendment to the Wafer Supply Agreement. Operating expenses were $598 million, which includes $6 million in one-time expenses related to the SeaMicro acquisition. R&D was $368 million, 23% of net revenue, and SG&A was $230 million, 15% of net revenue.

Non-GAAP net income was $92 million and non-GAAP operating income was $138 million. Interest expense was $43 million, flat compared to the prior quarter. Tax provision was a net credit of $32 million in the quarter compared to $4 million in the prior quarter. The difference is primarily a one-time tax benefit of $36 million related to the SeaMicro acquisition, which closed at the end of the quarter. Net of this one-time tax benefit, 2012 tax guidance is approximately $12 million.

Non-GAAP EPS was $0.12, calculated using 748 million fully diluted shares. Adjusted EBITDA was $250 million, down $45 million from the prior quarter due to lower non-GAAP operating income resulting from lower revenue in the quarter.

Computing Solutions segment revenue was $1.2 billion, down 8% sequentially, driven by seasonally lower sales in the client business. Client product revenue declined sequentially due to lower units and ASP, primarily driven by lower 45-nanometer desktop processor unit shipments.

APUs continue to increase as a percentage of our client products and Llano, our first-generation 32-nanometer APU, power top-selling notebook SKUs in North America, priced about $400. Our server processor revenue declined from the prior quarter, mainly due to ASP decline. And unit shipments increased with continued adoption of Bulldozer-based offering.

Chipset revenue declined in the quarter due to seasonally lower unit shipments. Computing Solutions' operating income was $124 million, down $41 million sequentially, primarily due to lower revenue. Graphics segment revenue was $382 million, flat compared to the prior quarter. GPU revenue was up in a seasonally down quarter due to improved desktop GPU ASPs in the channel, offset by seasonally lower game console royalty revenue. Graphics segment operating income was $34 million, up $7 million from the prior quarter, primarily due to higher gross margin.

Now turning to the balance sheet. Our performance was strong as cash, cash equivalents and marketable securities, including long-term securities, ended the quarter at $1.71 billion. Cash declined by $201 million compared to the end of the previous quarter, which was primarily the result of cash payments of $281 million related to the SeaMicro acquisition and $150 million related to the 2012 amendments to the Wafer Supply Agreement.

Despite strategic cash outlays in the quarter, we maintained positive free cash flow of $67 million. Accounts receivable at the end of the quarter was $962 million, up $43 million compared to the end of the fourth quarter of 2011 due to the timing of sales. Inventory was $585 million, exiting the quarter, up $109 million from the prior quarter, primarily in preparation for new product launches. Debt at the end of the quarter was unchanged at $2.02 billion.

Now turning to the outlook. AMD expects revenue to increase 3% sequentially, plus or minus 3%. Operating expenses are expected to be approximately $605 million in the second quarter as we continue to fine-tune our operational efficiencies, executing to all financial targets. We are pleased we delivered solid results in the quarter with a richer product mix. We expect to build on this financial and operational momentum moving forward and look forward to the upcoming launches of Trinity and Brazos 2.0 later this quarter.

With that, I'll turn it back to Ruth.

Ruth Cotter

Thank you. Operator, we'd now like you to poll the audience for some questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first questioner in queue is Uche Orji with UBS.

Next questioner in queue is Sanjay Chaurasia with Nomura.

Sanjay Chaurasia - Nomura Securities Co. Ltd., Research Division

This is Sanjay Chaurasia. My first question is on 28-nanometer. Some of the industry participants have talked about capacity issues in 28-nanometer. My question is, are you seeing any impact to your Graphics business from this? And what are you seeing go ahead in 28-nanometer?

Rory P. Read

28-nanometer has been -- is a very important part of our business. As you may know, we're the first company that has launched our entire desktop discrete graphics product set on 28-nanometer. And I can tell you that within the first quarter, we were able to deliver on all of our customer commitments in that Graphics segment. What we're doing is we're monitoring this closely. We believe that a focus on execution consistently, day in and day out, will yield better returns and better execution. We think that, from our perspective, that we have the execution in place, the relationships with our key foundry partners to deliver on our 28-nanometer product ramp. Of course, we're going to monitor it. We're going to track it week in and week out to make sure. And we do hear some of the information in the quarter. We believe that we can deliver our base plan and our commitments to the customers. Right now, we're looking to the ability to reach upside. That's what's probably holding us back on the 28-nanometer going forward. But again, we're focused on going after that and we have the execution and plans in place, Sanjay.

Thomas Seifert

Let me put some color on that, too. As you heard from Rory, we met all of our customer commitments in the first quarter. When demand is strong and your product is good, this opens up opportunity for upside. And that is an area where we would like to see more velocity, to be very honest, and that's why we have to monitor the situation very carefully. We meet commitments, we are limited on upside, and that is not a good situation when your product is good and demand is strong.

Sanjay Chaurasia - Nomura Securities Co. Ltd., Research Division

And my follow-up is on server ASPs. So given that 50% of server revenue came from newly -- recently launched Bulldozer chips, how is it that server ASPs are down? And now that these products are just before the launch of Ivy Bridge products, what trends can we expect on ASPs on your PC client business and as well as on server?

Rory P. Read

Yes, from a standpoint of server, again, as we mentioned in the earlier remarks, server has shown 3 consecutive quarters of solid, improving momentum and execution. Now we believe with Bulldozer now reaching over 50% of the revenue and unit shipments, we're positioned to continue to build on that execution and momentum. It is about building a business over a long term. And we believe that step-by-step, we can create that business momentum and continue to build on that server. In terms of the ASP, we see some impact in terms of the mix and certain deals that were there. But we continue to believe that we'll build on that mix and continue to move forward from there. Also, you may reflect on that with the acquisition of SeaMicro, it uniquely positions us to continue to participate and build on the server momentum in the fast-growing mega data center segment around dense computing. And we're very excited to bring on this solution into our portfolio of products. From a client perspective, our ASP models in terms of matching our customer demand are consistent. We like to build on that moving each quarter out. And from the perspective our partners and customers are very excited about the APU solutions, whether it was Brazos and Llano. And now with the launch of Trinity and then Brazos 2.0, with an unprecedented number of design wins, I think we're uniquely positioned to continue to build on that and move further up the price band stock with our APU offerings with the new Trinity offering. Which again, based on what we're seeing, is better at basically every key dimension and 2x the performance per watt.

Operator

Our next questioner in queue is Uche Orji with UBS.

Uche X. Orji - UBS Investment Bank, Research Division

Rory, can I just ask you how the OEM are perceiving your ability to compete in the ultrathin market. Obviously, Trinity seems to be ramping well. But my perception here is that with Intel having done a lot of the heavy lifting in ultrabooks, some of them may be hesitant to use somebody else on the ultrathin form factor. Is that a concern at all? Or are there other ways that you are going about, making sure that you get a fair share of that market as it ramps to the second half?

Rory P. Read

Sure, Uche. Well, it's very nice to speak to you and I'm glad you were able to get back on. Around ultrathin, with the new Trinity launch and the record number of design wins we've been able to capture, I think this is an exciting time for AMD. With the introduction of Trinity and our ability to reach just about any thickness in ultrathin design that our customers have designed, I think, again, we're positioned very well to take advantage of this continued movement to thin and light. Trinity has outstanding battery life. It has the ability for us to introduce it into this very thin, ultrathin form factor. And what's powerful about this, Uche, and how you need to think about it, ultrathins are not just for the few in the premium high-priced segment. We need to look at the ability to bring ultrathins and high mobility to all customers, to bring it into mainstream. What's exciting about the design wins that we're seeing and the continued momentum around ultrathins, around AMD, is around our ability to reach mainstream price points to open this up to everyone. And that's an opportunity where I think we can play off some of this initial energy and buzz that's all kind of crowded at this very high price band. But with a set of AMD offerings with our key partners, I think they're very interested in entering into this mainstream segment. And I think it uniquely positions us in the second half to participate in a very powerful way as we move forward. I like how we're set up in this segment. That's where the volume is. That's where the business is. And that's where our designs are being won. And that's what we believe will be some high-runner, high-volume part wins and we're excited about it.

Uche X. Orji - UBS Investment Bank, Research Division

One for Thomas. Thomas, first of all, real quick, how should we think about Q2 gross margins given the non-GAAP 46% you achieved in Q1, above what we were all expecting. What does that mean for Q2? And with all these new products you're ramping, will that be -- should we expect that -- the trajectory to start to move higher from here? And related to that also, I know you've made some positive comments about your traction in servers. Can you just update us where the market share situation is in servers being focused, because obviously that has implications for gross margins.

Thomas Seifert

Yes. Let me start with the gross margin question first. So without any doubt, we have made good progress on the yield side on 32-nanometer. We entered the quarter with a lot of momentum and we saw some benefits in terms of product mix earlier than we expected. We expected some of those benefits in the second quarter and that's allowed us to come, gross-margin wise in the first quarter, a little bit higher than expected. So moving into the second quarter, what are the headwinds and the tailwinds? We expect to continue to build on our yield improvement on 32-nanometer, we expect to build on the momentum we see on the product mix side. And we will see some headwinds from quite a significant number of 28-nanometer products that are going to start to ramp in the second quarter. So if you put all the gives and the takes together, we will see the benefit continue that we see in the first quarter, and we expect gross margin to be slightly up -- flat to slightly up in the second quarter.

Uche X. Orji - UBS Investment Bank, Research Division

And servers, maybe Rory can take that. I mean, from the progress you've seen so far, you gained share in servers the last quarter. The reviews were great on your new Interlagos, it's very encouraging. But has that issue on the market share continued, and if you have any sense as to where you think we will be able to see in 2012 in terms of market share?

Rory P. Read

Yes, Uche. Server is obviously a key business for us, a business that we want to consistently build over the long term. We're in this space for the long haul. We're going to build this business over a quarter-by-quarter execution focus. We're working to build out our capabilities and our go to market, our support from the ecosystem and the technology that we can bring to market. I think we've made some good initial progress here in terms of momentum that we're creating in server but this is a step-by-step and long-term set of initiatives. We have plenty of work to continue to do around execution, and around server, and we're going to be intensely focused on that. The key to winning in server is to create the solution that allows the customer to get a better experience in terms of price performance, performance per watt, floorspace usage, and we really play very well in terms of virtualization, and I think this positions us well going forward. So again, I think good initial progress, Uche. I think we'll continue to build on that. We clearly want to keep that momentum going and adding server share quarter in and quarter out. But this is a long-term strategy, one that we're in it for the long haul. And we're going to build on that strategy. That's why we went after SeaMicro. And we believe with SeaMicro, it positions us to capture that high-growth dense server play. You could think about that fabric and what that's going to do in that server segment, where we're going to weave 16 and 32 servers in a fabric that creates a dense solution that dramatically lowers power consumption, floorspace, all the components that matter to these big cloud server structures. We believe we've gained share and we believe that with the continued focus, a continued build out of our capability, this quarter, next quarter and well into the future, we can continue to build out that model.

Operator

Next questioner in queue is John Pitzer with Credit Suisse.

Patrick Walsh

This is Patrick Walsh calling in for John Pitzer. I just had a question on the inventories. There was kind of a pretty big uptick there, and I was wondering if you can kind of speak to -- just maybe give us some color as to what happened there.

Thomas Seifert

Yes. You heard Rory talk in his part about the product launches we expect. We have a complete top to bottom refresh of our APUs with Trinity and Brazos 2.0. And at the same time, we are going to launch all the new graphic 28-nanometer mobile graphic products for the mobile segment. So in preparation of the launches of all those products, we position product, we position inventory and inventory build is based around the product launches for those products.

Patrick Walsh

And then I guess my follow-up question is on the OpEx line. You guys have kind of been running a little bit below the $610 million trend that you guys laid out. Would you expect to stay below $610 million in the second half? Or do you think you're going to kind of make up I guess the $15 million to $20 million that you've done there in the first half?

Thomas Seifert

Yes, so very good question. We said already at our Analyst Day that we expect the operating expenses to be somewhat back-end loaded. So we expect them to pick up in the second half. It has a lot to do with getting ready for a significant amount of work and launches around 28-nanometer products. Tape outs around the launches getting ready for 2013 is going to happen that year. So flattened -- flatter in the first half, first and second quarter, and you will see a pickup in the second half. But we still expect to stay for the year within the range that we gave.

Operator

Our next questioner in queue is Glen Yeung with Citigroup.

Glen Yeung - Citigroup Inc, Research Division

Thomas, you printed now a quarter in Q1 where you have 46% gross margin, it sounds like you'll likely do the same for Q2. How should we think about then the full year gross margin guidance of 44% to 48%? Do you now feel more confident in the upper half of that? Or are there things in the back half of the year that we should think about that might hurt gross margin?

Thomas Seifert

Good question. So I think the trend that we see in Q2 will continue for the remainder of the year. We continue to expect to make progress on the year front. We continue to expect to make progress on the product mix. And we will see, in the second half, however, also some more headwinds with 28-nanometer products going in production at GLOBALFOUNDRIES. That those have control impact in the second half. Despite of that, I think we're on a good trajectory within the guidance that we gave at Analyst Day, 44% to 48%, and we expect to move to the high end of that range over the course of the year as we said at the Analyst Day.

Glen Yeung - Citigroup Inc, Research Division

And my follow-up is thinking slightly longer term about AMD and thinking about opportunities for processors outside of the PC environment. I know there's going to be some focus on things like tablets. But I'm actually interested in what the potential is that you see in the gaming market, not just for Graphics but also for compute devices.

Rory P. Read

I think this, Glen, is a very interesting segment in terms of the embedded opportunities for us. This is an important business already for us. And I think there's continued opportunity as we introduce the next family of core solutions around Trinity and Brazos 2.0. We've seen very strong interest in terms of the embedded market. We'll continue to build that out in '13 as we introduce the next family of those sets of products. Whether that's in thin client or around gaming or any of the verticals, there's a lot of interest in this capability of the APU combining a compute complex with the Graphics complex that allows the processing and the power of the solution to be brought to bear at a very attractive valuable price-performance scenario. So I think we're going to see some increased focus from us in terms of our embedded business and to really leverage the infrastructure and capability we've created.

Operator

Next questioner in queue is Stacy Rasgon with Sanford Bernstein.

Stacy A. Rasgon - Sanford C. Bernstein & Co., LLC., Research Division

First, I'm curious to see -- to learn what you're seeing in terms of hard drives. Do you see any sort of impact at all in Q1 from any sort of impact from hard drive shortages? And is there any sort of lift to your Q2 guidance maybe from the end of a potential hard drive destocking? And do you see maybe potential for a recovery in hard drives as giving a boost to what might typically be considered seasonality to your CPU top line as you move through the rest of the year?

Rory P. Read

Yes. Thanks, Stacy. Good question. From a hard file perspective, we've not -- as we've talked about before, we -- this is a very, a resilient supply chain in the PC industry. Having been in it for a long time, I've seen many part situations come and go, and this is no different. Once we got past the January time frame, the hard file situation is pretty much gone, past, everybody in the industry. We saw no significant impact in terms of hard file to our business results in 1Q. And with the only issue being some residual higher pricing that's floating around in the market around files, I don't think there's a significant impact into 2Q and 3Q. I think this is fundamentally behind the industry and should be able to move forward. In terms of it having impact, and a lift going forward, I think we've already seen that strong capability in both February and March, we've been able to really catch up on that business and position to move forward from there.

Stacy A. Rasgon - Sanford C. Bernstein & Co., LLC., Research Division

And if I can ask one follow-up. So you mentioned lower 45-nanometer desktop sales. I know last quarter -- or 2 quarters ago, you've been impacted as you were moving that capacity over to 32. And then last quarter, you were impacted because you had a process excursion, I would assume, as you were moving it back. Lower sales now, is this because you're still -- there's still an issue with the process or is this just more evidence of OEMs moving off from 45 and under 32? And if, on that line, if you could give us some feeling for how much your 32-nanometer shipments actually increased quarter-over-quarter that'd be really helpful.

Rory P. Read

Yes. From a standpoint of desktop, there's no doubt those earlier issues kind of held that back. We are intensely focused on increasing our ability to deliver and really recapture that share in desktop. This is important for our business and important to go forward. I don't really see, from a desktop perspective, any significant issues. We've just got to deliver the 45 processor load and the 32. We've got to ramp that up as now supply positions are dramatically better. In terms of trade off between 32 and 45, 45 still clings well in the market. 32 is beginning to ramp up now that you've got the supply situation behind us. We are focused on this. You could talk to any of our business unit leader, this is an item that we have to continue to focus on and make progress. I'm not seeing anything from an execution standpoint that should hold us back. We need to deliver on this capability and put us in the position to go forward.

Stacy A. Rasgon - Sanford C. Bernstein & Co., LLC., Research Division

And so last quarter, you said Llano was up like 80%. What were your 32-nanometer shipments up this quarter in that environment?

Thomas Seifert

We are not going to comment but it was up significantly. We're stopping giving concrete guidance here. I think it's important for you to understand that the progress is significant and we are not any longer supply limited on that note.

Operator

Next questioner in queue is JoAnne Feeney with Longbow Research.

JoAnne Feeney - Longbow Research LLC

I have a question about how your customers are handling the transition from Llano to Trinity and Brazos, the original versions of Brazos 2.0. Are you seeing, any of them, a pause in their purchases and are you instead sending perhaps some of those exiting inventories out to emerging markets and channel customers rather than the OEMs? Can you give us [indiscernible] transition and if there's a lull in the second quarter here because of that?

Rory P. Read

Okay, no problem. Thanks, Joanne for the question. From the standpoint of emerging market, I do want to reference the emerging market. In the quarter, we've definitely seen continued microprocessor revenue growth, up about 21% year-over-year. And clearly, the Brazos APU has done very well in emerging market and Llano has followed that up. As we begun to launch Trinity, there's been a real interest in Trinity. We shipped Trinity. We're making all of the ramp figures that we've made, commitments to our customer and there's strong interest for both OEMs, in terms of their -- across all OEM in that segment. And then with Brazos 2.0, of course, they're looking for the increased performance, the increased capability that we're introducing into that segment. They like that segment. Brazos has done well. Brazos 2.0, with that additional, has strong interest from the OEMs. So I'm not seeing that, JoAnne, in terms of any pause or concern. Right now, the channel we're focused on, 45-nanometer product and minus one. We're also focused on building up the Llano because 32 is now under control and the execution and the yields are performing very well out of GLOBALFOUNDRIES. And then what we've got to do is now launch this record number of designs with Trinity and then Brazos 2.0 in the quarter. OEM interest has never been stronger and we look to continue to build on that.

JoAnne Feeney - Longbow Research LLC

So as a follow-up there's been a lot of discussion about how, perhaps, these ultrathin builds will wait towards later in the year when Windows 8 is available. Can you give us a hint as to the trajectory, perhaps, for the Trinity and Brazos ramp into your ultrathin design wins?

Rory P. Read

Well, we've already run a substantial number of design wins in that space. And as I continue to meet with OEM customers, our large global accounts, there's more and more continued interest around that. You're going to see that continue to go into the second half. And that's very important. As I mentioned earlier, JoAnne, I really think that the current ultrathins that are being kind of grouped in this very high price band in a very crowded way is going to kind of cause a problem. If we think about it and we go where we have gone and attack with our customers, is to say, "Let's go after mainstream. Let's bring this to everyone." People are going to want this solution at a great price. We think we can kind of fly right under that pricing umbrella and really attack it with this Trinity launch with some high-volume runners.

JoAnne Feeney - Longbow Research LLC

So it sounds like you think that the price advantage on the AMD APUs is bigger than the implicit price advantage being built out by Intel through these marketing dollars supporting the Ultrabook launch. Is that a fair way to think about this?

Rory P. Read

From my perspective, because of the way we're constructing the solutions with these large global accounts and the way we're using this superior APU kind of architecture that gives an outstanding experience, we can hit that ultrathin form factor and then total bill on material puts us in a very interesting price point that allows us to get into that upper mainstream segment. I think that opens it up for some really interesting discussions on what's the better play here.

Operator

Next questioner in queue is Cris Caso with Susquehanna.

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

I'm just wondering if you can address -- going back to some of the hard drive issues that the industry has faced over the last quarter or so. With your guidance in the second quarter, is that anticipation that there's some degree of channel restocking that goes on? Or are you anticipating that basically what you're shipping out is in line with customer demand for the quarter?

Rory P. Read

Well, again, as I mentioned earlier, I really believe that the hard file situation, based on the resiliency of this PC ecosystem supply chain, always works itself out. And we saw this really come fundamentally under control in early February. Any residuals in terms of demand issues from fourth quarter, which were relatively small, kind of moved past that. And we've seen that momentum continue through February and March. Again, there are some residual pricing issues around hard files because they haven't come all the way back down. That always takes a little longer to happen. But I don't see any reason that based on our expectation and guidance for second quarter, there's not anything significantly unusual driven by hard files at all.

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

And I guess as a follow-up, as you look into the second half of the year, your competitor is sort of pointing to a better-than-seasonal second half. A lot of that is driven by the Windows 8 launch and some of the product cycles that happened there. You've given -- would you guys endorse that view? What do you guys think with regard to the second half understanding that it's a better way now?

Rory P. Read

Well, clearly, based on when you look at the information from the big players: IDC, the Gartners, et cetera, Mercury, across the board, there's a general feel that 2012 is going to be better than 2011, and we agree with that. We believe that there's single-digit performance across the year. We think that it's going to build on itself quarter-on-quarter, but it's going to be nothing like a hockey stick or anything like that. It's going to be consistent improvement quarter after quarter. And what we want to do is to capture our own fair share of that growth moving forward.

Operator

Next questioner in queue is Mark Lipacis with Jefferies.

Mark Lipacis - Jefferies & Company, Inc., Research Division

First one on the -- the APUs increased as a percentage of the client products. I guess I would have expected the ASPs to also increase, so I was hoping you could provide some color on that one.

Rory P. Read

Well, remember, what we're doing is we're bringing that APU solution into those key price bands were we play strongly: entry and mainstream. And we've driven a nearly 30% year-over-year mobile processor, unit shipment increase. I think that's pretty exciting with virtually basically almost 100% of the first quarter mobile shipments now being APUs. We're targeting those price bands and we put those APUs right in those segments that allows us to create that great experience for the customer, that combined power of the GPU -- Graphics complex with the CPU complex on 1 SoC, allows us to create the experience that's tailored to the movement around the cloud, and how application and data are going to move information to these clients. That experience is unique. And by creating a great value proposition, that's how I think we're seeing this 30% year-over-year, basically 30% year-over-year mobile processor shipment increase. I think what we're doing here is positioning right into those price bands to continue this momentum. And now as we launch the next-generations, top to bottom, refreshing this APU with Brazos 2.0 and Trinity, and the amount of design wins that we've created, step-by-step we continue to build on this momentum in the mobile space and bringing APU across the board.

Mark Lipacis - Jefferies & Company, Inc., Research Division

And then on the -- as you launch Trinity, it sounds like you're going to be reaching a little bit higher, even into the performance area. Is that -- so is it fair to assume that there's going to be an upward bias on the ASPs as you ramp Trinity?

Rory P. Read

From a standpoint, there's no doubt that Trinity improves just about every key aspect of the previous generation of APUs. And it is a very exciting product. We did some prelaunch work with a number of analysts and press in a controlled environment. They were excited to see this product. And we're excited about this product. I think we're situated very well with our performance per watt, which is basically double the last family. And I think we can cover a wider slot in terms of that entry in mainstream portfolio between Brazos 2.0 and the Trinity family. But I believe that we should be looking to increase it, but it's not going to be in any gigantic number. We want to continue the momentum, continue to build on it and continue to build on this, quarter after quarter, through clean execution. Meeting our commitments to our global account and our partners, that's job one.

Operator

Next questioner in queue is Cody Acree with Williams Financial.

Cody G. Acree - Williams Financial Group, Inc., Research Division

As we look at Windows 8 launch and you look at ARM competitors coming in, look at Brazos 2.0 performance per watt, do you think that your roadmap for Brazos matches what maybe your competitor is doing with Atom and what you're seeing with ARM as getting down to that lower power envelope?

Rory P. Read

Yes, it's interesting. I think Win 8 is going to be more of an x86 event, in my opinion, having come from the OEM side of the business. I think it's an important event. I think it will generate interest. It will create demand. There's no doubt, forward and backward compatibility will be very important. And I think over time, lower power in the client space will be important. What we've done with Brazos is demonstrated, what, over 30 million units shipped in that within the first year, Brazos 2 builds on that. And then next year, as you've seen in our roadmap work at Analyst Day, the next generation of that family even takes it further. And I think what we believe is there is the opportunity for us to continue to win in that space with a great price performance, a great performance per watt, forward and backward compatibility, in a segment that's very attractive. For the other players that are now entering it, it's going to take a bit of time to build out that ecosystem. They've got to make sure that they've got enough performance to do the things that have to be done on that device, whatever. There were some other solutions that were introduced in the past that had difficulty as they moved into the segment because maybe they were slightly underpowered. We believe that we can reach the price points, the performance points and the power per watt that we need to do to win in this segment. And of course, we'll continue to work on our ambidextrous, agile architecture that will give us a lot of flexibility, both in the server and client space moving forward.

Cody G. Acree - Williams Financial Group, Inc., Research Division

Rory, I guess it brings up the question then, as you get the ecosystem up in the competitors, in the ARM-based systems, maybe longer term, I guess the question I get most often from investors is that after Windows 8 is a bit more mature and that ecosystem is more mature, what's to keep AMD from being marginalized as an alternative to Intel?

Rory P. Read

I think you're almost looking at it the wrong way. I think there's -- this is part of the inflection point that we talked about. Think about what that kind of convergence, right, and the cloud, those 2 Cs, are really going to do in terms of this processor and compute environment. This, where we play strongly, entry and mainstream, is going to be the dominant segment. And as you see us continue to drive low power into every one of our offerings and the capability with an ambidextrous architecture that reduces their time-to-market, gives us higher quality, allows us to do it with more efficiency and gives us flexibility across architecture with more consistent use of IP, I think that AMD is uniquely positioned to capture this. It isn't about following anybody and it isn't about being an alternative. That's not what it's about. It's about seeing where the market is going. And this market is beginning to change. And I think AMD with the technology, the architecture, the kind of skills that we have in the company, we play our cards right, this change in terms of this inflection point introduces an opportunity for us.

Operator

Next questioner in queue is David Wong with Wells Fargo.

David M. Wong - Wells Fargo Securities, LLC, Research Division

To begin with, sequential growth, 3% sequential growth that you're guiding for June. Is this organic growth or is there significant contribution from SeaMicro?

Thomas Seifert

Yes, very good question. That is very much organic growth. We said that while we see for a startup some substantial revenue this year in terms of the overall aggregated amounts and revenue we look at, it's very small. So next quarter, it's very much driven by AMD core organic growth. And you have to put this in perspective, over the last 7 years, our seasonality in the second quarter was about minus 4%.

David M. Wong - Wells Fargo Securities, LLC, Research Division

And within this, do you expect server revenues will be up sequentially in the June quarter?

Thomas Seifert

We fully expect to continue to build on the momentum we have seen on the server side in terms of unit growth, yes.

David M. Wong - Wells Fargo Securities, LLC, Research Division

And you -- the $605 million operating expense guidance for the June quarter, is this a GAAP number that includes amortization and other charges associated with SeaMicro?

Thomas Seifert

So what we have seen in Q1 was I think a one-time effect. We will have no spillover in terms of one-time effects. And then a bigger scale, maybe 3 million or 4 million, but they're already contemplated in that number.

David M. Wong - Wells Fargo Securities, LLC, Research Division

And when you said earlier, 28-nanometer products going into production at GLOBALFOUNDRIES in the second half, that was one of your takes on the gross margin. Is -- these are GPU products, are they? Or do you have any microprocessor APU products in that mix?

Thomas Seifert

They are APU products. Yes.

David M. Wong - Wells Fargo Securities, LLC, Research Division

They are APU products? 28 -- so you will be, actually, you expect to be selling 28-nanometer APUs in the second half that are made at GLOBALFOUNDRIES?

Rory P. Read

No. No. No.

Thomas Seifert

From a volume perspective, very little volume. But we start the manufacturing ramp in the second half so we can get ready for the launches in 2013.

David M. Wong - Wells Fargo Securities, LLC, Research Division

My final question, are you able to supply all the demand you are currently seeing for 28-nanometer GPU products?

Thomas Seifert

I think we addressed that in one of the earlier questions. We were able to meet customer demand in the first quarter. The products are good. The demand is strong. We would like to see more access to upside volume but we have met all -- pretty much all demand in the first quarter.

Rory P. Read

Hey, Huey, before you go to the next question. I do want to make a comment. I apologize for anyone on the phone. I do refer to HDDs, the hard disk drives, as hard file. That's based on my IBM legacy from being in the IT environment. So if I confused anyone, when I talk about hard files, I'm talking about HDDs. So I apologize for that.

Operator

Our next questioner in queue is Hans Mosesmann with Raymond James.

Hans C. Mosesmann - Raymond James & Associates, Inc., Research Division

Most of my questions have been answered but just a clarification, if you talked about this. Do you expect both Graphics and computing to be up in 2Q?

Rory P. Read

Graphics, what we've seen is a very interesting continued progress around the Graphics portfolio. We began the year the way we began 2011, with the fastest GPU card on the planet. And we believe that with the work that we're doing now here with 28-nanometer products across the entire discrete Graphics portfolio, we are very well-positioned. Now we're going to introduce the discrete Graphics around 28-nanometer into the notebook space. There is always going to be some slight pressure down as that market continues to move toward APUs. But I believe with the portfolio and product set and the introductions that we'll continue to do through the year, that we're positioned to continue to move forward.

Hans C. Mosesmann - Raymond James & Associates, Inc., Research Division

Okay. So will that grow in Q2?

Rory P. Read

I don't really get into that specific. It's really part of the overall 3% -- plus or minus 3%.

Operator

Next questioner in queue is Patrick Wang with Evercore Partners.

Patrick Wang - Evercore Partners Inc., Research Division

First question is, it looks like you're really focused on growing your core businesses. For instance, you're seeing growth in server but ASPs is declining despite a greater mix of Bulldozer. So I was hoping you could talk about your assumptions behind pricing trends over the course of this year, particularly as Bulldozer ramps and you get more Trinity and the Brazos 2.0.

Rory P. Read

Well, from a standpoint of server, it's about rebuilding our capabilities and relationships across the portfolio. Over the past several years, we saw our share position decline consistently in the server segment. What we've been on is we've got a renewed focus and the commitment to a long-term strategy to build a stead of server offerings. With the SeaMicro acquisition, it positions us in the fastest-growing segment of the server market. With Bulldozer, we began to build out our capability in terms of our go to market, our ecosystem relationship. And you're going to see us focus very, very well in terms of execution on server, because server is different than consumer products. You've got to deliver high quality, you've got to deliver on time, on schedule. That's what CIOs count on and they believe on. We've made good momentum in the first 3 quarters but that's just the beginning of the journey that we're on. This is a long-term game plan. And we're going to use this server experience here, and with the introduction of our next generations around Abu Dhabi and our future roadmap item, you're going to see us continue to move down that path. But again, long-term strategy. In terms of ASPs, this space is, again, there's always about the mix that you have and the certain deals that you win, we want to continue that momentum and then continue to build on that server space to create the base for future growth as we move both in the traditional server space and into the dense space. In terms of the APUs, we talked about it earlier. We're in the key price bands. We play very well in those price bands. We believe with Brazos 2.0 and Trinity, and with the design and interest around those 2 products, we're well positioned to continue the momentum that were created. Up 30% year-over-year on mobile processors unit shipments or just about, 100% are now APUs, we believe that we can continue to capture parts of this growing market moving forward that positions us well in that segment. And then again, the last piece on I'll answer it, Patrick, is around ultrathin. I think the ultrathins is a very interesting space for us. It's something we really need to watch. Ultrathins are for everyone. And ultrathins and thin and light are going to be a core product across the industry. This is nothing new. Thin and light has been going on for the past 15 years. We're taking it to the next level and we're going to bring it to everyone.

Patrick Wang - Evercore Partners Inc., Research Division

That's helpful. So when I sit here and listen to what you're saying, it almost seems like ASP drift to the upside is almost less important because you're really targeting the more mainstream segments that may just require lower ASPs. Is that the right way to think about it?

Rory P. Read

Well, you always want to have a balanced perspective, right? This isn't a full out attack where it's all about just share. We're in a balanced perspective. Thomas and the financial team have constructed a strategy that allows us to expand earnings and allows us to position future growth. We're on a balanced approach. We're going to make sure that we're gaining and competing well in terms of volume and share, particularly in emerging market, particularly in the key segments and price bands where we know the future glow and the inflection point will be. And we want to continue to build on that. That's how you want to do it. And at the same time, you want to make sure that the margin is there so that you could continue to drive the cash generation and the ability to invest in future opportunities to go forward. We want to -- this is not a one-trick pony. We want to build this on a consistent, sustainable model, quarter in and quarter out, year after year. That's what we want to be recognized as, an execution engine that delivers on its strategy and its commitments to its customers, shareholders and partners.

Patrick Wang - Evercore Partners Inc., Research Division

And then just lots of low hanging fruit in the server. Can you give us an idea of when you think you'll be double-digit market share growth once again -- market shares?

Rory P. Read

Yes, of course, I'd like to do it as soon as possible. That would always be good. But this is a long-term strategy. We've made some initial momentum. We're going to continue to build on that. But no, we're in this long term. We went after SeaMicro. We're building the traditional server space. You're going to see us continue to work in terms of ambidextrous capability. You're going to see us continue to work in terms of building out that roadmap. This is just the beginning of a long journey, and a journey that we believe we're making good initial progress. But it's, again, it's over a period of time that, that consistent execution will pay dividends.

Patrick Wang - Evercore Partners Inc., Research Division

Long with the hard file.

Rory P. Read

Yes, spent too much time in IBM talking about hard files. Sorry about that, everyone.

Operator

We do have time for one final question. Our final question comes from Kevin Cassidy with Stifel, Nicolaus.

Dean Grumlose - Stifel, Nicolaus & Co., Inc., Research Division

This is Dean Grumlose calling in for Kevin. I was wondering if you could provide, Rory, some comments on what you're seeing in the strength of the various geographies at this time and rate of recovery and also how this may line up with where you think your best opportunities maybe geographically.

Rory P. Read

Yes. There's no doubt, as this inflection point continues to accelerate, and it will over the next 3 or 5 years, that emerging markets are going to be key. Consumerization is going to continue to drive a different mindset around the commercial segments, around the client. You're going to see the next 1 billion or 2 billion customers in the PC segment around these converged devices come from those emerging markets. You're going to see us continue to focus on it. We talked about it in many of our strategy sections around low power and continue to drive down with ambidextrous capability and to attack and to win in the emerging market. We saw 21% year-over-year microprocessor revenue growth in the emerging market. That's a good start but we have to continue to build on that. If you look at the other regions, Europe is obviously a difficult environment in terms of its macroeconomic trends, something that we're watching very closely. I think we're performing reasonably well in that environment. But until some of the sovereign debt issues get solved, I think that’s going to be a wildcard in terms of its velocity and its business expansion. I think North America has performed pretty well over the past several quarters. And all of the data that I read from external sources point to a reasonable consistent GDP growth that should be good for our performance in those mature segments like North America. But again, it's about the emerging market and winning in that over time.

Operator

Thank you, sir. And at this time, that does conclude our question-and-answer period. I'd like to turn the call back over to management for any closing remarks.

Rory P. Read

Thank you, Huey, and thank you, everyone for your time on the call today. We delivered solid results in the quarter, largely due to improved execution and a richer product mix. We expect to build on this financial and operational momentum, making consistent improvements quarter in and quarter out. We remain focused on creating innovative solutions our customers need to win, while building a company around a strategy that produces strong cash flow and earnings growth. Thank you, again, for taking the time to join us on the call today.

Operator

Thank you, sir. Again, ladies and gentlemen, this does conclude today's program. Thank you for your participation, and have a wonderful day. Attendees, you may log off at this time.

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