Advanced Micro Devices' (AMD) Presents at Bank of America Merrill Lynch Global Technology Conference (Transcript)

Advanced Micro Devices, Inc. (NASDAQ:AMD) Bank of America Merrill Lynch Global Technology Conference June 3, 2014 1:00 PM ET

Executives

Devinder Kumar - SVP and CFO

Analysts

Vivek Arya - Bank Of America Merrill Lynch

Vivek Arya - Bank Of America Merrill Lynch

Welcome everyone to this session with AMD. I'm Vivek Arya, Semiconductor Analyst at Bank Of America Merrill Lynch. An absolute pleasure to have Devinder Kumar, CFO of AMD join us this morning along with Ruth Cotter and Liz Luckow from the Investor Relations team. What we’ll do is Devinder has some prepared material. He will start with that than just jump into Q&A.

Devinder Kumar

Thank you Vivek. Good morning to everybody. I am here to discuss AMD’s transformation and really we have gone from a Company that was dependent 95% on the PC market and really transformed ourselves or transforming ourselves with significant progress made in 2013. I’ll share with you what we have achieved recently and also how we’re doing it and where we are headed from a view point of diversification in 2015 and 2016.

So I’ll show the obligatory, if this thing works. This is really forward looking statements and based on the environment as we currently see it, and just by way of introduction; I have been with AMD almost 30 years, actually celebrate my 30th anniversary in the July timeframe. So worked in the company here as well as in Asia for 10 years, CFO since January 2013, but really took on the role on an interim basis on October 2012, which is exactly when we launched the reset and restructure of the Company to get into what we call the transformation of AMD over a multi-year period and really it’s about three years to the transformation as we get in 2016.

We are today and especially with the impact that we did from a revenue standpoint of the game console ramp in the second half of 2013, a very different company. If you look to the left, we are evolving in the core markets. The core markets are still important. We need to maintain obviously the traditional PC strongholds, focus on desktop and graphics and in 2013, in the second half we targeted wins in the commercial space in particular with the top three folks that play in the PC space to try to increase revenue and I’ll talk about that in a minute; and then in the notebook space to ahead and increase the product mix or enrich the product mix.

And then more importantly and more exciting actually is our attack in the growth markets. The growth opportunities ahead of us are all real. We have either not focused on that or not really had the products to focus on that and across the board we made progress in 2013 and hope to make even more significant progress in 2014 and beyond and I can tell you that from my standpoint from where we said, we are headed to becoming very different company if you wake up two years from now in the 2016 timeframe and look at AMD as a company.

In October 2012 as I said earlier, we launched the reset and restructure phase. The PC market had shifted dramatically in the middle part of 2012, surprised everybody, surprised the PC customers, the suppliers the foundries including us and we had to go into a massive mode of containing the cost, managing the balance sheet, managing the cash. We had a big debt burden on the company and the debt coming due in 2015, we had speed to go ahead and execute to make sure that debt power that was with us just about nine months ago to the tune of $580 million could be addressed, and we’ve successfully done that.

In the 2013 timeframe, really a tale of two halves. We had the first half that was still challenging and difficult as we went ahead and took the actions on headcount and space, bringing down the OpEx from a high of almost $600 million in Q1 2012 to our target which we communicated a year ahead that we are going to find a way to get to $450 million in Q3 of 2013 and we successfully did that, but more importantly, we had to make sure that we continue to invest in products and technology so that when we got to 2014 and ‘15, we had the products to go ahead and participate in the market.

We have completed the first two phases essentially in the reset restructure and then the first half of 2013 and really in the second half of 2013 laid the foundation for what we are doing in 2014. Make no mistake about it, we’re still in transformation mode, we still have a lot of work to do in 2014 and getting to 2015 and our next target, which we’ll be very public about is by the time we get to -- by the end of 2015 we want 50% of our revenue to be coming from the non-PC and in particular the growth opportunities that we have identified and I’ll talk about that a little bit more as we get in the presentation.

We have set the path to success metric driven and we want to go ahead and do that as we have done in the past. We laid out a bunch of things that we said we would do a year ahead or six months ahead or even 18 months ahead and the one thing that has been key to our recent success has been the management team under our CEO that just joined the company less than three years ago, with laser focus on delivering our commitments to our customers in the product space and in particular for me, near and dear to my heart on the financial piece of it.

I just got an ear full from someone, I won’t mention who it is on our debt burden that we took on when we acquired ATI and did an 80% cash deal and we are still actually paying off that debt but you have seen us do a couple of transactions over the last few months and last few quarters and that is really going to set us up very nicely for what we need to achieve over the next couple of years. We managed the cash, we have reduced the operating expenses and returned as we said even a year ahead that we would get to non-GAAP profitability and free cash flow by the second half of 2013, which we did.

The ramp in the semi-custom APUs is probably from my standpoint and having been in the Company a lot, for 30 years, almost 30 years, has been probably the best thing that AMD has done from ramping a product standpoint. Sony and Microsoft have announced that they have sold 12 million units since the launch of the product which just happened in November of 2013 and we produced every one of those APUs and had to, to exacting customers with one of the most complicated consumer devices, which is the APUs that are within the game console product for Sony and Microsoft,. They live with that to almost near-perfection.

We have had four consecutive quarters of growth in the embedded space which is an area, I categorize that we always had the products, it was a matter of focus and investing in that business and we had very good success in that area in 2013.

And finally Apple selected AMD’s FirePro for the Mac Pro and that doesn’t happened by accident. Apple, all of us know is a very detailed company in terms of the products they want to buy and put into their particular devices. And then Verizon signed up with us with the SeaMicro Fabric to go ahead and use our product in seven out of their 50 plus datacenters around the world and that is something that we committed to and delivered.

Then if you look at it from a financial standpoint, when I look at it from financial focus standpoint, a disciplined execution is what we want to. We have a plan. We continue to be opportunistic, especially as the markets are concerned. 2014 has started off well. We have a ways to go but just in the last nine months, we have done a couple of transactions; if you look at it from a viewpoint of liquidity and managing the debt.

In November of 2013, we put in place a facility to the tune of $500 million on a secured revolver using our AR facility and now that’s available to us and we have hardly tapped into that. And then earlier this year in the February timeframe, we went ahead and extinguished or virtually extinguished all but $42 million of the $580 million that was due in May of 2015. And then just yesterday, you saw us do another transaction, 10 year money with a call feature, 7% interest rate which is something from a viewpoint of combination of features the best that AMD has done in more than 25, 30 years. We have never had that kind of a deal and I think obviously the momentum that we have, the markets have cooperated.

And if you pull off the second part of it, of extinguishing the 2017 debt tower to the tune of $452 million, I could stand here and say to you that for five years we are virtually debt free and that allows us to go pursue the very transformation in about as aggressive a manner that we could. We couldn’t have said that nine months ago. And then from a viewpoint of executing the new operating model, the one thing that we have done internally is we tell our business units that they have to stand alone on each of the business units on their own, they have to be profitable on an operating income basis. And therefore the decision that you see from an OpEx standpoint, from a profitability standpoint, from the all-important gross margin and operating margin, are made by the general managers under our Head of the Business Units, Dr. Lisa Su which I am sure some of you have met.

And finally on the far right the most important is in all cases we want to go ahead and invest in areas where we differentiate ourselves. We want to grow beyond PCs. We want to diversify as a Company, so that we are not denominated by the one or two competitors that we have always been denominated with. And at the end of 2015, with that goal well on target, we should be able to do that.

From my standpoint, if I look at it from a finance and CFO standpoint, I started this in the late part of 2013 that I said 2014 from a financial focus standpoint we must manage for profitability. We must manage for profitability, grow the business, no matter what happens with the markets and in particular the competitive nature. We must make sure that we are profitable as a Company for 2014 and we have laid out some very specific goals that you've probably seen that not only do we want to grow revenue in 2014 despite the shrinking PC market; we want to be profitable, we want to generate cash and be cash flow positive while in all cases maintaining the cash balance at about a $1 billion which is the optimum balance, optimal cash balance.

The OpEx, we painted a target; $420 million was a guidance in 1Q. We came in a $1 million higher than that at $421 million and we are going to manage between $420 million and $450 million, depending on the ebbs and flows of the revenue and some of the product introduction that we are doing.

As you go to the IP subway [ph], a lot of people asked the question how is it that AMD is able to take down OpEx from $600 million down to below $450 million to $420 million and yet leverage the IP. And the one thing that we have done with Mark Papermaster coming to the Company 2.5 years ago, he is re-using the IP across the board in as many products as we can as opposed to customizing the IP for each customer, each product has to be go forward

And then I know for lot of folks the positive free cash flow is important. The note I would make on that is we did pay $200 million to Global Foundries as part of a prior agreement earlier this year and we want to be cash flow positive, having accounted for the $200 million, which we’re generating more than $200 million positive free cash flow in 2014.

So then if you get to the -- past to 2016 and this is kind of how we do it, to transform the Company. How we’re going to go about making sure that we get to the target of 50% of the revenue coming from the growth opportunities, everyone of this opportunity is real. As I said earlier in each of these areas, if I go back and look at 2013 professional graphics, semi-custom, dense server, embedded in all of those areas very good progress in 2013.

And the momentum continues in the early part of 2014. Good progress. If I look at professional graphics, we had a record year in 2013 in terms of professional graphic space. It’s an area of focus. We’ve hired a lot of people to focus in this area. We have about 20% market share right now. It is highly margin accretive from an AMD standpoint and we want to go ahead and grow that business with the $1.3 billion term that we have.

Semi-custom, you read about it all over the news. You read about it in the press. Sony and Microsoft, the product ramps are higher than every -- any prior generation game console and that benefits us, because every single one of the game console that's sold today by Sony and Microsoft and also Nintendo's Wii U uses AMD technology. 100% of those products use AMD’s technology or AMD’s APU, which benefits us because that’s about a sure, as soon revenue gets from our view point of being an exclusive supplier to probably one of the most complicated consumer devices that's sold on the planet.

And then we have a strong pipeline because of what we did with Sony and Microsoft. The customer interest is very high, across the board, whether you’d look at enterprise in the datacenter or you look at mobility or you look at consumer in the living room and actually other opportunities in a gaming space, we are very confident and we announce one to two opportunities later on this year and continue that momentum because the customer interest and the pipeline is very strong.

In the dense server space, this is an area where we are differentiating ourselves and focusing especially with the ARM license that we have signed because we think that the ARM is going to confer 25% of the server market in 2019. Backend loaded, longer investment cycle, need to engage with our customers with the experience that we have in the server space and finally being able to produce x86 and ARM products in this space, which only one company in the world can do and that’s AMD.

And then in the embedded space it’s a $9 billion term. That includes x86 and ARM. Today we don’t participate in the ARM side of the equation and we will have products using the ARM technology in that space later on this year and that will allow us to get in the networking space with a new set of customers, which is going to pretty exciting, whereby we use AMD’s APU and GPU technology to go ahead and differentiate ourselves.

And then in the ultra-low power client, it’s a big market, $25 billion. I think it’s still settling down, whether it’s tablets, PC’s what people want to do. I think the consumers are still making up their minds, across the board whether it’s Kaveri or Beema and Mullins and Mullins actually with a low form factor is very competitive form a view point of equivalent ARM products or other x86 products out there. And we think we bring a strong value proposition for our customers in that space.

So in summary before we get to the fireside chat, I think you're going to look at -- the Company AMD is involving in a big way, no longer just an x86 company, no longer just a Company that’s dependent on the PC space. Diversification is the key. We get to our target of having 50% of revenue from these growth possibilities by the time we get to 2015. That will be a good thing. And then from my standpoint and from the management team standpoint, in all cases, disciplined execution, delivering on the commitments, whether it’s customers, technology, product roadmap and even in the supply chain. And finally as I said for me, it is continuing to improve the financials, continuing to improve the balance sheet and continuing to improve financial metrics as we go into the 2015, 2016 timeframe. So thank you.

Question-And-Answer Session

Vivek Arya - Bank Of America Merrill Lynch

Thank you, Devinder. Thanks a lot for that.

Devinder Kumar

Good to see you again Vivek (ph).

Vivek Arya - Bank Of America Merrill Lynch

Yes, likewise. So I think that, I think you guys have done an outstanding job of stemming the losses, facing the challenges and essentially stabilizing the company. And it’s quite a sea change in the terms of questions that we get now from investors versus a year or two years ago, right. Before it was all about, okay, what’s the next shooter drop -- by how does -- how is the company stabilizing, how is it starting the path to growth. But after giving that complement, let me ask you a question about the PC market, right. That’s still one of your largest end markets. When I look at where the market seems to be stabilizing or perhaps growing, it seems to be an enterprise. It seems to be in things like Chromebooks. It seems to be in sort of these low end tablets. I'm including that in the PC market. But those are not places where AMD has been traditionally. So how are you picking and choosing which area of the PC market you need to be and to stay relevant, so at least it’s not a headwind, a big headwind to you?

Devinder Kumar

Yes, I think what you have to look to at is from a viewpoint of what's changed with AMD. When you have a revenue base in particular in 2013 second half that is coming from the non-PC side and you know that that revenue is going to be there in terms of profitability or generating the revenue dollars or the gross margin dollars or even the cash, then you can start making many different decisions in a space when you’re 95% dependent on it. So that’s really the starting point.

Once you do that, then you say okay, in this particular space I'm going to be very selective to use your words. Our enterprise, commercial -- I think the mic went -- enterprise commercial and even you mentioned with the low form factor, we’ve been under represented. So it was a matter of getting the products into the market. For example in the commercial space we have this ARM TrustZone feature that is not there and therefore you almost discount yourself and we are completely underrepresented in the commercial space.

We went to our customers with a product roadmap and even in the customers we’re just focusing on the few, the big three, Lenovo, HP and Dell and trying to get volume design wins. And what's changed with AMD is the engineering mind set used to be get the best technology, best technological product and go customize it for every skew at HP or some other Company and that doesn’t pay off, because if something goes wrong, you’ve invested dollars and you don’t the return.

Today it’s high volume. In the commercial space we’re on target to double our design wins compared to where we were in 2013. Customers are very excited and I think you will see that evolve in the second half of 2014.

You mentioned that the enterprise space. Lot of progress there with again the larger customers and then in the low form factor, we have a product now, Mullins which has come out. If you do the benchmarks on any basis as opposed to just doing it with one particular benchmark, you do it with the PCMark benchmark and it comes out very competitive and that product is doing very well and our customers are excited about it.

But make no mistake about it. The PC market our view is down 7% to 10%. A lot of people think we have been conservative, because IDC just came up with some data, I guess few days ago saying is down 6%. Our competitor thinks it’s going to be less than that.

From a planning standpoint I think that sits well with us. From a viewpoint of managing the working capital and expenses, we are planning for 7% and 10% down in the PC space. But being very selective in the Desktop channel space, we have been successful. We’ve had very good progress in 2013 and increasing revenue every quarter in 2013 is what we have done and that will be an area of focus in 2014.

Vivek Arya - Bank Of America Merrill Lynch

Got it. In the past when the PC market was growing double-digits a year, in some ways there was good sort of competition between Intel and yourself. But now that the PC market is declining, do you see Intel becoming a little bit more aggressive in terms of pricing and maybe going after areas that they might not have, in light with Bay Trail what I have heard is very aggressive in terms of pricing. So how does that impact?

Devinder Kumar

Yes. I think a little more aggressive is an understatement. It’s very aggressive. But we can be very selective because like I said, our revenue model has already shifted. More than 30% of the revenue coming from the non-PC space allows you to make decisions very differently. Products are competitive. We are very disciplined from a gross margin and operating margin standpoint. The managing for property statement that I made is real. Business units, general managers make decisions whether to take business not based on their entire P&L from top to bottom and that is something.

Yes the competitor is very aggressive but we’re going to show and we’ve shown over the last two or three quarters after we recovered with the first half of 2013 that we’re going to be selective in terms of where we pursue the opportunities in a very targeted manner and actually from my standpoint, with that discipline having been put into place, I'm pretty pleased as to how we’re doing it.

Vivek Arya - Bank Of America Merrill Lynch

Maybe if you talk about the graphics area, why has nVidia managed to gain so much share from AMD over the last few years? And I know this happens in cycles; you’re two thirds of the market, they are one-third and that sort of goes back and forth. So is 50-50 the natural state of the market and how do you get there from where you are today?

Devinder Kumar

I think if you ask me from my standpoint generation to generation, if the market share is 40-60 and it oscillates from one company to another, that’s probably how it will go and that’s the way it’s been. There were some decisions made two-three years ago when we were pushing the APU and our view of how the attach rates are going to change. Some product decisions were made, in particular in the low end. And I think that kind of hurt us in particular with the platform, in particular with decisions that Microsoft made with some customers with the Haswell platform. If there's one area that we’re confident of gaining market share is in the graphics space, not just in professional graphic product, but in the graphic space. And I think as the year evolves, the Ivy Bridge platforms come in to play, the attach rates actually have surprised us. We thought the attach rates would go down. If you ask someone two years ago, the attach rates were expected to go down more but they've actually not gone down as much, and now we [ph] participate in that market to go ahead and get the market share that I think we will see in the second half of 2014.

Vivek Arya - Bank Of America Merrill Lynch

Got it. So if somebody from the graphics side comes to you and say, I need more investment, I need more OpEx, how do you react to that?

Devinder Kumar

Well I ask the general manager one question, show me your P&L and what’s the bottom line going to be, but in our GVS segment we have semi-custom in graphics and then the graphics space, they can get the investment and actually they have. We’re doing marketing very differently in the graphics space than what -- we’ve take a page out of our competitors book actually, and with the bundling that we have seen some of the game titles, that’s been very successful.

With the technology that we have, the Apple MacPro using the Dual FirePro AMD device, very successful, in the AIB space in particular with China; despite some challenges from a macro standpoint in China, we have had good success in that area in the early part of 2014.

Vivek Arya - Bank Of America Merrill Lynch

Got it. And then moving to the server market, I think I have sort of mixed views in that on the one hand I think as you mentioned, you are unique in that you have x86 right. You have the ambidextrous capability, you have graphics, you have access to ARM architecture and your Fabless. So you're forced to fill up a fab for whatever reason right. You can really go after the real demand in the market. But then the skeptics would say, well if AMD was not successful being one out of two x86 vendors and servers, how can it be successful being one out of I don’t know 10, 12, every day the number is increasing, number of potential suppliers in the ARM market. Aren’t you leaving one market that had less competition towards going into a market which is going to be a lot more competitive?

Devinder Kumar

I think yes and no. If you look at the ARM space in particular, so if you talk about servers, there are only so many companies that compete in the server space and we have got 10 years plus. No surprise on the traditional server space. For various reasons we have not done well, market share is nothing much to speak about in the traditional server space. But in the dense server space, especially with our SeaMicro acquisition, we see a lot of opportunities. We are projecting over the longer term that this is going to be an area where space, power and performance, the equation in total is going to be good. ARM obviously gives you some features. We sample products at Seattle. We are going to ship for revenue at the end of this year and that’s our first ARM based 64-bit product, 28 nanometer technology node which is the bulk technology node and the reception from our customers is very good and you will see us do more of that.

This is a projection for the future. Just like in the days of the Opteron, we call the market from a viewpoint of where it’s headed and we see this as backend loaded but we think this is a right call where 25% of the market, the server market is going to be dense server base and we have an opportunity. There has been some movement with some of the other players. One went out of business, the other one I think got acquired with the news that just came out over the last few days.

So, you can see that the folks that are putting in the datacenters themselves are starting to pay attention to say there is something different about the dense server space compared to the traditional server space. And we see ourselves as somebody that could play in that market and be successful, not in 2014 from a significant revenue standpoint, backend loaded in the second half of 2015 and 2016 and beyond. But it’s a call that will play out. I think you are right. This is an area that is still evolving and we will see how it plays out as we get into 2016 when we get to our transformation state.

Vivek Arya - Bank Of America Merrill Lynch

And then moving onto the game console and the semi-custom, so first on the game console, there is -- so obviously very strong execution on getting the products out right and you have essentially locked-up, right, the market with very strong customers. There is some concern in terms of sell- n versus sale-through. So that’s a near-term concern but longer term how do you see AMD’s view of the game console market? Are we headed to like one big year and then it sort of slows down? Is this the peak year, next year is a peak year? How do you manage that business knowing that it is such a consumer oriented?

Devinder Kumar

Yes, consumer but it is changing in terms of current game console products are doing very different things than what the prior generation did; that’s one thing. The second thing is we introduced a product in 2013. We get asked that question a lot. 2013 was kind of -- first second half, what’s going to happen in 2014. 2014 the game console revenue and units, significantly higher for the new generation, significantly higher compared to 2013. And by the way, based on what we see in particular with some developments that you probably read about related to the Chinese market in particular, we think 2015 is better than 2014.

But the life cycle of the products are probably going to be shorter. Our customers are already thinking about what comes next. These are long life cycle products and as you know in the semi-custom space, you start with -- three years before you introduce a product, a decision is made to use a particular company. In this case it was AMD. And then you go ahead and co-develop the product with the funding dollars frankly, mostly coming from our customers. And then when you introduce the product, there is really no expenses from R&D standpoint, no sales and marketing dollars and whatever dollars you generate from a gross margin dollar standpoint, falls to the bottom-line and that’s what excites us.

We have executed as you said -- very strong execution in semi-custom but that has now piqued the interest of many customers that want to do similar stuff beyond game console. And I think this is a proof point with the incredible execution of the game console product that customers are coming towards and saying in mobility, enterprise, living room and even in gaming what comes next and we have a strong pipeline and that’s why the confidence that we will announce, wanted to semi-custom design wins. And by the way these opportunities are not $30 million or $40 million; these are $200 million to $500 million plus range of opportunities. And the best thing about this is once one if you execute, the revenue is going to be there from a viewpoint of generating the dollars to go ahead and benefit the P&L from an operating margin standpoint.

Vivek Arya - Bank Of America Merrill Lynch

So, AMD has been teasing us about these new wins for some time. So have you already won these and it’s just a matter of, right, how to line-up the announcement or is it that you are in the final stages of knowing, I'm just trying to get a sense of how these things are. We’re all excited to know what these things are.

Devinder Kumar

Very real. Very real. I can tell you that, very real highly confident with one to two design wins this year. However, because it is a semi-custom business just like with the Xbox One and PS4, we talked about in 2012. We said we have confidential semi-custom design wins, but we did not announce right until our customers actually announce in May 2013 timeframe and that’s just a nature of the business, very strict from a confidentiality standpoint. We don’t want to violate that confidence of the customers, but I can tell you very confident, one to two before the end of the year and then one to two going forward with the opportunities are right off demand.

Vivek Arya - Bank Of America Merrill Lynch

Can you give us a sense of end-markets that this might be in, even if?

Devinder Kumar

No.

Vivek Arya - Bank Of America Merrill Lynch

Are these end-markets that you’re participated in before?

Devinder Kumar

Both, I think it’s going to be in the end markets we participate in today and also some other opportunities that we have. So it’s across the board. It’s not just, continuing just with the game console in the next generation, what do you do, but the aperture, I guess is increasing. And the engagement with the customers is very active across many different areas.

Vivek Arya - Bank Of America Merrill Lynch

Got it. And may be let me pause there and see if there are any questions, from the audience?

Unidentified Analyst

Just a couple of quick questions. Just a clarification on one of your slides. You are saying on the server market, it’s going to be out 25% of the total.

Devinder Kumar

Say again?

Unidentified Analyst

A clarification on one of your slides. You had a slide showing ARM having 25% of the total server market in 2019?

Devinder Kumar

That’s right.

Unidentified Analyst

Is that the total server market?

Devinder Kumar

That’s the dense server space with ARM product, right in the 2019 timeframe, 25% of the server market.

Unidentified Analyst

Okay. And the second things is ARM is talking about doing 48 core servers in the 2017, 18 timeframe and at the moment everyone views ARM is being a low power server players and low performance server player. Do you think ARM could potentially go into the high performance server play with these 48 core servers that they are talking about?

Devinder Kumar

I think it could but I'm not technically savvy enough to specifically answer that question.

Unidentified Analyst

Okay. And just one last question on AMCC. They have their own custom core this year and you’re going to have your custom core in 2016. So how will you differentiate your product relative to AMCC’s product?

Devinder Kumar

You know, its matter of having silicon in the market, having the experience with all of the infrastructure and platforms that come with server space, long engagement dealing with the customers. You heard me talking about Verizon using the server products that we are shipping to them in seven out of their 50 plus datacenters. And I think these are things that happen over longer time period because once you make a decision, it stays with you for many, many years. It is possible that, a company like what you just mentioned has a product out there, but we are looking again for the higher volume, longer time period opportunities and we are okay with waiting to go ahead and make that engagement with the products that we are shipping to them today.

Unidentified Analyst

I have question on the tablet market. We see there’s a confluence of things happening right? On the one hand we have 64-bit coming, some high powerful tablets and application processes out there. And over here on the PC side things are slowing. Your competitor has moved in more into the tablet market. Is this an opportunity that you can at some point address? Has tablets become much more like PC’s in high performance and your core bookmark is obviously very weak. Isn't this kind of no brainer, an area that you really need to address to stem the decline in notebooks? Thanks.

Devinder Kumar

I think you have responded to what the consumers want. I think there is still a settling down period happening with the customers, the consumers. The consumers haven’t decided. You go around and you see the devices consumers are buying. I think they haven’t made up their mind. If you look at the tablet forecast that just came out from IDC, it is lower than what they forecasted a year-ago. So there is some shift happening there.

In the PC space obviously with the lower power stuff in market Mullins, when you look at the power equation, the power equation is now competitive -- our competitors, from our power equation and performance standpoint and I think that consumers are going to decide and I don’t think that story has truly unfolded to say like we use doing the old days. It’s going to be this kind of notebook, go ahead and make this product and the consumers will buy. The consumers are all over the map. It's very fragmented. They are fickle just by definition because they are consumers and we will see what happens over the next couple of years.

Unidentified Analyst

Would your view change if we heard -- we have a new CEO at Microsoft trying to -- we heard a major announcement about porting office to say Android on 65 [ph] if you remember. Would your view change if that wasn’t necessary [ph]?

Devinder Kumar

From my standpoint that particular move is a good move. The part that doesn’t make sense to me is again you mentioned the competitor trying to do everything possible and throwing dollars from a viewpoint of trying to create a market. I think consumers have become savvy enough whereby the short term money that you throw at them is not going to be making a decisions about longer term. This is the device of choice that I want and that is the thing that’s going to play out. Being a fabulous company and not having the debt, the burden of the fab, it makes it a lot easier to go ahead and say, as Vivek said earlier, I don’t need to go for the fabs, and by the way even the $1.2 billion WSA take-or-pay agreement that I did in 2014, a significant portion of that is semi-custom and graphics, not just PCs. And I think you see our relationship with Global Foundries, one of our two foundry partners evolving and the business that we get with them is going to be based on what AMDs business is going to be with the demand that we have.

Vivek Arya - Bank Of America Merrill Lynch

Devinder I'm glad you bought up the WSA and Global Foundries. One would say that -- is that a higher risk approach in that, you are at TSMC -- you’re still with TSMC but you’re shifting wafers, you’re shifting more demand towards Global Foundries. At some -- it’s 20% above last year.

Devinder Kumar

Go ahead, let me let you finish your question.

Vivek Arya - Bank Of America Merrill Lynch

So isn’t that a risk in that, you have a foundry where the manufacturing and process and everything is leading edge, well proven and you are going towards a player where there are management changes. Are there incremental risks to this move?

Devinder Kumar

There is always risk but by the same equation, just like anything else, if you can have a balanced strategy with a couple of foundries, it’s a good thing. Being able to shift wafers even execution or the yields are somewhat different. I look at it from an effective die cost standpoint. And if I can get the same financial equation whether I make it here or there, then that’s a good thing for me and always having two or more is better and in our case we have very good relationship in both, the WSA that we signed, you talked about 20% higher than last year. But bear in mind that our view of the PC market is 7% to 10% down and I can tell you that within the 1.2 billion, the PC product purchases are very much in line with what our view of the market is the PC business, very much in line, and that’s why we have confidence, if we execute 2014 that we can work our inventory down from where we ended in 2013 to the end of 2014 and all of this inventory is 28 nanometers as you reference and is healthy, it’s a good mix of inventory and I actually feel probably the best. I have been involved with the Global Foundries, WSA ever since their inception in 2009 and I can tell you that I feel the best about this last agreement that we signed than any agreement that we have signed in the last five years.

Vivek Arya - Bank Of America Merrill Lynch

Any last questions from the audience? Let me ask the last one. You did some debt transactions yesterday. You could paint the bigger picture about what that means for your financials and just the related question to that, if you look at AMD over the next few years. Is this from now on more a top line growth driven story, or are there still things you can do, whether it’s from your balance sheet or on the debt side or whether there are things on OpEx you can do to create another tailwind for margins.

Devinder Kumar

I think both, I think 2014 as we have said grow revenue over 2013. So it is top line growth. But on the balance sheet coming back to the debt transaction we did yesterday, very opportunistic, 7% money with a call feature up to five years, 10 year note due in 2024 and reducing the interest expense. So net-net, the second part of it is not done. We are trending with the 2017 notes, but let’s say we’re successful with that. We get notes tender, notes at 8.1 to 5. In fact that particular note also has an OID feature that was done in the 2009 timeframe. So the effective interest rate on the P&L for that particular note is 10%. So the difference in the interest expense is 10% or 7%. You do the math in terms of the savings, it’s at least $3 million a quarter that you save, and by the way it’s a straight note with a call option, 10 year money at 7%. I feel very good about that.

Vivek Arya - Bank Of America Merrill Lynch

And in terms of just OpEx are there things that are still to be done or you think OpEx is right sized now and…

Devinder Kumar

Depends upon execution and delivery. We are managing for profitability. We’ll do things if we need to but this year we packed it at $420 million to $450 million and then going back to the debt piece of it, I think $2 million is still much of a debt burden on the Company and as we execute and move forward, the target will be to bring down the debt burden of the company and have less debt than what we have today.

Vivek Arya - Bank Of America Merrill Lynch

Thank you very much. Thank you Devinder. Really appreciate your time for sharing your views.

Devinder Kumar

Thank you.

Vivek Arya - Bank Of America Merrill Lynch

Thank you everyone for joining us.