Price Target: $3.00
Analysts: Vijay Rakesh
AMD: Mending the Fences, Restructures 2013 WSA; Provides some Clarity, But Still Lot of Challenges
AMD revised its WSA Agreement for 2013, re-signing an exclusive 2013 microprocessor deal with Global Foundries for a take-or-pay agreement of $1.15B, almost flat with 2012, which could be optimistic given 2013 PC outlook. AMD expects the WSA to be neutral to gross margin guidance in the core business. AMD expects to return to positive FCF in 2H13. We will tweak our estimates after a more in-depth look at the various charges and timing of charges we note below.
As we had noted AMD, in our note on AMD's Liquidity and WSA, AMD announced a new WSA agreement after the close, announcing its Wafer Supply Agreement (WSA) for a third time.
4Q12 Payments - AMD had paid $1B of the 2012 $1.5B WSA agreement through 3Q12, leaving $500M of wafer purchases in 4Q12. Given the PC outlook, AMD is buying only $115M of wafers from GF. There would be a $320M termination payment being paid in tranches. Net of the $115M buy and the termination fees, AMD notes $65M cash saving. The $165M one-time restructuring and other charges will have a one-time $0.22 impact to 4Q12.
2013 WSA - AMD is buying only $1.15B of wafers from GF on take-or-pay (flat versus $1.115B in 2012), with all microprocessors in 2013 at GF only, which would be a headwind as it would have been more advantageous for AMD to use multiple foundries. AMD will work on 2014 WSA in June 2013. Opex and Restructuring - AMD is also taking a $45M restructuring chage in 4Q12 and reducing Opex from ~$500M now to $450M/quarter in 3Q13. Full restructuring and WSA charges are in the table below.
Liquidity – as we have noted in our last note, this was an investor concern. AMD noted it would exit 4Q12 with a $1.1B cash balance, and also noted on the conference call that it would get $150-200M from the sale/leaseback of Austin Campus in 1Q13. On a cash on a balance sheet basis, AMD feels $1.1B is a comfortable level, while $700M is the minimum balance.