Advanced Micro Devices (AMD) at the Citi Global Technology Conference: Key Takeaways

On Wednesday morning, Lisa Su, the Senior Vice President and Head of the Global Business Unit for Advanced Micro Devices, Inc (NYSE: AMD), presented at the Citi Global Technology Conference (you can listen to the audio by clicking here or read transcript on Seeking Alpha here). I should mention that Advanced Micro Devices is in our SmallCap Network Elite Opportunity (SCN EO) portfolio and we are down around 14% – namely because the company had the misfortune of reporting earnings the same day some major tech names were disappointing investors. Nevertheless, here is a quick summary of the key takeaways for investors (rather than for any techies) from the Citi Global Technology Conference:

Current Visibility Versus a Quarter Ago Versus a Year Ago. When asked about visibility, Lisa commented that in 2012, 95% of Advanced Micro Devices' exposure was to the PC market; but by the end of this year, the company intends to have at least 20% of the business outside of the traditional PC market. Moving forward for the next three years, the company has a target of 40% to 50% of its business coming from outside the traditional PC space. Lisa also added that in the newer business, particularly the semi-custom and game console business, the company has fairly good visibility. Productivity Gains Versus a Quarter Ago Versus a Year Ago. Lisa noted how Advanced Micro Devices has transitioned from being a pure X86 Company to be really more of a design company. More importantly and in the areas of core technology IT strengths where AMD spends a lot of engineering and R&D dollars, the company is able to reuse those components into a bunch of markets to get a bunch of products out. About the "Ambidextrous" Strategy. Lisa pointed out that the idea of one size fits all in terms of a product is changing along with the greater need to customize for various vertical markets. So the company's ambidextrous strategy is: "…the idea of really using both ARM and X86 architectures as well as combining graphics, third party IP together so that we can optimize for each market segment." The PC Market. According to Lisa, Advanced Micro Devices views that it has share opportunity growth in the PC market given the size of its share plus there are opportunities in commercial. She did add that the market today has a lot more focus on the entry price points. Margins on the Console Business. When asked about margins for the console business, Lisa noted that it's fair to say that the semi-custom business model is different from our traditional PC model with the gross margins being below corporate average, but the operating margins are fairly good. She then added: "…it's really a very, very nice model because we designed these with our customers, our customers fund a large portion of the engineering expense and so the gross margin fall through to operating margins as a percentage is quite high." Operating Expenses. Lisa noted that Advanced Micro Devices' model and restructuring has really seen operating expenses go down over the last three or four quarters. With most of the restructuring now behind the company and revenue accelerating, operating expenses will stay constant and roughly flat. However, Lisa did mention that Advanced Micro Devices is doing a shift in sales and marketing as some of the new channels require a more dedicated sales force e.g. embedded or professional graphics.

In other words, Advanced Micro Devices is continuing to make progress in its transition away from or rather dependence on the PC market.

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