created by Ken Luskin KenLuskin@gmail.

com

January 30, 2014

AMD UNDERESTIMATED GUIDANCE for Q1

In the Q4 2013 CC, AMD said that guidance included about a 10% decline in PC sales. 1) CS reporting division includes the SERVER chip and SeaMicro businesses, which have at least $120 million in sales per quarter, that are NOT seasonal. This means of the $720 million in Q4 CS sales, only about $ 600 million are PC chips. 2) A 10% decline in PC chips sales= $60 million decline to $540 million. 3) GVS division = discrete GPUs + Console APUs. Q4= $865 million Console was about $550 million, while discrete was about $315 million, of which about $65 million was professional, which is NOT seasonal. Which means retail GPU = $250 million in Q4 4) A 10% decline in retail GPU= $25 million 5) So, total decline of Seasonal related ex of Console = $85 million 6) OFFSETTING the seasonal PC and retail GPU, is the SOLD OUT status of high end GPUs and Sold out status of the Apple MAC Pro. I do NOT believe that AMD took these high end GPUs into account, especially the Apple MAC Pro sales for Q1. A) full quarter of GPUs for MAC Pro should be at least $ 50 million greater than Q4. B) Full quarter of high end retail GPUs should be at least $20 million greater than Q4 C) Royalties (see below) at least $30 million greater than Q4

OFFSETTING ROYALTIES: There is a one quarter lag in payment of royalties. Therefore, sales during Q4 are paid to AMD as Royalties in Q1. 3 million Xbox = $30 million in Q1 PROFITS which is about $20 million greater than Q4. 1.5 million Wii = $15 million in Q1 profits, which is at least $10 million more than Q4. Total= $30 million more in Profits than Q4. TOTAL offsetting increases in Graphics= $100 million The increases in AMDs NON console Graphic revenues more than offset the seasonal decline in PCs and low end discrete GPUs. 7) 1.59 B to $1.33= $260 million decline less $85 million leaves $175 million, which would be attributed to Console chip sales in Q1. $550 M - $175M= $375 million of console chip sales in Q1. This is only 3.75 million APUs for Q1. Based upon the demand for PS4, Sony alone will require 3 million APUs in Q1. MSFT should require at least 2 million= 5 million or $500 million 8) Underestimate by sector: Console= $125 million, Discrete GPU= $ 70 million, Royalty= $30 million

created by Ken Luskin KenLuskin@gmail.com TOTAL= $225 million

January 30, 2014

9) I believe that AMD is UNDERESTIMATING Q1 sales by at LEAST $225 million, and underestimating profits by $65 million 10) Based upon my understanding of the sold out status of high end GPUs, combined with more robust Console demand than the base case, I believe that AMD will produce significantly better sales and earnings than in the official guidance. I estimate: Q1 sales= $1.55 Billion Q1 EPS= 8 cents Versus AMD guidance of: $1.33 billion with NO earnings.

CONCLUSION
I do NOT see the downside in AMD, barring a world wide depression.
11) AMD was previously providing conservative guidance before the recent shareholder lawsuit. I believe AMD used the base minimum Console chip purchase commitments from Sony and MSFT in their Q1 guidance, because they want to be overly conservative about the sell through of the new consoles in the present quarter. 12) As the quarter progresses, there will be continued updates on Console sales, which should be better than AMDs base case. 13) As the quarter progresses, AMDs console chip domination will be transferred over to PC GPUs/APUs because of the MANTLE API, and the release of new AAA games that use Mantle.

14) AMD's PC business is now too small for Intel to damage. The real damage in the PC area has not come from Intel, but from Tablets. AMD has shifted their mix towards commercial desktop, which is NOT in competition with Tablets. Intel will do about $8 billion in PC sales in Q1, while AMD is guiding to slightly over $500 million. Since AMD's prices are at least 10% to 20% lower than Intel, there is NO way Intel can increase sales and income by lowering prices. If Intel lowers prices 10% on the $5 billion of low to medium end chips, that reduces sales and profits by $500 million, and puts downward pressure on their high end. OEMs will do continue to do business with AMD, because they want to use them to keep Intel honest. 15) With PC sales stabilizing, especially in desktops, combined with AMD's cost reductions, AMD will NOT lose any appreciable $$ in the PC area.

created by Ken Luskin KenLuskin@gmail.com

January 30, 2014

16) Meanwhile, GRAPHICS sales are EXPLODING! A) Apple head of Graphics joined AMD in April 2013 B) Nvidia head of sales joined AMD in Jan 2013 C) Nvidia head of Professional graphics joined AMD in Oct. 2013 17) ANALysts and most investors are making the CLASSIC mistake of focusing on the OLD business, while the NEW business is exploding. 18) Same thing happened at Apple in 2003 until mid 2004. Very few people understood Apple's dominance of music.... When they finally woke up, Apple stock EXPLODED! Same thing will happen to AMD over the next few years. 19) The Server opportunity is the icing on the GRAPHICS cake!