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Form 10-Q/A (No. 1)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) AMENDMENT NO. 1 TO QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 1994
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-7882
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ADVANCED MICRO DEVICES, INC
(Exact name of registrant as specified in its charter)
Delaware 94-1692300
State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization
One AMD Place
P. O. Box 3453
Sunnyvale, California 94088-3453
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 732-2400
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of March 27, 1994:
Common Stock, $0.01 par value 92,770,327
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Class Number of Shares
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to report on Form 10-Q to be signed on
its behalf by the undersigned thereunto duly authorized.
ADVANCED MICRO DEVICES, INC.
Date: April 8, 1994 /s/Larry R. Carter
------------- By:___________________
Larry R. Carter
Vice President and
Corporate Controller
Signing on behalf of the
registrant and as chief
accounting officer
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Part I. Financial Information--Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto, and with the
company's audited financial statements and notes thereto for the fiscal year
ended December 26, 1993.
RESULTS OF OPERATIONS
AMD reported record sales and operating income for the first quarter of 1994.
Net sales of $513.1 million for the first quarter of 1994, rose by 26 percent
from sales of $407.4 million for the first quarter of 1993. This increase was
primarily attributable to substantial growth in Am486(Trademark) microprocessor
sales, partially offset by significantly lower sales of Am386(Registered
Trademark) products.
Sales to international customers for the first quarter of 1994 and 1993 were 53
percent and 56 percent, respectively. First quarter sales grew in North America
and Europe while sales in Asia declined as compared to the same quarter a year
ago.
Due to their maturing life cycle, sales of Am386 microprocessors decreased
substantially as compared to the first quarter of 1993, resulting from both unit
shipment and average-selling-price declines. Management anticipates Am386
microprocessor revenue will continue on its downward trend for the remainder of
1994 since the market has transitioned to 486 technology.
The company's Am386 and Am486 products have been the subject of litigation with
Intel Corporation (see Footnote 2 of the consolidated financial statements, Part
II, Item 1, Legal Proceedings). On March 10, 1994, a federal court jury in San
Jose, California returned verdicts in the 287 microcode litigation finding that
a 1976 patent and copyright agreement between AMD and Intel (the "1976
Agreement") granted AMD rights to sell microchips containing Intel microcodes.
The Court entered a judgment on the verdicts in AMD's favor on March 11, 1994.
Prior to the jury's determination, AMD and Intel agreed that the jury's verdicts
would be determinative of the question whether the 1976 Agreement grants AMD the
right to copy microcodes contained in Intel microprocessors and peripheral
microchips, including not only the 287 math co-processor, but generally as to
all microprocessors and peripheral microchips, specifically including the 386
and 486 microprocessors.
Intel has indicated that it intends to appeal the verdicts in the 287 case and
it is expected that the appeal process will take at least one year. It is AMD's
expectation that Intel, notwithstanding the March 10, 1994 verdicts or any other
ruling adverse to Intel in the pending legal proceedings with AMD, will continue
to pursue the remaining intellectual property claims in the pending litigations
against the company.
An unfavorable ultimate decision in the 287, 386 or 486 microcode litigation
could result in a material monetary damages award to Intel and/or preclude the
company from continuing to produce those Am386 and Am486 products adjudicated to
contain any copyrighted Intel microcode. Therefore, such litigations could have
a materially adverse impact on the financial condition and results of operations
of the company.
During 1993, the company's X86 business transitioned from Am386 to Am486
products. The company began shipments of its Am486DX microprocessors during the
second quarter of 1993.
Am386 is a registered trademark of Advanced Micro Devices, Inc.
Am486 is a trademark of Advanced Micro Devices, Inc.
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Since that time, Am486DX unit shipments have grown significantly. In the first
quarter of 1994, unit shipments of Am486DX devices exceeded 900,000 units while
average selling prices declined moderately as compared to the immediate prior
quarter. It is expected that selling prices will continue to decline due to
competitive pressures.
The company has initiated an aggressive manufacturing plan in its Submicron
Development Center (SDC); nevertheless, Am486 product demand is expected to
exceed production capacity in the second quarter of 1994. In February 1994, the
company and Digital Equipment Corporation (Digital) entered into a foundry
agreement for AMD's Am486 microprocessors. The agreement is for two years with
an option for extension at the end of that period. However, both parties have
certain rights to terminate this agreement earlier in the event of adverse
developments in the company's microprocessor-related litigations. Initial
shipments of Am486 products from wafers manufactured by Digital are expected to
begin in the fourth quarter of 1994. The company may enter into additional
foundry arrangements in order to supplement internal capacity based on business
conditions. Regardless of these foundry arrangements, the company's production
capacity is expected to increase in late 1995 due to the completion of its
700,000 square-foot submicron semiconductor manufacturing complex in Austin,
Texas (Fab 25).
An unfavorable ultimate decision in the 287 or the 486 Microcode Litigations
could affect the company's ability to continue to ship and produce its Am486DX
products or, in the case of the 486 Microcode Litigation, could result in a
material monetary damages award to Intel, either of which could have an
immediate, material adverse impact on the company's results of operations and
financial condition. The AMD/Intel legal proceedings involve multiple
interrelated and complex issues of fact and law. The ultimate outcome of such
proceedings cannot presently be determined. Accordingly, no provision for any
liability that may result upon the adjudication of the AMD/Intel legal
proceedings has been made in the company's financial statements.
The company is also developing its next generation of microprocessors, referred
to as the K-series, based on superscalar RISC-type architecture. Development of
the initial K-series products is expected to be completed in the fourth quarter
of 1994 or early 1995.
In addition to the above-mentioned litigations, the future outlook for AMD's
microprocessor business is highly dependent upon microprocessor market
conditions, which are subject to both demand and price elasticity. Future
growth will depend on the market demand for Am486 products and AMD's future
generation microprocessors, and the company's ability to meet this demand.
For the first quarter of 1994, revenues of network, data and telecommunication
products increased slightly as compared to the first quarter of 1993. This
increase was mainly attributable to strong growth in Ethernet products partially
offset by decreased sales of data communication products. Sales of embedded
processors and microcontrollers in the first quarter of 1994 decreased slightly
from the first quarter of 1993.
First quarter sales of flash memory devices grew slightly as compared to the
corresponding quarter a year ago due to an increase in unit shipments. However,
flash sales decreased substantially as compared to the immediate prior quarter
due to pricing pressures from increased competition. It is expected that these
pricing pressures will continue through 1994. The company plans to meet
projected long-term demand for flash memory devices through a manufacturing
joint venture with Fujitsu Limited of Japan, which is expected to begin volume
production in the first half of 1995.
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Revenues of erasable programmable read-only memories (EPROMs) in the first
quarter of 1994 grew from the similar prior period due to increased capacity
resulting from foundry arrangements and higher average prices due to greater
demand.
Sales of CMOS programmable logic devices (PLDs) increased in the first quarter
of 1994 as compared to the same quarter last year, primarily driven by
MACH(Trademark) family products (mid-density PLDs). However, this increase was
offset by a decrease in bipolar PLD sales. Management expects flat PLD sales in
the second quarter of 1994 as sales growth, if any, in MACH family products may
be offset by bipolar PLD sales decline.
Cost of sales of $230.4 million for the first quarter of 1994 contributed to a
gross margin of 55 percent as compared to a gross margin of 52 percent in the
first quarter of 1993. This increase in gross margin was primarily related to
higher margins from Am486 products. Gross margins for the remainder of 1994 are
dependent upon the strength of market demand for Am486 devices and the company's
ability to meet that demand.
Research and development expenses increased to $68.2 million in the first
quarter of 1994 from $61.8 million in the same quarter last year due to higher
research and development spending in Fab 25 and most product lines. The company
expects research and development expenses to remain relatively stable for the
remainder of 1994.
Marketing, general and administrative expenses grew by $24.4 million to $92.9
million for the first quarter of 1994 from $68.5 million for the first quarter
of 1993. This increase was mainly due to increased legal fees relating to
litigations with Intel, microprocessor advertising rebates and profit sharing.
In summary, total operating expenses for the first quarter of 1994 were $391.6
million, a $67.2 million increase over the $324.4 million operating expenses for
the first quarter of 1993. However, operating expenses as a percentage of sales
decreased in the first quarter of 1994 as compared to the same quarter a year
ago. Consequently, operating income as a percentage of sales increased to 24
percent in the first quarter of 1994 as compared to 20 percent in the same
quarter last year. Although the company is continuing to focus on cost
containment, operating expenses may rise through 1994 in both absolute dollars
and as a percentage of sales due to start-up manufacturing costs for Fab 25,
further increases in depreciation, and higher foundry expenses which are
dependent on product demand.
Interest and other income rose slightly to $3.6 million in the first quarter of
1994 as compared to $3.4 million in the first quarter of 1993, due to higher
cash available for investment. Interest expense was $.7 million for the first
quarter of 1994, down from $1.1 million in the first quarter of 1993 due to
lower average borrowing rates.
Provision for income taxes was $39.8 million, or 32 percent, for the first
quarter of 1994 compared to $23.9 million, or 28 percent, for the first quarter
of 1993. The higher provision in 1994 was primarily due to reduced benefits
from low taxed foreign income and from available tax credit carryforwards.
Management expects that the provision for taxes on income will remain at
approximately 32 percent through 1994.
The company recorded net income before preferred stock dividends of $84.6
million in the first quarter of 1994, up from $61.5 million in the first quarter
of 1993. After preferred stock
MACH is a trademark of Advanced Micro Devices, Inc.
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dividends of $2.6 million for both quarters, the primary net income per common
share was $.85 for the first quarter of 1994 and $.63 for the same quarter a
year ago.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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The semiconductor industry is generally characterized by a highly competitive
and rapidly changing environment in which operating results are often subject to
the effects of new product introductions, manufacturing technology innovations,
rapid fluctuations in product demand, and the ability to secure intellectual
property rights. While the company attempts to identify and respond to these
changes as soon as possible, the rapidity of their onset makes prediction of and
reaction to such events an ongoing challenge.
The company believes that its future results of operations and financial
condition could be impacted by the following factors: market acceptance and
timing of new products, trends in the personal computer marketplace, capacity
constraints, intense price competition, interruption of manufacturing materials
supply, negative changes in international economic conditions and decisions in
legal disputes relating to intellectual property rights.
Due to the factors noted above, the company's future operations, financial
condition and stock price may be subject to volatility. In addition, a
shortfall in revenue or earnings from securities analysts' expectations could
have an immediate adverse effect on the trading price of the company's common
stock in any given period.
FINANCIAL CONDITION
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The company's financial condition improved during the first quarter of 1994.
Cash and cash equivalents, and temporary cash investments increased by $54.5
million to $542.7 million from December 26, 1993 to March 27, 1994. Net cash
provided by operating activities was offset by the purchase of property, plant
and equipment to expand manufacturing capacity, and the purchase of held-to-
maturity debt securities in the first quarter of 1994. Positive cash flow
decreased slightly in the first quarter of 1994 as higher net income was offset
by an increase in accounts receivable.
Working capital grew by $71.3 million from $509.6 million at the end of 1993 to
$580.9 million in the first quarter of 1994. This growth was primarily due to
an increase in cash and cash equivalents, temporary cash investments and
accounts receivable resulting from higher sales.
The company is currently involved in litigations with Intel. While it is
impossible to predict the resolutions of the AMD/Intel litigations, there could
be a material adverse effect on the financial condition, or trends in results of
operations of the company, or the ability to raise necessary capital, or some
combination of the foregoing if the outcome of the Intel litigations either
results in an award to Intel of material monetary damages, or the company's
intellectual property rights are not sustained with regard to certain
microprocessor products currently the subject of litigation with Intel (see
footnote 2 of the consolidated financial statements, Part II, Item 1, Legal
Proceedings).
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In July 1993, the company commenced construction of its 700,000 square-foot
submicron semiconductor manufacturing complex in Austin, Texas. Known as Fab
25, the new facility is expected to cost approximately $1 billion when fully
equipped. The first phase of construction and initial equipment installation is
expected to cost approximately $400 million through 1994. Volume production is
scheduled to begin in late 1995.
The company and Fujitsu Limited are cooperating in building and operating an
approximately $800 million wafer fabrication facility in Aizu-Wakamatsu, Japan
through their joint venture "Fujitsu AMD Semiconductor Limited (FASL)". The
forecasted joint venture costs are denominated in yen and therefore are subject
to change due to fluctuations of foreign exchange rates. Each company will
contribute equally toward funding and supporting FASL. AMD is expected to
contribute approximately half of its share of funding in cash and guarantee
third-party loans made to FASL for the remaining half. However, to the extent
debt cannot be secured by FASL, AMD is required to contribute its portion in
cash. Through the first quarter of 1994, the company's investment in FASL was
immaterial; however, management anticipates this investment will increase
substantially, to approximately $135 million by the end of 1994. The company is
also required under the terms of the joint venture to contribute approximately
one-half of such additional amounts as may be necessary to sustain FASL's
operations. The facility is expected to begin operations in the fourth quarter
of 1994 utilizing CMOS process technology. Volume production is expected to
commence in the first half of 1995.
As of the end of the first quarter of 1994, the company had the following
financing arrangements: unsecured committed bank lines of credit of $105
million, unutilized; long-term secured equipment lease lines of $110 million, of
which $75 million were utilized; and short-term, unsecured uncommitted bank
credit in the amount of $84 million, of which $33 million was outstanding.
The company's current capital plan and requirements are based on various
product-mix, selling-price and unit-demand assumptions and are, therefore,
subject to revision due to future market changes and litigation outcomes.
In April 1994, AMD filed with the Securities and Exchange Commission a shelf
registration statement covering the offer and sale of up to $400 million of its
securities, which may be debt securities, preferred stock, depositary shares
representing fractions of shares of preferred stock, common stock, warrants to
purchase common stock or any combination of the foregoing which the company may
offer from time to time in the future. Such registration statement is not yet
effective. Any sale of securities by the company will occur through the use of
a prospectus contained in the registration statement. The precise nature and
terms of the securities to be offered and sold by the company will be
established at the time of their sale (see Part II, Item 5).
The company, given the current business prospects, also intends to call all of
its outstanding preferred shares for redemption when market conditions permit.
In such event, all of AMD's outstanding depositary shares would also be
redeemed. Each depositary share represents one-tenth of a preferred share, and
each ten depositary shares are convertible into 19.873 shares of AMD's common
stock (see Part II, Item 5).
Management believes that, absent unfavorable litigation outcomes, cash flows
from operations and current cash balances, together with current and anticipated
available long-term financing, will be sufficient to fund operations, capital
investments, and research and development projects currently planned for the
remainder of 1994.
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