RPT-S&P cuts AMD rating to 'B' from 'BB-', outlook stable
-- Sunnyvale, Calif.-based Advanced Micro Devices Inc. (AMD) amended its wafer supply agreement with GLOBALFOUNDRIES in December 2012, which reduced burdensome prior minimum purchase commitments, though we expect AMD's negative free cash flow to continue in 2013. -- We are lowering our corporate credit and senior unsecured issue ratings on AMD to 'B' from 'BB-', and removing the ratings from CreditWatch with Negative implications. -- The outlook is stable. Despite our expectation for AMD's leverage to climb above 7x over the coming year, we believe the company has the opportunity to stabilize its operating performance in 2013 through product introductions, potential embedded product design wins, and recently announced restructuring initiatives and has sufficient liquidity to bridge this period of expected weak earnings. NEW YORK (Standard & Poor's) Jan. 8, 2013--Standard & Poor's Rating Services said today that it lowered its corporate credit and senior unsecured ratings on Advanced Micro Devices Inc. (AMD) to 'B' from 'BB-'. At the same time, we removed the ratings from CreditWatch, where we had placed them with negative implications on Oct. 12, 2012. "The downgrade reflects our expectation for continued revenue and earnings declines resulting in leverage exceeding 7x over the coming year because of weak PC industry demand prospects and intense competition from industry peers, including Intel," said Standard & Poor's credit analyst John Moore. The 'B' corporate credit rating reflects AMD's "vulnerable" business risk profile, characterized by intense competition from Intel Corp., as well as prospects for tablet computing to continue to subdue PC industry growth and AMD's earnings over the coming year, resulting in leverage expected to exceed 7x and our assessment of AMD's financial risk profile as "highly leveraged." The ratings also reflect the company's "adequate" liquidity. Our management and governance assessment is "fair." The outlook is stable. Despite our expectation for AMD's leverage to climb above 7x over the coming year, we believe the company has an opportunity to stabilize its operating performance in 2013 and has liquidity sufficient to bridge this period of weak performance. Improvements should come through product introductions, potential embedded product design wins, and recently announced restructuring initiatives. A downgrade could result from a number of developments, including protracted low demand, further erosion of market share, or weaker manufacturing execution in concert with foundry partners. Any of these scenarios could weaken the financial profile that supports the rating. Specifically, we would consider a lower rating if liquidity were likely to fall below $700 million or prospects to reduce leverage below 7x in 2014 diminish. Considering AMD's competitive challenges, an upgrade is unlikely at present. RELATED CRITERIA AND RESEARCH -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012 -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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