(The following statement was released by the rating agency)
CHICAGO, January 31 (Fitch) Fitch Ratings has affirmed the
Issuer Default Rating (IDR) for Advanced Micro Devices Inc.
(NYSE: AMD) and
rated the $500 million senior secured revolving credit facility
(RCF) â€˜B/RR1â€™. A
full list of ratings follows the end of this commentary.
Fitchâ€™s actions affect
approximately $2.5 billion of total debt, including the mostly
The ratings reflect Fitchâ€™s expectations for negative
near-term free cash flow
(FCF) and limited top-line visibility, despite solid product
into 2014. As a result, Fitch believes financial flexibility
will remain limited
as AMD seeks to increase revenues from non-legacy personal
markets to 50% from 20% of total by 2015.
Fitch expects low- to mid-single-digit revenue growth in 2014,
driven by strong
semi-custom and graphics accelerated processing unit (APU)
shipments. AMDâ€™s APU
is designed into Microsoftâ€™s and Sonyâ€™s newly released game
significantly outsold previous generations in the launch
quarter, and longer
product life cycles should add a degree of revenue visibility.
AMDâ€™s ability to offset continued weakness in legacy PC
markets, which the
company forecasts will decline by 10% in 2014, also will depend
shipments of next-generation APUs for desktops, as well as solid
just launched low-power APUs for tablets and ultra-thin
notebooks and discrete
and professional graphics processing units (GPU).
Fitch expects operating EBITDA margin will expand to a
in 2014 after bottoming in 2013, due to higher revenues and
lower fixed costs
from completed restructuring. Longer-term profitability will
but Fitch believes swift incremental restructuring is likely
companyâ€™s business transformation lag targets.
Fitch expects AMD will see modest negative FCF in 2014 after
making a $200
million final payment to GLOBALFOUNDRIES (GF) for the
agreement. As a result, AMD should exit 2014 with cash below $1
historical cash usage and risks around AMDâ€™s business
believes financial flexibility is limited through at least the
Nonetheless, AMD strengthened liquidity in 2013 by entering into
million RCF, of which Fitch estimates $445 million was available
2013 after AMD drew $55 million during the December 2013
quarter. The company
also reduced its minimum cash level to $600 million from $700
million, due to
managementâ€™s expectations for increased revenue visibility.
Credit protection measures should remain volatile with total
EBITDA and operating EBITDA-to-gross interest expense ranging
from low- to
mid-single digits over the next few years.
Positive rating action could occur if:
--AMD refinances $530 million of convertible senior notes due
--Fitch gains confidence in AMDâ€™s ability to maintain cash
above $1 billion from
organic FCF, which likely would be driven by strong adoption of
new product and
validation of AMDâ€™s business transformation.
Negative rating action could occur if cash balances approach
likely from negative FCF resulting from weak adoption of new
Ratings are supported by AMDâ€™s:
--Role as a credible alternative volume chip supplier for PCs, a
--Significant intellectual property (IP) for APUs and GPUs,
which underpin AMDâ€™s
--Outsourced manufacturing model, relieving the company from
investments in leading edge manufacturing capabilities and
Ratings concerns include AMDâ€™s:
--Lack of revenue visibility, which should improve if the
transformation is successful;
--Volatile profitability and FCF, due to short technology and
product cycles and
Intel-driven pricing pressures;
--Significantly lower financial flexibility than that of key
including Intel, NVIDIA and Qualcomm.
Fitch believes liquidity was sufficient as of Dec. 28, 2013, pro
forma for the
Dec. 31, 2013 $200 million payment to GF, and consisted of:
--$900 million of cash and cash equivalents, not including $90
long-term marketable securities;
--$500 million senior secured RCF due 2018, of which Fitch
million was available at Dec. 28, 2013).
Fitch expects modest negative FCF in 2014, including the
million payment made to GF, and volatile FCF over the
Total debt was $2 billion at Dec. 28, 2013 and consisted
--$530 million of 6% senior unsecured convertible notes due
--$500 million of 8.125% senior unsecured notes due 2017;
--$500 million of 7.75% senior unsecured notes due 2020;
--$500 million of 7.5% senior unsecured notes due 2022.
AMDâ€™s Recovery Ratings (RRs) reflect Fitchâ€™s belief that the
company would be
reorganized as a going concern rather than liquidated in a
To arrive at a going concern value, Fitch believes AMD would: i)
businesses serving target markets (graphics chips and APUs), ii)
wind down the
legacy PC business, and iii) sell the dense server business.
To reorganize the graphics business, Fitch starts with a $250
post-restructuring operating EBITDA and applies a 5x multiple
(up from 4x due to
positive product momentum and separation from the legacy PC
business) to arrive
at a going concern value of $1.25 billion. Fitch assumes value
for the legacy-PC
business is de minimis, given expectations that AMD would
contribute key IP to
the graphics business.
Finally, Fitch assumes AMD sells the dense server business for
which represents a discount to AMDâ€™s $300 million purchase of
SeaMicro in 2012.
Adding the $1.25 billion of going concern value for the graphics
$250 million of proceeds leaves $1.35 billion after subtracting
Fitch expects the fully drawn senior secured RCF, given
receivables levels at default, would recover 100%, resulting in
an â€˜RR1â€™. The
remaining amount available for the senior unsecured debt would
be $850 million,
which equates to 42% recovery and an â€˜RR4â€™.
Fitch affirms the following ratings:
--Long-term IDR at â€˜CCCâ€™;
--Senior unsecured debt at â€˜CCC/RR4â€™.
Fitch rates the $500 million senior secured RCF at â€˜B/RR1â€™.
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Jason Paraschac, CFA
James Rizzo, CFA
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--â€˜Corporate Rating Methodologyâ€™ (Aug. 5, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and
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