-- 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