New York, November 09, 2022 -- Moody's Investors Service, ("Moody's") assigned a Prime-2 short term rating to Advanced Micro Devices, Inc. ("AMD") and concurrently affirmed AMD's A3 senior unsecured rating. The ratings outlook is stable.
Assignments:
..Issuer: Advanced Micro Devices, Inc.
....Senior Unsecured Commercial Paper, Assigned P-2
Affirmations:
..Issuer: Advanced Micro Devices, Inc.
....Senior Unsecured Regular Bond/Debenture, Affirmed A3
Outlook Actions:
..Issuer: Advanced Micro Devices, Inc.
....Outlook, Remains Stable
RATINGS RATIONALE
AMD's credit profile reflects its strong performance and outlook, supported by continued design wins, market share gains, and an expanded set of product offerings and customers. Moody's projects about 43% revenue growth in 2022 (@17% growth excluding Xilinx, Inc. "Xilinx") leading to full year revenue of about $23.5 billion (including our estimate of $4.5 billion of Xilinx revenue). New desktop, mobile, graphics, server chips, as well as semi-custom chips that drive the next generation of game consoles along with the very diversified revenue mix of the acquired Xilinx portfolio will drive strong revenue growth. Notwithstanding the weak PC market that we expect will decline about 15% to 20% in units this year and down potentially 10% to 15% in 2023 to pre-pandemic levels, modest server market growth, good growth in custom chips for gaming consoles, and a full year of owning Xilinx portfolio will contribute to mid-single digit revenue growth in 2023.
The acquisition of Xilinx diversifies AMD's end markets to include automotive, industrial, aerospace and defense as well as test, measurement and emulation, and lessens AMD's relative exposure to volatility or weakness in PC end markets. The worst revenue decline for Xilinx over the last 15 years was a decline of 7% in 2016.
Even if there were to be an extended market downturn, with mid-teens revenue declines for AMD, key credit metrics would remain strong, with EBITDA margins around 30% and adjusted gross debt to EBITDA under 1.0x.
Despite staging working capital and making supplier prepayments to support AMD's strong growth, Moody's expects about $3 billion of free cash flow in 2022. Very low debt levels, excellent liquidity, and improving performance will drive a further decline in already negligible leverage, with adjusted gross debt to EBITDA around 0.5x in 2022. While the ability to consistently execute product and technology transitions and withstand competition from strong competitors such as Intel and Nvidia remain key challenges, AMD has demonstrated steady and successful execution for several years.
AMD has an excellent liquidity profile that allows the company to internally fund investment needs. In addition to Moody's projection of about $3 billion of free cash flow in 2022, AMD reported $5.6 billion of cash and cash equivalents as of September 2022. The company has no debt maturities until a $750 million note matures in June 2024.
AMD's new $3 billion commercial paper program is fully backstopped by a $3 billion revolving credit facility that matures in 2027, under which there is ample cushion under a financial covenant and no need to re-represent as to no material adverse change.
Management's conservative financial philosophy including the maintenance of very strong liquidity relative to $2.5 billion of debt supports the company's ability to contend with consistent investment requirements, especially research and development, and periodic product or end market transitions.
While Moody's projects a continuation of very modest financial leverage as demonstrated by less than 0.5x adjusted gross debt to EBITDA, the rating has cushion for incremental debt. The rating also considers the company's balanced capital allocation philosophy, with no dividend and $6.8 billion remaining under an $8 billion share repurchase authorization. Moody's does not expect the company will engage in debt financed share repurchases.
The stable outlook reflects expectations that, despite currently weak end markets, AMD will sustain its solid performance with its broadened product positioning, and prospects for solid operating performance and cash generation over the next year. The outlook also embeds expectations that management will continue to adhere to conservative financial policies, including the maintenance of excellent liquidity. The ability to consistently execute product and technology transitions, as well as competition from strong competitors such as Intel and Nvidia remain key challenges.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The rating could be upgraded if AMD is able to sustain solid business execution, grow revenue, increase market share, and improve profitability and free cash flow while maintaining conservative financial practices, including cash and liquid investments over $1.5 billion.
The rating could be downgraded if AMD's market position substantially weakens, profitability declines on a sustained basis or financial policies become more aggressive. Revenue declines due to uncompetitive products, declines in EBITDA margins to below 20%; materially weaker free cash flow generation, or a drop in cash and liquid investments to below $1.5 billion could pressure the ratings.
The principal methodology used in these ratings was Semiconductors published in September 2021 and available at https://ratings.moodys.com/api/rmc-documents/74959. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.
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Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
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Richard J. Lane
Senior Vice President
Corporate Finance Group
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