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Rating Action:

Moody's upgrades Advanced Micro Devices' CFR to Ba2 and senior unsecured rating to Ba3; outlook positive

13 Sep 2019

New York, September 13, 2019 -- Moody's Investors Service ("Moody's") upgraded Advanced Micro Devices, Inc.'s ("AMD") corporate family rating to Ba2 from Ba3 and senior unsecured rating to Ba3 from B1. The speculative grade liquidity rating of SGL-1 remains unchanged. The outlook is positive.

RATINGS RATIONALE

The upgrade of the corporate family rating to Ba2 reflects AMD's improved performance outlook, driven by continued design wins, market share gains, and an expanded set of product offerings and customers. Moody's expects significant revenue growth in the second half of 2019 and continued growth in 2020 driven by new desktop, mobile, server, and graphics chips, partially offset by lower than expected semi-custom revenue related to game consoles that are expected to transition to a new generation in 2020. Additionally, Moody's projects leverage will continue to decline while the company's liquidity profile remains robust.

Over the last three years, AMD's product roadmap execution has improved considerably with the company successfully launching multiple generations of commercial and consumer desktop processors, mobile processors, a new graphics lineup, and two generations of EPYC server processors. A decision last year by one of AMD's foundry partner (GlobalFoundries Inc.) to not pursue 7 nanometer technology means AMD has and will continue to increase its reliance on its other foundry partner, Taiwan Semiconductor Manufacturing Co Ltd (TSMC) for leading edge chip making. GlobalFoundries Inc. had historically manufactured most AMD's CPUs. Moody's believes the increased use of TSMC for leading edge microprocessor production provides additional manufacturing roadmap certainty for AMD and its customers, which is a credit positive. AMD is currently shipping server, desktop, and graphics chips on the 7 nanometer process node, while Intel's challenges at 10 nanometers that are expected to last into 2020. Moody's expects AMD's product and manufacturing positioning to leave it well placed to increase market share broadly over the next year. Despite AMD's good operating prospects, Moody's expects the company will continue to face stiff competition from strong and higher rated companies such as Intel as well as NIVIDIA Corporation ("Nvidia").

Driven by an improved product positioning throughout its portfolio, Moody's projects profitable growth in the second half of 2019 and through 2020. With recent new product launches, revenue is likely to grow 25% year-over-year in the second half of 2019 with at least high-single digit revenue growth in 2020. And with higher average selling prices and compelling chip performance, gross margins should expand to the 42% to 43% range, while EBITDA margins improve to the 13% to 15% range, up from 10% to 11% over the last year. Staging working capital related to this strong growth, however, remains a temporary constraint to cash flow generation, resulting in negative $303 million cash flow after capital expenditures over the last two quarters. Moody's expects positive free cash flow in the second half of 2019 as customer PC and server launches using AMD's new chips support working capital conversion.

AMD's SGL-1 rating reflects the company's very good liquidity profile that allows the company to internally fund this investment. AMD reported $1.1 billion of cash and cash equivalents as of June 2019 (buttressed by $449 million warrant exercise by a subsidiary of Mubadala Development Company PJSC ("Mubadala") earlier this year. Mubadala has been a decade long investor and owns less than 5% of AMD. AMD also maintains access to an unused $500 million secured revolving credit facility. With cash balances, access to the credit facility, Moody's projection of positive free cash flow and no debt maturities until $312 million is due in August 2022, AMD has very good liquidity.

AMD's strong performance and periodic early repayment of various debt instruments have contributed to a notable improvement in financial leverage, with adjusted gross debt to EBITDA of 2.6x at June 2019, down from 5.9x at December 2017. With potential further debt reduction and strong projected earnings growth, Moody's anticipates adjusted gross debt to EBITDA will decline to below 2.0x by December 2019 with further improvement in 2020.

Upgrades:

..Issuer: Advanced Micro Devices, Inc.

.... Corporate Family Rating, Upgraded to Ba2 from Ba3

.... Probability of Default Rating, Upgraded to Ba2-PD from Ba3-PD

....$312 million (outstanding) Senior Unsecured Notes due 2022 , Upgraded to Ba3 (LGD4) from B1 (LGD4)

....$176 million (outstanding) Senior Unsecured Notes due 2024, Upgraded to Ba3 (LGD4) from B1 (LGD4)

Unchanged:

..Issuer: Advanced Micro Devices, Inc.

.... Speculative Grade Liquidity Rating, SGL-1

Outlook Actions:

..Issuer: Advanced Micro Devices, Inc.

....Outlook, Changed To Positive From Stable

The positive outlook reflects AMD's much improved balance sheet and broadened product positioning and prospects for improved operating performance and cash generation over the next year. The ability to consistently execute product and technology transitions, as well as competition from strong competitors such as Intel and Nvidia remain key challenges.

The rating could be upgraded if AMD is able to sustain solid business execution, grow revenue and improve operating profitability and sustain positive free cash flow. Additionally, continued conservative financial practices, including maintaining cash and liquid investments of approximately $1 billion or more, could support a higher rating.

The rating could be downgraded if AMD's revenue growth reverses due to uncompetitive products, or if 1) EBITDA margins decline below 8%; 2) free cash flow turns negative, or 3) cash and liquid investments drop below $600 million (without raising additional debt).

The principal methodology used in these ratings was Semiconductor Industry published in July 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Advanced Micro Devices, Inc. (AMD) is a fabless semiconductor company that specializes in microprocessors, graphics processing units and semi-custom and embedded processors. AMD reported revenue of $5.9 billion for the twelve months ended June 2019.

REGULATORY DISCLOSURES

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 ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Richard J. Lane
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Lenny J. Ajzenman
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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