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Rating Action:

Moody's upgrades Advanced Micro Devices' CFR to Ba3 and senior unsecured rating to B1; outlook stable

03 Oct 2018

New York, October 03, 2018 -- Moody's Investors Service ("Moody's") upgraded Advanced Micro Devices, Inc.'s ("AMD") corporate family rating to Ba3, senior unsecured rating to B1, and affirmed the speculative grade liquidity rating of SGL-1. The outlook is stable.

RATINGS RATIONALE

The upgrade of the corporate family rating to Ba3 reflects AMD's improved performance outlook, driven by design wins, modest market share gains, and an expanded set of product offerings. As a result, Moody's expects around 25% revenue growth in 2018 and at least high-single digit revenue growth, slightly higher gross margins, as well as operating profitability and positive free cash flow in 2019. For 2018, Moody's projects revenue over $6.5 billion, free cash flow over $200 million, and adjusted gross debt to EBITDA of about 2.5x with leverage declining below 2.0x in 2019.

Driven by new products with higher average selling prices, AMD's PC-related business (microprocessors and graphics chips) have reported five consecutive quarters of profitability through June. With an improved product positioning in the desktop, notebook, and a richer mix of graphics products, Moody's projects continued profitable growth through the rest of 2018 and 2019. The growing enterprise, embedded, and semi-custom business is supported by very strong positions in game consoles (including Xbox and PlayStation), although Moody's projects slightly lower revenue and operating profit in 2018 as the segment benefited from console upgrades in 2017.

Over the last two years, AMD product roadmap execution has improved considerably and the company successfully launched 2 generations of commercial and consumer desktop processors, mobile processors, a new graphics lineup, and its first generation of EPYC server processors. A recent decision by AMD's foundry partner (GLOBALFOUNDRIES) to not pursue 7 nanometer technology means AMD will increase its reliance on its other foundry partner, Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) and for leading edge chip making. GLOBALFOUNDRIES had historically manufactured the majority of 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 sampling 7 nanometer server processors, which it expects to launch in 2019 as well as a 7nm datacenter GPU that is expected to launch later in 2018. With this product and manufacturing positioning, combined with Intel's challenges at 10 nanometers that are expected to last through 2019, AMD is well positioned to increase its share of the profitable and growing server CPU market from its current level of just over 1% (AMD is targeting mid-single digit market share exiting 2018).

AMD's SGL-1 rating reflects the company's solid liquidity profile. AMD reported $983 million of cash and cash equivalents as of June 30, 2018. AMD also maintains a $500 million asset based revolving credit facility (ABL) under which AMD had an outstanding loan balance of $70 million as of June 30, 2018. With cash balances, access to the ABL, and no debt maturities until $142 million is due in March 2019, AMD has very good liquidity.

Ratings upgraded:

Corporate family rating to Ba3 from B2

Probability of default rating to Ba3-PD from B2-PD

$142 million (outstanding) senior unsecured notes due 2019 to B1 (LGD4) from B3 (LGD4)

$347 million (outstanding) senior unsecured notes due 2022 to B1 (LGD4) from B3 (LGD4)

$310 million (outstanding) senior unsecured notes due 2024 to B1 (LGD4) from B3 (LGD4)

Ratings affirmed

Speculative grade liquidity rating at SGL-1

Outlook Actions:

Outlook stable

The stable 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 also support a higher rating.

The rating could be downgraded if AMD's cash and liquid investments are likely to drop below $600 million (without raising additional debt), if operating margins decline below 5% or free cash flow turns negative.

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 $5.33 billion in 2017.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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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