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Rating Action:

Moody's upgrades Advanced Micro Devices' senior unsecured rating to Baa3; outlook stable

11 Sep 2020

New York, September 11, 2020 -- Moody's Investors Service ("Moody's") upgraded Advanced Micro Devices, Inc.'s ("AMD") senior unsecured rating to Baa3 from Ba3. Moody's also withdrew AMD's Corporate Family Rating of Ba2, Ba2-PD Probability of Default Rating and SGL-1 Speculative Grade Liquidity Rating. The outlook was revised from positive to stable.

In addition to Moody's expectations of strong operating performance and balanced financial policies, the upgrade of the senior unsecured rating to Baa3 also reflects the release of security on the company's previously secured $500 million credit facility.

Issuer: Advanced Micro Devices, Inc.

Upgrades:

$312 million (outstanding) Senior Unsecured Notes due 2022; Upgraded to Baa3 from Ba3 (LGD4)

Withdrawals:

Corporate Family Rating of Ba2

Probability of Default Rating of Ba2-PD

Speculative Grade Liquidity SGL-1

Outlook Actions:

Outlook; Revised to Stable from Positive

RATINGS RATIONALE

AMD's credit profile reflects the company's strong performance and outlook, driven by continued design wins, market share gains, and an expanded set of product offerings and customers. With recent new product launches, we expect strong revenue growth in 2020 driven by new desktop, mobile, server, and graphics chips, and the launch of semi-custom revenue related to game consoles in the second half of 2020. Additionally, already low leverage will continue to decline while the company's liquidity profile remains excellent. We project over 30% growth in 2020 to drive full year revenue of $8.9 billion, with 20% plus growth projected in 2021. With higher average selling prices and compelling chip performance, gross margins should expand to around 45% this year while EBITDA margins improve towards 18% and potentially over 20% in 2021.

Despite staging working capital to support this strong growth, we expect over $600 million of free cash flow in 2020 and well over $1 billion in 2021. Very low debt levels and improved performance will drive a further decline in already low leverage, with adjusted gross debt to EBITDA around 0.5x in 2020 (0.8x at December 2019) and free cash flow to gross adjusted debt approximating 85%. The ability to consistently execute product and technology transitions and withstand competition from strong competitors such as Intel and Nvidia remain key challenges.

Over the last five 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 in 2018 by one of AMD's foundry partner (GlobalFoundries Inc.) to not pursue 7 nanometer technology means AMD has and will continue to increase its use of 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 in the market with leading edge 7-nanometer server processors and datacenter chips and gaining share with expanding profitability. With this product and manufacturing positioning, combined with Intel's current challenges at 10 nanometers and new delays at 7 nanometers that are expected to last into 2022, AMD is well positioned to increase its share of the profitable and growing server CPU market from its current level of about 10%, with the potential to reach 20% over the next couple of years. Despite AMD's solid operating prospects and Intel's current challenges, 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.

AMD has an excellent liquidity profile that allows the company to internally fund investment needs and react to marketplace dynamics and competitive challenges. AMD reported $1.8 billion of cash and cash equivalents as of June 2020. AMD also maintains access to an unused $500 million and now unsecured revolving credit facility that matures June 2024. With cash balances, access to the credit facility, Moody's projection of $600 million of free cash flow in 2020 and materially higher in 2021, and no debt maturities until $312 million is due in August 2022, AMD has excellent liquidity.

The stable outlook reflects expectations that AMD will sustain its strong performance with its broadened product positioning, and prospects for improved 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 and improve operating profitability, generate consistently strong free cash flow, and maintain conservative financial practices, including maintaining cash and liquid investments of approximately $1 billion or more.

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 12%; free cash flow sustained below $500 million, or a drop in cash and liquid investments to below $750 million could pressure the ratings.

The principal methodology used in these ratings was Semiconductor Industry published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1130733. Alternatively, 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 $7.6 billion for the twelve months ended June 2020.

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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.
© 2023 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

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