NOTE: On February 15, 2022, the press release was corrected as follows: In the first sentence of the methodology paragraph of the press release, the publication date of the principal methodology was changed to September 2021. Revised release follows.
New York, February 14, 2022 -- Moody's Investors Service ("Moody's") upgraded the senior unsecured rating
of Advanced Micro Devices, Inc.'s ("AMD") to A3 from Baa1
following final regulatory approval of the all-equity funded acquisition
of Xilinx, Inc. ("Xilinx") currently rated A3 stable.
This concludes a review initiated in October 2020 and maintained after
the upgrade of the senior unsecured rating to Baa1 in August 2021.
The outlook is stable.
The upgrade reflects Moody's expectation that AMD revenue and profitability
will continue to grow strongly while the Xilinx acquisition diversifies
AMD's revenue and earnings sources and broadens its portfolio outside
of its core personal computer, server, and gaming end markets.
Xilinx's core markets of automotive, industrial, aerospace
and defense as well as test, measurement and emulation have returned
to and exceeded pre-COVID revenue levels, with accelerating
growth over each of the last four quarters. These markets provide
a resilient foundation for Xilinx and we expect double digit revenue growth
in this area over the next year to over $4 billion. The
deal also gives AMD greater opportunity to provide accelerated computing
solutions in the increasingly important data center market, although
widespread adoption of field programmable gate arrays in the datacenter
is yet to be realized.
Xilinx is the leader in the $6 billion programmable logic device
(PLD) market where it has over 55% market share and competes mostly
with just one other company (Altera, owned by Intel). PLD's
provide end users product design flexibility and time to market advantages
over other semiconductor devices and there are high barriers to entry
for new competitors. Xilinx benefits from broad geographic,
customer and end market diversification and has generated positive free
cash flow each year for more than a decade. Long product design
and lifecycles and stable pricing contribute to strong profitability (low-to-mid
30% EBITDA margins) and stable operating performance through business
cycles. Moody's expects ongoing strong performance for Xilinx,
with revenue of about $3.7 billion and $1.3
billion of EBITDA for the twelve months ended January 1, 2022.
Upgrades:
..Issuer: Advanced Micro Devices, Inc.
....Senior Unsecured Regular Bond/Debenture,
Upgraded to A3 from Baa1
Outlook Actions:
..Issuer: Advanced Micro Devices, Inc.
....Outlook, Changed To Stable From
Rating Under Review
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, Moody's expects strong revenue growth in
2021 driven by new desktop, mobile, server, and graphics
chips, and the continued strong sales of semi-custom revenue
related to game consoles that launched in the second half of 2020.
Additionally, already low leverage will continue to decline while
the company's liquidity profile remains excellent. AMD grew revenue
by 68% in 2021 to $16.4 billion, led by continued
strong growth in all product areas - desktop notebook, gaming,
graphics, and server chips. For 2022, Moody's
projects over 30% revenue growth (excluding any contribution from
Xilinx) to about $21.5 billion With higher average selling
prices and compelling chip performance, AMD's gross margins
should expand to around 51% this year with EBITDA margins improving
to 28% from 25% last year.
Despite staging working capital and capacity investments to support strong
revenue growth, we expect about $3.8 billion of free
cash flow in 2022. Very low debt levels and improved performance
will drive a further decline in already low leverage. Including
Xilinx, Moody's projects adjusted gross debt to EBITDA will
approximate 0.3x in 2022 and free cash flow to gross adjusted debt
will exceed 200%. 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.
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 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.
The 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 manufacturing challenges,
AMD is well positioned to increase its share of the profitable and growing
server CPU market from its current level of about 19%, with
the potential to exceed 25% 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 maintains an excellent liquidity profile. As of December 2021,
AMD had cash and short-term investments of $3.6 billion,
well in excess of gross adjusted debt of $555 million. AMD
has no debt maturities until $312 million comes due in August 2022.
Given the improving cash flow generating outlook, access to a $500
million unsecured revolving credit facility that matures June 2024 and
our expectations that management will maintain at least $1.5
billion of cash and short-term investments, Moody's views
the company's liquidity profile as excellent.
AMD has guaranteed the existing Xilinx debt (rated A3) and therefore there
is no change to the Xilinx credit rating.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
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%; cash flow after capital spending sustained
below $1 billion, or a drop in cash and liquid investments
to below $1 billion could pressure the ratings.
The principal methodology used in this rating was Semiconductors published
in September 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287886.
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 $16.4 billion in fiscal 2021.
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
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same series, category/class of debt, security or pursuant
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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
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tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
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and whose ratings may change as a result of this credit rating action,
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if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
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This rating is solicited. Please refer to Moody's Policy
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Regulatory disclosures contained in this press release apply to the credit
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review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
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.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
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Please see www.moodys.com for any updates on changes to
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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.
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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
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