AMD Expects Profitability in Year Ahead

(Reuters) – Advanced Micro
Devices (AMD.N) said it expects to report profits next year
from its chip design business, the backbone of a company trying
rebuild market share and better compete with rival Intel Corp.
(INTC.O).

AMD executives spent much of a meeting with analysts and
investors on Wednesday emphasizing the company’s efforts to
remake itself as profitable chip designer, while addressing
worries over the heavy debt it has accumulated in doing so.

AMD’s debt rose to roughly $3.9 billion last year, but
dropped to $3.2 billion as of the end of the third quarter,
according to Thomson Reuters I/B/E/S.

UBS said in a recent note that AMD has $1.9 billion coming
due in 2012.

Chief Financial Officer Thomas Seifert told analysts
gathered at the company’s headquarters that the debt issue is
"as high on our list of priorities as it can be."

Seifert is hoping to keep as much as $1 billion cash on
hand in the future, he said, but would use any excess cash to
pay down the debt load.

Seifert and other top executives at the meeting sought to
paint the picture of AMD as a changed company, one that can
compete with Intel Corp (INTC.O), which dominates the chip
business.

By spinning off and becoming a minority stakeholder in
Globalfoundries, its semiconductor manufacturer, AMD has begun
to concentrate on designing microprocessors and graphics cards,
which helped the design arm of the company eke out a profit of
$2 million in the third quarter.

It said that business should remain profitable in 2010,
while margins would run between 40 percent and 45 percent, with
the expectation of higher margins down the road.

In October the company reported a net loss of $128 million
for the third quarter on revenue of $1.4 billion.

"We’re going to turn into a cash flow generating machine,"
said Chief Executive Dirk Meyer after discussing some of the
company’s upcoming chip designs. "I can already hear the cash
registers starting to ring, which is wonderful."

Along with new microprocessor and graphics chip designs,
executives said AMD would focus on consumer-oriented market
segments, including mid-range desktops and notebooks.

Out of the 300 million PCs the company expects to be sold
next year, some 180 million will go to consumers. Given those
expectations, AMD said it would concentrate on technology that
produces better graphics, something consumers often demand.

"Our market is being driven by consumers, and that’s what’s
driving the technology," he said. "Increasingly, people aren’t
going to be satisfied showing up to work and having a lousier
experience on their computer than they do at home."

AMD said spending for microprocessors, which run computers,
and graphics chips, which are central to producing pictures,
watching videos and playing games, would rise between 10 and 15
percent in 2010.

Meyer also made clear to the crowd that he felt AMD had
been vindicated by recent rulings against Intel in European
Union, Korean and other courts. AMD has long claimed its
success in the market was hampered by anti-competitive behavior
by Intel.

On Thursday AMD and Intel are announcing a wide-ranging settlement of
their dispute over competitive and licensing issues, according to
sources familiar with the matter.

Competition authorities in Asia, Europe and the United States have
taken action against Intel in recent years because of persistent
complaints by AMD about the behavior of Intel, which makes 80 percent
of the central processing units at the heart of all personal computers.

"I’m looking forward to a future in which our ability to
succeed as a business is governed by the quality of our
products and the quality of our customer relationships," he
said. "I can tell you that hasn’t always been true."

Shares of AMD closed up 3.5 percent, or 18 cents, to $5.32
on the New York Stock Exchange.
(Reporting by Ian Sherr, editing by Paul Thomasch; editing by
Carol Bishopric)