Advanced Micro Devices

Financial report by
Student number:
Lecturur:

Part 1.
Brief Company description/ (no more than 3 paragraphs) This must be
written in your own words. (No Cutting and Pasting)
Advanced Micro Devices also known as AMD is a global microchips and
graphiccard producer. They operate in the semiconductor industry
(semiconductors are componts used in electronic systems). The company as over
10,000 employees and in 2015 accounted for 4.124 millon dollars of revenue.
As for January 2015 AMD switched from the New York Stock exchange to NASDAQ
and is currently listed for $8.7100 dollars as of 21 november 2016.
AMD has manufactering facilities in the United statesm Europe and Asia.

Is the company financially healthy? - focus on the companys Balance

Sheet, Income Statement , Cash Flow Statement (Base your reasoning,
discussion and argumentation from the results of your ratio calculations
and comparison to the previous year and to the industry ):
In general AMD is doing worse than its competitors, in both 2014 and 2015 the
company made a loss. From this point it is easy to say that the company is doing
bad however down below everything will be discussed in more detail while taking
the ratios into account.
Balance Sheet:
The first ratio used to asses the companies health in this case is the return on
assets (ROA). This informations comes from the balance sheet and cash flow
statement from AMDs annual report 2014/2015. The ROA is caculated by divinding
the net income by the average total assets. This ratio shows how much a company
is earning on its total assets and can be viewed as profatability/performance ratio.
The higher the ratio the better. The result of this ratio is worrying
as the ratio for AMD in 2015 was -0,21%! The company made a net loss of 660
million in 2015.
Also a quick glance over the current ratio and quick ratio shows that the company
is performing under the industry average.
Next to that the debt to equity ratio does not promise anything good either as the
stockholders equity is in deficit for 412 million. Meaning that the ratios is -8.55%
for 2015 and way under the industry average. This means that AMD is using a lot to
finance its assets which in generally it not good for the performance and
profitability of a company.
Income Statement:
The first thing you notice is the amount of money put towards research and
development. This does not concern a ratio but it perfectly illustrates where the
revenue or maybe even the profit is going. For example in 2015 the gross margin of
AMD was 1,080$ million while 947$ million of that amount went to research and
development leaving little breathing space for costs such as marketing,
amortization or goodwill.
The earnings per share is also worrying, the industry average ratio is 19,33 while
AMD is not even on the plus side meaning as already stated that the company is
making a loss. AMDs ratio is -3,41 for 2015. This is really worrying as the company
value will also fall on the stockmarket.
Cash Flow Statement :
The cash flow to sales ratio is a ratio that indicatis the real amount of cash that a
company earns. Quickly looking over the cash flow related ratios you probably
would assume AMD is doing pretty well. The ratio for the cash flow to sales is 6%
which sounds positive. However looking at the industry average you quickly see
that AMD is underpreforming heavily. The industry average is 34% meaning that
AMD only converts a little bit of their companys revenue into cash.
The interest coverage of AMD is also really low, this ratio is a profitability but also a
financial ratio that displays how easily a company can pay interest on their
outstanding debt. The industry average is 44,12 while AMDs ratio for 2015 is only
5,04 meaning that it has troubles paying of debts/loans.

Part 2.
Identify at least 4 independent and separate examples of what your
company has done well or poorly to control costs with regards to cost
accounting?

The first example, out of the blue AMDs stock began to rise and products
where getting more in demand. What did AMD do? They decided to focused
on partnerships in order to reduce cost and higher their popularity. Taking
over HiAlgo lowered them on research cost and after that rhey announced a
partnership with Google. As Google is known for its high quality products and
services a lot of people consider AMD since that deal as one of the top GPU
producers and is expceted to keep growing in 2016 in contradiction to
previous years.
The screenshot below shows the improvement of AMD:

(Zacks Equity Research, 2016)

The second example is the fact that AMD did not do too much to control cost.
This may sound strange but most companies would assign its research and
development budget regards their income. AMD did not do that and almost
spend all their income on research and development. This can both be
considerd a poor decision and a good decision as the research has payed off
and AMD is steadily growing in 2016. However the reason why it could be bad
is the risk, if it did not pay off the company would be in a big deficit.
(Advanced Micro Devices, 2015)
The third example is the fact that AMD gave up their own production facilities
and decided to sell their factories to Globalfounderies for a joint venture. This
way the factories are always running on maximum capacity and no money is
lost.

The last example is the fact that they implemented a restrucuring plan at the
end of 2015. The company was going downwards. The plan was focused on
simplifying the business and better align resources around the priorities AMD
sets. They expect that it will safe 14 million in cash by the third quarter of
2016. (Advanced Micro Devices, 2015)

What are the companys current and long terms liabilities and what
effect does it have on the companys performance?
AMD current liabilities consists of short term debt, accounts payable, payable to
GLOBALFOUNDERIES (Joint venture with AMD, they produce everything for them),
accrued liabilities, current other liabilities (which mainly consists of liabilities
related to assets held-for-sale) and deferred income on shipments to distributors.
The long term liabilities consists of long-term debt, other long-term liabilities
(Primarily consisted of payments due under certain software and technology
license that will be paid through 2018), stockholders equity, additional paid-in
capital, treasury stock and accumulated deficit.
Liabilities can limited a companys resources, as building up too many liabilities
will make an unstable company and that will affect the stock price. The
accumulated deficit is currently really big and makes it hard to undergo new and
big projects will probably clog a performance raise.

Identify a key capital investment made by your company within the last
2 years? What was it? How was the acquisition financed? How will this
acquisition improve the companys revenue performance?
In June 2016 AMD acquired HiAlgo, a software company that focuses on boosting
game performances. AMD wants to use the software of HiAlgo in their Radeon
graphical cards in order to boost gaming experiences, increase GPU efficacy and
improve the consistency. (Advanced Micro Devices, 2016)

The information stated above also answers how it will improve the companys
revenue performance. The acquisition does not have a direct influence on the
sales but it helps AMD improve the general quality of their products. The semiconductor industry is a highly competitive industry with the likes of competitors
such as NVIDIA and other innovative companies. This means AMD also has to
keep innovating and that was the main reason of this acquisition. The better the
product, the more sales.
AMD has spent an undisclosed portion of its cash reserves acquiring HiAlgo.
(Halfacree, 2016)

Has the company met its financial and or other performance targets for
the last financial year? And if not what were its reasons for not doing
so?
Unfortunately anything target performance related is not publicly shared in the
annual report or proxy statement. This means that it becomes really hard to
examine the target of AMD. However due to the financial position I think it is safe
to conclude that AMD did not hit its performance targets even though we dont
know them. This simply because no company in the world has its target to make
a loss.
The main reason AMD was not preforming too well was the fact that NVIDIA
launched a series of new high performance GPUs which were both cheaper and
better in performance than AMD. That is one of the reason why AMD decided to
take over HiAlgo as the company is doing way better and is competing with
NVIDIA. AMD is expected to make a profit again in 2016 and 2017.

Identify if the company outsources any of its services or manufacturing,

Where is it done? Identify the reason or reasons why this has been
done?
AMD used to produce all products themselves. In 2009 AMD decided to split up
the manufacturing arm of the company and this way GlobalFounderies was
created. From that point all the manufacturing works were done by
GlobalFounderies. In that point of time GlobalFounderies did solely produce for
AMD.

In the recent years has this changed a lot, AMD has sold all shares it had in
Globalfounderies and is currently working with the company as a joint venture.
Next to that the company does not only produce for AMD anymore but also for
big competitors such as Broadcom and Qualcomm.
They did this because AMD was not able to keep the factories running at full
capacity. By going into a joint venture (AMDs factories were transferred to
Globalfounderies) and also opening the factories to other companies they could
expand and keep the factories running on full capacity. (Sperling, 2009)

Identify what pricing policy objective, type of pricing and pricing

strategy your company uses? Give your reasons why?
AMD has multiple pricing strategies as they have a whole bunch of different
brands. Currently the biggest brand they have is their AMD Radeon brand, this is
their graphic card/GPU name. Together with NVIDIA do they have more or less of
a duopoly. They apply competitive pricing against NVIDIA in order to maintain and
potentially grow their market share.
In the CPU market they do not have that big of a market share and are competing
with Intel who used to have about 75% of the market share. Through penetration
pricing (even in the high end processors) are they slowly gaining market share.
This is called water drop pricing and is considered to be pretty controversial. They
recently started doing this also for both GPU and CPU.
Those price strategies really worked out as the market share in the GPU market
rose from 26.2% to 29.4% in only one quarter. AMD was offering their high
performance GPU for about 100 dollar less than NVIDIA did (with the same
performance).

Give your Conclusions, Analysis and Recommendations of your company

from a Cost Accounting Perspective:

We can conclude that in the years that recently have pasted AMD has had
a lot of trouble. Intel had the biggest marketshare in CPUs and NVIDIA was
winning customers at the GPU market. However thanks to recent
development in the R&D department (taking over HiAlgo) and the new
waterdrop competitive/penetratrion pricing strategies AMD is getting back
on top and is quickly gaining ground on their direct competitors.
AMD should keep innovating in order to keep up and ahead of their
competitors. The RX-480 was one of the reasons AMD is doing so well
again. Meaning they should not safe on costs of the research department.
Next to that the partnership with Google helped them raise a lot of money
as their stock price rose immensely.
Recommended is to setup a restructuring plan for 2016 and 2017 again as
well in order to find and elimate all errors and waste. The company still

received penalties for no reason. This can make up for a lot of money.
Besides that I think its safe to say that the company in 2016/17 is heading
the right direction and are doing well.

Bibliography
Advanced Micro Devices. (2015). 2015 Annual Report. AMD.
Advanced Micro Devices. (2016, June 29). AMD Acquires Software
Company HiAlgo, Laying Groundwork for Future Gaming Innovation
in Radeon Software. Retrieved from AMD: http://www.amd.com/enus/press-releases/Pages/amd-acquires-software-2016jun29.aspx
Halfacree, G. (2016, June 30). AMD acquires performance-tweaking
specialist HiAlgo. Retrieved from Bit-tech: http://www.bittech.net/news/hardware/2016/06/30/amd-acquireshialgo/1http://www.amd.com/en-us/press-releases/Pages/amdacquires-software-2016jun29.aspx
Sperling, E. (2009, September 3). Why AMD's Arab Joint Venture Matters.
Retrieved from Forbes: http://www.forbes.com/2009/03/07/amd-abudhabi-technology-cio-network-amd.html
Zacks Equity Research. (2016, November 17). Advanced Micro Scales New
Highs, Clinches Deal with Google. Retrieved from Yahoo:
https://finance.yahoo.com/news/advanced-micro-scales-highsclinches-200408876.html