AMD's financial restructuring and recovery strategy in 2009

AMD Financial Statements

Advanced Micro Devices, (AMD) a "40-year innovator" (AMD Annual Report. 2009) in the highly competitive global semiconductor industry, has remained resilient because of their charged focus on core competencies relating to "designing and selling microprocessors, chipsets and graphic processors" (AMD Annual Report. 2009). Moore's Law, a guiding benchmark for semiconductor and technology innovation "states that the number of transistors on a chip will double approximately every two years" (Intel.com. 2011). Against this backdrop AMD and other competitors must effectively utilize capital and resources in an effort to drive technological advances. Effective presentation of financial information for utilization by internal and external end users plays a critical role in the maximization of stakeholder value for shareholders, management, employees, and customers.

External Stakeholders

A commonality for CEO's and executive management teams across industries is the maximization of shareholder value; an outcome achieved through strategic management of company's income, capital, assets, and liabilities. Analyzing the 2009 Annual Report for AMD reveals a company with considerable emphasis on restructuring their business model to drive profitability. Investors are focused on financial statements which demonstrate a firm's operations generate consistent income requisite to produce profit, leading to share appreciation and dividends. For AMD the presentation of 2009 financial info to the investor class is an explication of their efforts to control expenses, grow revenues, and increase gross margins.

Striking about AMD's Selected Financial Data are the three years 2006-2008 of operating losses and negative net income. This three-year trend culminated in management's 2009 focus of "preserving cash and reducing operating expenses" (AMD Annual Report. 2009). The particulars of this approach included reductions in employee payroll as well as cutbacks in cap-ex spending. With revenues holding consistent or falling slightly for the better part of five years, the restructuring for AMD necessary to return operating income and net income from losses to positive gains rested solely on controlling expenses and cash distributions. Interesting for the investor then is the reduction in marketing, general, and administrative expenses of 310 million from 1.3 billion to 994 million from 2008 to 2009 (AMD Annual Report. 2009). The cuts in operating expenses are concomitant with a sizeable increase in cash and cash equivalent holdings by the company. 2009 saw 2.7 billion in holdings as compared to 2008 positions of 1.1 billion. Further the company slashed debt holdings to improve the balance sheet with 1.2 billion reduced from fiscal year 2008 to 2009 (AMD Annual Report. 2009).

AMD's financials as presented to investors demonstrate a company which took extensive pro-active steps to combat trend losses brought on by several years of expense and cost growth. It is worth noting that this restructuring occurred during the onset of the "Great Recession"; a time in which investors were looking for executive management to trim the fat, raise capital, and streamline operations in order to preserve gross margins.

Internal Management

The cost cutting and capital raising for AMD represented a necessary approach to ensure that profitability was restored for investors. The savvy investor class was well aware that revenue growth would be hard to come by in the deleveraging and slack consumer and business demand scenario of 2008-2010. Important however, was the acknowledgement by management that any reorganization had to include significant and substantive changes in the AMD business model to include revenue streams. The formation of Global Foundries, a joint venture which "unlocked AMD from the capital-intensive burden of funding the leading-edge manufacturing capacity" (AMD Annual Report. 2009) so crucial to their revenue generation. Future revenue streams and profitability depend on a consistent flow of new products and offerings which customers perceive and purchase as value added propositions.

Management Discussion and Analysis for AMD 2009 represents a thorough elucidation of the obturations facing the company both on the income statement and the balance sheet. The reduction in liabilities represents a move to reduce financial leverage in a period of tightening credit and risk profiles. The cash build-up too is an assertive move to combat liquidity concerns and build structural soundness to the balance sheet. AMD management implicitly understood that their internal financial condition was threatening to unravel the company with stagnant revenues and bloated expenses. As such the repositioning of AMD to take advantage of new revenue opportunities in their fusion process technology was an important step. Add to this a streamline of operations to improve the income statement, a strengthening of the balance sheet through targeted asset increases and strategic debt reductions; and the result are 2010 financial statements which show AMD "achieved many financial milestones: increasing revenue 20% year-over-year, restructuring the balance sheet, reducing overall debt, improving gross margin and delivering positive adjusted non-GAAP free cash flow" (AMD Annual Report. 2010)

Conclusion

Invariably the investor and executive management end-users of financial information intersect at a common goal; the total return of the stock as compared with alternative investments including other individual stocks, indices, bonds, or commodities. Succinctly both parties are concerned with the return delivered to shareholders either through share price appreciation or dividend allocation. Dissemination of financial information to end-users does not change the content however, depending what each party is concerned with; the formatting and presentation of the material may change to reflect the outlook based on exogenous elements such as a weakening global economy, or endogenous elements such as increased input costs in cost of goods sold. For AMD the future will depend as it always has on managing their financial assets and liabilities to best create the mix of growth and innovation necessary to build shareholder value over time.