Research: Rating Action: Moody’s Assigns Prime-2 Short-Term Rating to AMD; stable outlook


New York, November 09, 2022 — Moody’s Investors Service (“Moody’s”) has assigned a Prime-2 short-term rating to Advanced Micro Devices, Inc. (“AMD”) and simultaneously affirmed its A3 senior unsecured rating. ‘AMD. The outlook for ratings is stable.

Duties:

..Issuer: Advanced Micro Devices, Inc.

….Senior unsecured commercial paper, assigned P-2

Statement:

..Issuer: Advanced Micro Devices, Inc.

….A3 Confirmed Senior Regular Unsecured Bond/Debenture

Outlook Actions:

..Issuer: Advanced Micro Devices, Inc.

….Outlook remains stable

RATINGS RATIONALE

AMD’s credit profile reflects its strong performance and outlook, supported by continued design gains, market share gains and an expanded set of product and customer offerings. Moody’s expects revenue growth of approximately 43% in 2022 (17% growth excluding Xilinx, Inc. “Xilinx”), resulting in annual revenue of approximately $23.5 billion (including our estimated $4.5 billion in revenue from Xilinx). New chips for desktop, mobile, graphics, server, as well as semi-custom chips that drive the next generation of game consoles, along with the highly diversified revenue mix of the portfolio acquired from Xilinx, will drive strong revenue growth. income. Despite weakness in the PC market which we expect will decline by around 15% to 20% in units this year and potentially 10% to 15% in 2023 from pre-pandemic levels, modest growth in the server market , good growth in custom chips for game consoles, and a full year of ownership of the Xilinx portfolio will contribute to single-digit revenue growth in 2023.

The acquisition of Xilinx diversifies AMD’s end markets to include automotive, industrial, aerospace and defense as well as test, measurement and emulation, and reduces AMD’s relative exposure to volatility or weakness in PC end markets. The worst revenue drop for Xilinx in the past 15 years was a 7% decline in 2016.

Even if there were to be a prolonged market downturn, with mid-teens revenue declines for AMD, key credit metrics would remain strong, with EBITDA margins around 30% and gross debt adjusted to EBITDA less than 1.0x.

Despite building working capital and prepaying vendor payments to support AMD’s strong growth, Moody’s expects approximately $3 billion in free cash flow in 2022. Very low debt levels, excellent liquidity and improved performance will lead to a further decline in already negligible leverage, with adjusted gross debt to EBITDA of around 0.5x in 2022. While the ability to consistently execute consistent product and technology transitions and to withstand competition from strong competitors such as Intel and Nvidia remains a major challenge, AMD has demonstrated a stable and successful execution for several years.

AMD has an excellent liquidity profile which allows the company to internally fund its investment needs. In addition to Moody’s projection of approximately $3 billion in free cash flow in 2022, AMD reported $5.6 billion in cash and cash equivalents in September 2022. The company has no debt maturities until a $750 million note matures in June 2024.

AMD’s new $3 billion commercial paper program is fully backed by a $3 billion revolving credit facility maturing in 2027, under which there is sufficient cushion under a covenant financial and need not be re-represented in the absence of a material adverse change.

Management’s prudent financial philosophy, including maintaining very strong liquidity against $2.5 billion in debt, supports the company’s ability to meet ongoing investment needs, particularly in research and development, and periodic transitions of products or end markets.

While Moody’s expects very modest financial leverage to continue, as evidenced by adjusted gross debt of less than 0.5 times EBITDA, the rating has a cushion for additional debt. The rating also takes into account the company’s balanced capital allocation philosophy, with no dividends and $6.8 billion remaining under an $8 billion stock repurchase authorization. Moody’s does not expect the company to engage in debt-financed share buybacks.

The stable outlook reflects expectations that, despite the current weakness in end markets, AMD will maintain its strong performance through its expanded product positioning, and the outlook for strong operating performance and cash generation over the next year. The outlook also incorporates expectations that management will continue to adhere to prudent financial policies, including maintaining excellent liquidity. The ability to consistently execute product and technology transitions, as well as competition from strong competitors such as Intel and Nvidia remain major challenges.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

The rating could be improved if AMD is able to maintain strong business execution, grow revenue, increase market share, and improve profitability and free cash flow while maintaining conservative financial practices. including cash and liquid investments of over $1.5 billion.

The rating could be downgraded if AMD’s market position weakens significantly, profitability declines sustainably or financial policies become more aggressive. Lower revenues due to uncompetitive products, lower EBITDA margins to less than 20%; significantly lower free cash flow generation or lower cash and liquid investments below $1.5 billion could put pressure on ratings.

The main methodology used in these ratings was Semiconductors published in September 2021 and available at https://ratings.moodys.com/api/rmc-documents/74959. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information 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
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Lenny J. Ajzenman
Associate General Manager
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

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