S&P Cuts AMD (AMD) to 'B-'; Notes Weak Industry Conditions, High-Competitive PC Markets

• U.S. semiconductor products supplier Advanced Micro Devices Inc. (AMD) reported results for its quarter ended March 28, 2015, including revenues that declined 26% year over year and EBITDA of about $13 million, significantly below our $60 million EBITDA expectation.
• We are lowering our corporate credit rating on AMD, and the issue-level ratings on its debt, to 'B-' from 'B'.
• We also revised our recovery rating on the company's senior unsecured debt to '4' from '3'. The '4' recovery rating reflects our expectation for average (30%-50%) recovery.
• Our stable outlook reflects our expectation that AMD will maintain adequate liquidity over 2015, despite its operational challenges.

Standard & Poor's Ratings Services said it lowered its corporate credit rating on Sunnyvale, Calif.-based Advanced Micro Devices Inc. (NYSE: AMD) to 'B-' from 'B'. The outlook is stable.

At the same time, we lowered our issue-level ratings on AMD's senior unsecured debt to 'B-' from 'B' and revised the recovery rating to '4'from '3'. Our '4' recovery rating reflects our expectation for average (30%-50%; lower half of the range) recovery in the event of a payment default.

"The downgrade reflects AMD's recently sharpened revenue declines, weak industry conditions and intense competition from Intel in PC markets, and the challenges it faces to grow in targeted enterprise, embedded, and semi-custom product markets to offset PC business declines," said Standard & Poor's credit analyst John Moore.

We expect the company will generate revenues, earnings, and cash flow significantly below our prior expectations in 2015. We expect AMD's revenues to decline by about 20% over 2015, in contrast to our prior expectation for a 5% to 15% decline. We also expect 2015 EBITDA margins at about 7%, below our prior 10% expectation, and for weak to negative free cash flow, in contrast to our prior expectation for free cash flow in excess of $50 million.

Our stable outlook reflects our expectation that the company will maintain adequate liquidity over 2015, despite its operational challenges.

We could lower the rating were liquidity to weaken such that cash balances declined to less than $500 million or the company's business declines persist to the detriment of its liquidity.

Given the company's operational challenges, we currently view an upgrade as unlikely. However, we could raise the rating were AMD to grow and diversify its EESC businesses, such that it achieved a more stable base to grow revenues and earnings, with less cash flow volatility and free cash flow to debt sustained in the low- to mid-single digits or higher.

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