"We have now incorporated the effects of AMD's new wafer supply agreement with GlobalFoundries.
As a result, our cash balance estimates have taken a further hit. While on the surface the new WSA
should (theoretically) save some cash (~$65M over the next 6 quarters), we realized (in a
bit of a forehead - slapping moment) that we had not been properly modeling the ~$500M that was
supposed to go to wafer purchases in Q4 anyway (implicitly assuming the company would come to
some arrangement, as taking that amount of wafers was clearly impossible). Therefore, while the
company's Q4 wafer commitment has been reduced to $115M (nominally saving them from taking
$385M in wafers they don't need), this does not really represent a change to our model. However, we
are now EXPLICITLY modeling the impact of the take-or-pay consequences ($320M in direct cash
going out over the next 6 quarters) which reduces our cash estimates for the company by a
similar amount by 2014 (where we forecast cash reaching ~$350M, uncomfortably low). Note that we
have not yet incorporated upside from the sale/leaseback of the Austin campus (which the company
believes will bring in ~$150M); it will help, but not change the picture."
We believe AMD's poor execution has exacerbated difficulties from a challenging PC environment, leading
to structurally lower revenues and gross margins, and cash burn. However, we cannot discount the
possibility of event-driven upside (for example, a bail-out from Abu Dhabi or, less likely, a sale of the
company). We recommend investors avoid taking active positions in the name. We rate the shares Market-
Perform with a $2 target price."