AMD - Valens Credit Report - 2019 04 30
Credit markets are accurately stating credit risk with a CDS of 93bps and a YTW of 3.119%, relative to an Intrinsic CDS of 66bps and an Intrinsic YTW of 3.079%. However, Moody's is grossly overstating the firm's fundamental credit risk, with their Ba3 credit rating eight notches lower than Valens IG3+ (A1) credit rating.AMD's compensation metrics should drive management to focus on improving all three value drivers: top-line growth, margins, and asset utilization, which would lead to Uniform ROA expansion and increased cash flows available to servicing debt obligations. Furthermore, most members of management hold material AMD equity relative to their annual compensation, aligning them with shareholders for longterm value creation. That said, apart from CEO Su, management is well compensated in a change-in-control scenario, indicating they may be incentivized to pursue a sale or accept a takeover, elevating event risk for credit holders, though she may influence them to do otherwise.
Earnings Call Forensicsâ„¢ of the firm's Q4 2018 earnings call (1/29) highlights that management may be concerned about competitive pricing pressures and projected declines in revenue. In addition, they may be exaggerating cloud adoption rates, the strength of their higher-margin portfolio mix, and overlap between their development cycle and their customers' development cycles. Moreover, they may be concerned about the performance and total cost of ownership of Rome processors, and their business segmentation.
AMD currently trades near corporate averages relative to UAFRS-based (Uniform) Earnings, with a 21.0x Uniform P/E. At these levels, the market is pricing in expectations for Uniform ROA to decline from 20% in 2018 to 18% through 2023, accompanied by 10% Uniform Asset growth going forward.
Advanced Micro Devices is a semiconductor company. The company primarily provides x86 microprocessors, as standalone devices or as incorporated into an accelerated processing unit, chipsets, graphics processing units (GPUs), data center and personnel GPUs, and development services; server and embedded processors, semi-custom System-on-Chip products, development services and technology for game consoles. The company also licenses portions of its intellectual property portfolio. The company's segments are: Computing and Graphics, which consists of desktop, notebooks, commercial, and chipsets products; and Enterprise, Embedded and Semi-Custom, which includes server processors, and embedded P\processors products.
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