Important disclosures appear on the last page of this report.

The Henry Fund

Henry B. Tippie School of Management

Siddhanta Chandra [siddhanta-chandra@uiowa.edu]

AMD Inc. (AMD) September 18, 2017

Information Technology – Semiconductors Stock Rating BUY

Investment Thesis Target Price $14.5-15.34

Advanced Micro Devices or AMD is the 2nd largest manufacturer of x86 architecture CPUs (Central Processing Units). Via its acquisition of ATI, AMD is also the 2nd largest manufacturer of discrete GPUs (Graphical Processing Units) in the world. It competes mainly with Intel (INTC) in the CPU and Nvidia (NVDA) in the GPU markets. We are recommending a BUY for AMD as we feel that after a decade of uncompetitive product lines, AMD has finally launched a product stack capable of competing across all operating segments. AMD returned to non-GAAP profitability in 2Q2017 and is on the path to achieve an EPS of 20 cents per share in 2017.1

Drivers of Thesis

• Launch of new product stack AMD has had a mega 2017 in terms of product launches – refreshing each and every operating segment with a new product stack. All the products have been greeted

with positive reviews without exception.2

• Explosive Growth in the last 6 months The positive reception of the new products is not limited to reviews but has also reflected in sales numbers. Q1 and Q2 both were up more than 18% YoY. Q2 has been especially exceptional with AMD making up 10% market share in the CPU shipments in one quarter – bringing it to 30%.8

• New Partnerships in semi-custom and datacenter applications AMD has secured partnerships with Baidu, JD.com, Tencent, HPE, Microsoft, Sony, Nintendo amongst others to supply semi-custom and datacenter based solutions. These typically have higher margins. Notable is the fact that AMD currently has less than 1% of the server market and any gains in that segment are a big boost to revenues and bottom line.3

Risks to Thesis

• Intense competition AMD faces intense competition from INTC and NVDA – both bigger rivals. If AMD fails to out-innovate or out-market them, it may see its market share gains erode again in the coming years.

• Large Scale changes in the landscape of computing There is some concern that the landscape of computing may shift in the coming years like the decline of crypto-mining, smaller chips in larger clusters, etc. Though based on current realities we see little evidence of AMD not being able to stay on top of such developments

Henry Fund DCF $15.34 Henry Fund DDM $14.21 Relative PE(EPS18) $17.75 Price Data Current Price $12.52 52wk Range $5.97 – 15.65 Consensus 1yr Target $16.75 Key Statistics Market Cap (B) $11.85 Shares Outstanding (M) 946.78 Institutional Ownership 60.8% Five-Year Beta 2 Dividend Yield 0% Price/Earnings (TTM) -- Price/Sales (TTM) 2.56 Price/Book (mrq) 28.39 Profitability Operating Margin -6.49% Profit Margin -11.56% Return on Assets (TTM) -15.97% Return on Equity (TTM) -24,850%

Source: Factset, Fidelity, YCharts

Earnings Estimates Year 2014 2015 2016 2017E 2018E 2019E

EPS -0.52 -0.83 -0.53 0.20 0.59 1.11

growth -78% -38% 57% 138% 194% 88%

12 Month Performance Company Description

Headquartered in Sunnyvale, CA, AMD is a global semiconductor giant. AMD, like Intel, can trace its roots to Fairchild semiconductors which Jerry Sander left the year after Robert Noyce, who founded Intel, to found AMD in 1969. AMD is the only significant rival to Intel and Nvidia and offers x86 microprocessors, chipsets, GPUs and professional graphics; and server and embedded processors and semi-custom System-on-Chip (SoC) products and technology for game consoles.

Source: Yahoo Finance

-5%

15%

35%

55%

75%

95%

S O N D J F M A M J J A

AMD S&P 500

Page 2

EXECUTIVE SUMMARY

”AMD has Ryzen.” i

AMD suffered an embarrassing decade where it regularly

conceded market share to Intel, going from 50% in 2006 in

desktop CPUs to under 20% in 2016. In the high-margin

server CPU market, AMD’s presence shrunk to under 1% in

2016 from 25% in 2006, with Intel capturing almost all of

the market. One bright spot was semi-custom solutions,

where AMD enjoyed a dominant position with both

Microsoft’s Xbox and Sony’s PlayStation using AMD’s

chips. Another success story was the impact of crypto-

currency mining on AMD’s graphics processing unit or GPU

sales. AMD’s solutions performed better at mining than

Nvidia and the mining craze saw AMD’s GPU products

being consistently sold out throughout 2014-2016. 2015

was a calamitous year for the Computing and Graphics

segment with revenues falling 42% YoY even though GPU

sales grew by all indicators. AMD stayed afloat due to high

sales of gaming consoles but looked like a spent force

going through the motions.1,4

All that changed in 4Q2016 when the new product stacks

were announced. AMD’s cautiously optimistic press

releases gave an indication of what was in store. Out came

the entirely new Zen architecture which powered AMD’s

Ryzen series of desktop CPUs, quickly followed by the

architecture’s implementation in Threadripper – a high-

end consumer computing part. In graphics, a new

architecture called Vega was introduced which built upon

the previous release called Polaris. But most important of

them all was the launch of a server/datacenter

architecture called Naples which was launched in a

product line named EPYC.

With impressive sales in the first half of 2017, AMD has

shown itself to be competitive again. We believe that the

current architecture will ensure AMD stays competitive in

the current lifecycle but also lays down a solid foundation

for innovation in the years to come. We expect AMD to

attain 50% of the global client processor market and 9% of

the server market by 2021. The graphics unit will continue

to enjoy mining headwinds while the semi-custom unit will

rise on refreshes of gaming consoles.

AMD stock is expensive today from a price-multiple

measure but the company’s underlying product revamp in

GPUs, CPUs, and servers give shareholders confidence of

sustainable growth ahead.

COMPANY DESCRIPTION

AMD manufactures and markets microprocessors used in

servers, desktop PCs, and notebook PCs. Microprocessors

are a PC's Central Processing Unit (CPU) or the "brain"

behind the computer. A microprocessor is the single most

important component that drives computer power and

performance. Additionally, AMD manufactures Graphics

Processor Units (GPUs), which are used in PCs to process

information for graphics displays. AMD sells its processors

primarily to PC manufacturers such as Dell, HP, Sony, and

Toshiba.

AMD also manufacturers embedded processors used in

products that require high-to-moderate levels of

performance, where key features include low cost,

mobility, low power, and small form factor. The company

also makes System-on-Chip (SoC) products and technology

for game consoles. Currently, AMD powers all of the major

gaming consoles in the market – PlayStation, Xbox, and Wii

U. It is expected to continue doing so for the next refresh.

AMD has a marginal presence in the server/datacenter

segment with under 1% share in both processor as well as

server graphics sub-segments.

Revenue Decomposition

AMD reports revenue in two major segments - Enterprise,

Embedded and Semi-Custom segment and Computing and

Graphics segment. In 2016, AMD made 54% of its revenue

in Enterprise, Embedded and Semi-Custom with the

remaining 46% attributable to Computing and Graphics.

Within these segments, most of the revenue in Enterprise,

Embedded and Semi-Custom is attributable to Semi-

custom solutions in Gaming Consoles while in Computing

and Graphics, most of the revenue is attributable to

Page 3

Graphics products due to high demand in crypto-mining

and low demand of out-of-cycle older CPU products.

Further breaking down the segments:

Computing and Graphics

As mentioned earlier, AMD competes in the consumer

processor and GPU segments which are combined as one

for reporting purposes. The segment can be further

broken down into: Consumer CPUs and Consumer GPUs

Consumer Computing

CPUs

A CPU is the ‘brain’ of any computer system. A central

processing unit (CPU) is the electronic circuitry within a

computer that carries out the instructions of a computer

program by performing the basic arithmetic, logical,

control and input/output (I/O) operations specified by the

instructions. Most modern CPUs are microprocessors,

meaning they are contained on a single integrated circuit

(IC) chip.

CPU’s differ from each other based on architecture and

instruction set. For mainstream applications, the two main

instruction sets are ARM and x86. ARM is predominantly

used in mobile devices like smartphones and tablets while

x86 is more suited for full sized computing devices like

desktops, laptops, and servers. Although, some

implementations of ARM based CPUs exists for these use

cases as well.

The other important differentiation is architecture. The

architecture of a CPU is essentially how it is built and how

it executes an instruction set. Architecture can differ based

on usage but both Intel and AMD – the two major players

in x86 CPUs utilize similar architectures across product

lines.

AMD’s x86 architecture is called ‘Zen’ which has been in

development since 2014 and was announced in 4Q2016.

The first processors based on Zen were desktop CPU’s

called Ryzen.

Zen Architecture

Zen is AMDs latest architecture, taking an entirely new

design philosophy compared to its predecessor – the

excavator architecture. It is uncommon for companies to

bring in entirely new architectures due to the complexities

and longer development cycles involved. But after a

decade of lagging behind Intel’s architecture in

performance, AMD needed a from-scratch design. From

the outset, the aim of Zen was to increase per core

performance. To understand this, we need to understand

the concept of cores and threads.

A modern CPU, whether mobile or full-size, ARM or x86, is

based on an SoC design which stands for System on a Chip.

Which essentially means that a single Chip contains other

supporting systems like Input/output or I/O controllers,

Storage Controllers etc, apart from the CPU itself. The chip

is called a die. Apart from the supporting systems, the die

is mainly comprised of the CPU. A CPU is further composed

of cores. A CPU can range from a single core to multiple,

numbers ranging as high as 32. A core is basically a CPU

itself. By utilizing multiple cores, we are essentially

bunching up multiple CPUs in one package. Think of a

modern CPU package as a super CPU composed of many

smaller CPUs. This system of achieving performance

increases came about due to limitations of making a single

CPU consistently more powerful. By making multiple cores

work in parallel, the overall CPU performance gain is

multiplied when a single core is made better.

Additionally, each core can be comprised of threads. While

cores are actual hardware entities, threads are software

implementations which means that a core is capable of

dividing its performance capacity simultaneously among

multiple tasks. The number of tasks is equal to the number

of threads. This is important because a modern CPU core

is not taxed enough by a single computational task in most

use cases, leaving capacity unutilized. Most modern CPUs

have two threads per core.

With Zen, AMD set out to increase per-core performance.

AMDs previous architectures lagged badly behind Intel’s in

per core performance and tried to make up by bunching

Page 4

together more cores than respective Intel offerings. This

was a fundamentally flawed approach leading to sluggish

performance and high-power consumption. AMD’s stated

goal with Zen was to achieve a 40% increase in IPC

(Instructions per cycle) – a metric for per core

performance, over excavator. At release, they announced

that they achieved a staggering 52% increase. This is

unprecedented in modern computing in the last couple of

decades.5

IPC (Instructions per cycle) refers to the number of

calculations a CPU can perform per clock cycle. If two CPUs

have the same IPC they will have the same performance at

the same frequency. For the practical purpose of

comparing performance between different CPU

architectures a workload that represents “typical use” is

tested on both CPUs at the same clock speed to produce

an IPC figure per core. IPC is measured under multi-core

workloads to ensure that the resulting figures reflect total

processing throughput. When the relative IPC between

architectures is known, it simplifies comparisons between

them.

The clock speed typically refers to the frequency at which

a chip like a central processing unit (CPU), one core of a

multi-core processor, is running and is used as an indicator

of the processor's speed. It is measured in clock cycles per

second or its equivalent, the SI unit hertz (Hz), the clock

rate of the first generation of computers was measured in

hertz or kilohertz (kHz), but in the 21st century the speed

of modern CPUs is commonly advertised in gigahertz

(GHz). This metric is most useful when comparing

processors within the same family, holding constant other

features that may affect performance.

A Zen based CPU is built on the basic building block called

the CCX or Core Complex. A CCX is essentially a package of

4 CPU cores. In CPUs with more than one CCX, the CCXs are

connected to each other via a high-speed link called the

Infinity Fabric. This fundamental architecture means that

Zen can scale from entry level CPUs to high performance

server CPUs.

While a Zen core still lags Intel’s competing architecture by

9%, the Zen line of CPUs have more cores than Intel’s

offerings which means they are considerably faster in

‘real-life’ usage.

For consumer computing, the Zen cores are being utilized

in the Ryzen and Threadripper lines of CPUs.

The product stack for the Ryzen line is shown in the table

below:

Zen based CPUs have shown themselves to be great

performers compared to respective offerings from Intel.

For workstation use, they outclass Intel’s offering by

providing hugely better multi-core multi-threaded

performance. In some use cases like video rendering,

photo editing, video encoding and other workstation

based tasks like MS Excel.

While it was difficult to capture the impact of Ryzen in the

1Q2017, the 2nd quarter decidedly shows strong sales

numbers. YoY revenue growth of 51% in Computing and

Graphics segment when combined with numbers from

retailer showing 50% share in CPU shipments tell a story of

Ryzen’s initial success.

16 (32) 1950X 3.4 $999

1920X 3.5 $799

1920 3.2 TBA

8 (16)1900X

3.8$549

1800X 3.6 $499

1700X 3.4 $399

Pro 1700X 3.5 TBA

1700 $329

Pro 1700 TBA

1600X 3.6 $249

1600 $219

Pro 1600 TBA

1500X $189

Pro 1500 TBA

1400 3.2 $169

1300X $129

Pro 1300 TBA

1200 $109

Pro 1200 TBA3.1

Target

SegmentCores(Threads)

Clock

rate (GHz)

Release

PriceProcessor Name

Entry-Level

4 (4)

Ryzen 3

3.5

3.2

4 (8)3.5

3

Mainstream

6 (12)

Ryzen 5

12 (24)

Performance 8 (16) Ryzen 7

High-EndRyzen

Threadripper

Page 5

APUs

Before the acquisition of ATI in 2006, AMD’s offerings in

the consumer segment were largely limited to CPUs. After

the acquisition the offerings expanded to create a graphics

segment but also gave rise to a new kind of CPU product

line called the APU. An APU, essentially, combines a CPU

and a GPU on the same chip wafer (called a die). While the

GPUs in such systems are underpowered compared to

discrete GPUs, the APUs find utility in lower cost or small

form factor systems which do not require a high-end

graphics solution and rather need a GPU capable of driving

multiple displays and decode (play) high resolution videos.

Such APU solutions are also popular in laptops due to

lower power requirement and lower costs.

While Intel’s entire CPU lineup of mainstream parts are

APUs, AMD is yet to launch Zen based APUs. Its current

APUs are called Bristol Ridge and are marketed with A12

moniker. AMD expects to launch Zen based APUs in

4Q2017 which will round out the consumer CPU product

stack for AMD.4

Consumer Graphics

AMD is a significant player in the consumer graphics

segment, selling GPU solutions under the Radeon brand

name. It currently has two architectures in the market,

Polaris – introduced in 2016 and Vega – Introduced in

2017. AMD’s basic architecture for GPUs is called GCN or

Graphic Core Next. While Polaris based parts are based on

GCN 4th Gen, Vega utilizes GCN 5th Gen.

Currently AMD sells Vega 56 and Vega 64, priced

respectively at $399 and $499, as part of the Vega line of

consumer products. These comprise the high-end

offerings.

Polaris based parts under the RX moniker make up the low

and mid end offerings.

AMDs graphics unit has enjoyed a few years of consistently

strong sales, predominantly due to the crypto-currency

mining boom. Due to AMDs architecture favoring more

compute units (like cores in a CPU) albeit less powerful

than in Nvidia’s offerings, their GPUs are better at mining

than competition. Mining requires solving mathematical

problems which result in payouts of crypto-currency. This

phenomenon is based on the concepts of the blockchain.

With Radeon GPU selling out consistently, the Computing

and Graphics segment will enjoy an estimated 50-55% YoY

increase this FY.

Enterprise, Embedded and Semi-Custom

This segment can be further broken down into Enterprise

and Semi-custom with embedded forming a negligible

contributor of revenue.

Enterprise

The enterprise segment consists of Server and

Workstation CPUs and GPUs. These use case scenarios are

atypical of mainstream computing as they handle very

large computational tasks such as AI, 3D rendering, high

performance computing tasks such as climate modeling,

etc.

AMD current line of server CPUs is called Opteron which is

seen as uncompetitive to Intel’s Xeon offerings in the

server space. AMD announced a Zen based server CPU

named EPYC in 2017 and it has shown early promise by

being competitive with Xeon CPUs if not faster. The EPYC

CPUs also enjoy other advantages like smaller die sizes and

significantly lower prices. Top line parts such as AMD's

EPYC 7601 ($4200) offers slightly less or slightly better

performance than Intel's Xeon 8176 ($8000+)6

This is significant because AMD currently has less than 1%

share of the highly lucrative Server CPU market.

AMD has also launched Vega based professional GPUs

which fulfil the need of High Performance Computing

workload scenarios.

With a current Total Addressable Market size of $21B

growing 5% CAGR, we predict AMD will be able to attain

9% of the market share by 2021. Due to higher uptake

times in such system purchases, we believe the effects will

only be visible from 2018 onwards.4

Page 6

Semi-Custom

AMD’s semi-custom business is dominated by its supply of

solutions to gaming consoles. The gaming console business

has a cycle of three to four years. AMD believes that it is

effectively positioned to drive the next revolution in

gaming and now powers all major next generation

consoles including Sony’s PlayStation 4, Nintendo’s Wii U

and Microsoft’s Xbox One. With the next refresh

happening in late 2018, we estimate semi-custom revenue

will fall in 2017, with recovery in 2018 through 2019.

RECENT DEVELOPMENTS

Fiscal 2017 Second Quarter Earnings

AMD reported 2nd Quarter results on July 25th 2017,

announcing revenue of $1.22 billion, operating income of

$25 million, and net loss of $16 million, or $(0.02) per

share. On a non-GAAP basis, operating income was $49

million, net income was $19 million, and earnings per

share was $0.02. Gross margin was 33 percent, up 2

percentage points year-over-year due to a richer product

mix and a higher percentage of revenue from the

Computing and Graphics segment, driven by the first full

quarter of Ryzen processor sales. For the third quarter of

2017, AMD expects revenue to increase approximately 23

percent sequentially, plus or minus 3 percent. The

midpoint of guidance would result in third quarter 2017

revenue increasing approximately 15 percent year-over-

year. All in all, a positive guidance beating street estimates.

Companies Pledge to Use EPYC

EPYC server processors, based on the Zen architecture,

begin AMD effort to win back market share in the segment.

While the road to recovery is long, there have already been

encouraging signs in term of companies warming towards

adopting the new technology.

Hewlett Packard Enterprise Co., Dell Technologies Inc.,

Lenovo Group Ltd. and other companies will offer servers

based on Epyc and Microsoft, Red Hat Inc, and VMware

Inc. will make sure their software works on the new chips.

Baidu has announced a collaboration to use AMD Radeon

Instinct GPUs in Baidu’s data centers.

On Aug 23rd AMD announced that leading cloud service

providers like Tencent and JD.com have pledged to use

EPYC in their datacenter servers.

The momentum isn’t just limited to EPYC as AMD clinched

a deal with Google to supply its FirePro S9300 x2 GPU in

the latter’s cloud platform. In addition, the company also

bagged a deal with Chinese company Alibaba to supply

Radeon Pro chips for the latter’s servers.3

On September 12, Amazon announced that it has started

using New AMD-based GPU Instances for Graphics

Acceleration. The new instance is based on AMD’s FirePro

S7150x2 Server GPUs equipped with AMD Multiuser GPU

technology.7

INDUSTRY TRENDS

Cryptocurrency Mining Continues Unabated

After concerns that crypto-currency mining will fizzle out

in 2017 caused some turbulence amongst the mining

community, a strong uptick in the prices of Bitcoin and

Ethereum has made sure that mining continues unabated

at least for another FY. This has great implications for AMD

as Radeon GPUs are considered best suited for mining and

have been consistently selling out at retailers. This ensures

that AMD will enjoy strong sales in the Computing and

Graphics segment as it gets ready to find its feet in the

enterprise segment.

MARKETS AND COMPETITION

AMD faces stiff competition from Intel on the CPU side and

Nvidia on the GPU side. While being able to service both

segments helps AMD in terms of end to end solutioning, it

also means that its exposed to bigger competitors focused

on one product stack.

Intel Corporation has been the market share leader for

microprocessors for many years. Intel’s market share,

margins and significant financial resources enable it to

Page 7

market its products aggressively, by use of rebates,

incentives or a de facto control over industry standards.

Intel has substantially greater financial resources

accordingly spends substantially greater amounts on

marketing and research compared to AMD.

Competition from Nvidia is equally fierce and similar.

Though AMD has enjoyed a sizable lead in mining

applications, it lags Nvidia in other use-cases. As AMD

continues to build its new GPU product lines, it may face

even greater competition if Intel and Nvidia join hands –

which unlikely but may happen.

Peer Comparisons

AMD is the 2nd largest in both the overall CPU as well as

the GPU markets.

A look at the revenue and margins for the competing

companies follows.

Source: Factset

One of the biggest reasons for the huge margin differential

is the lower Average Selling Price and insignificant sales in

higher margin segments. Couple that with higher R&D

costs, we can see how margins suffer for AMD. This should

change with higher ASPs in the coming quarters and sales

of EPYC in the server market.

ECONOMIC OUTLOOK

Due to the omnipresence of technology in today’s world,

barring a huge correction, tech spending is poised to go up.

While consumer sales are directly linked to consumer

sentiment and to a smaller extent population growth

rates, organizational spending on semiconductors is

estimated to remain strong in even a sluggish economy.

US GDP Growth Rate

Customer Confidence Index

The industry can expect strong consumer segment sales

with customer confidence trending higher.

Population Growth Rate

Source: World Bank

Company Name Sales Gross Margin EBITDA Margin Net Margin

AMD 4,619.0 24.8% -5.9% -11.8%

Analog Devices 4,570.0 54.8% 33.3% 14.8%

Intel 61,711.0 61.9% 40.4% 20.6%

NVIDIA 8,344.0 59.2% 33.6% 27.7%

Page 8

With a low .7% population growth rate, new

growth/customer adds will be difficult to find.

Interest Rates

After almost a decade of flat rates, the Fed finally raised

the rate to .5% in December 2015. The current rate stands

at 1% after two 25bps hikes in January 2017 and March

2017. With the Federal Reserve making it clear that it’s

looking to take the rate to 1-1.25% range, the cost of debt

will increase for all companies, as businesses find

themselves in an environment of reduced liquidity. AMD

efforts to pay down debt and restructure it at a lower cost

may be affected by higher interest rates.

CATALYSTS FOR GROWTH

AMD has seen substantial growth in the first 2 quarters

which is a harbinger of things yet to come. The new

product stack is highly competitive performance wise,

comes in at a lower price point, has seen extensive

adoption from users as well as OEMs.

We believe that AMD is on track to challenge Intel’s

monopoly in the CPU market while making smaller gains in

the GPU market. We believe that AMD can gather as much

as 40% share of the consumer CPU market by 2021 and 9%

of the server market in the same horizon.

The strong fundamentals of the new age architecture also

enable AMD to rapidly develop platforms and keep pace

with competition. A new engagement strategy has

brought important partners like Amazon, Google and

Baidu to AMD’s fold and it’s marketing initiatives have

worked well in the consumer market.

INVESTMENT POSITIVES

• Strong product stack. After almost a decade AMD has

a product stack capable of competing with AMD. Even

small increases in market shares will have a snowball

effect considering the current position of AMD.

• Mining Demand Still High means that AMDs GPUs will

continue to be in high demand leading to strong sales

numbers.

• EPYC looks to be highly anticipated cby OEMs as well

as organizations. Initial trends are very favorable. A 9%

market share by 2021 from 1% now isn’t a long shot if

AMD can maintain interest and competitiveness. It

was only a decade ago that AMD had over 25% market

share in this segment.

INVESTMENT NEGATIVES

• Intense Competition from Intel and Nvidia may derail

AMD efforts to improve product mix and increase ASP.

A collaboration between Intel and Nvidia, if it

materializes, may exert significant pressures on AMD

leading to market share loss. AMD can ill afford

entrenched warfare against its larger rivals.

Valuation

We valued AMD’s stock in the $14.80-$15.40 range using

DCF. AMD’s valuation is hindered by its large Beta due to

its considerable volatility in past few years. AMD needs

strong sales to show upside and we believe our forecasts

are in line with what we have seen from the new product

stack.

Revenue Growth Rate

The semiconductor industry recently breached $100B in

sales in 2Q17 growing 5.8% QoQ and 24% YoY. Our

estimates for AMDs revenue are mentioned in the table

below

FY Revenue Growth

2014 5506 4%

2015 3991 -28%

2016 4272 7%

2017E 5182.97 21%

2018E 6352.925 23%

2019E 7685.425 21%

2020E 8810.147 15%

2021E 9770.8 11%

2022E 10348.54 6%

2023E 10754.43 4%

2024E 10969.52 2%

Page 9

Cost of Goods Sold

We forecast a decline in COGS as a percentage of revenue

for the next 3 years as AMD has already spent a large

chunk on R&D to develop current stack which hasn’t

brought in revenue yet. Considering this was a new

architecture and future products will be iterative, COGS is

projected to decline as a percentage of revenue.

Additionally, AMD has a deal with Global Foundries which

is expected to decrease its manufacturing costs in the

coming decade.

Current COGS/Rev is at 73% and we estimate 2017

COGS/Rev to be 68%, declining further to 60% in 2021.

Continuing Growth Assumptions

Using the McKinsey approach to valuation, net operating

profit less adjusted taxes (NOPLAT) feeds into the

discounted cash flow model that is used to derive the

target price. After the forecast period, we estimate a

continuing NOPLAT growth amount. The 1.85% rate is

estimated taking into consideration the US GDP Growth

Rate and the Population Growth Rate.

KEYS TO MONITOR

Intel’s Response: A lot depends on how Intel choses to

respond. It would also be prudent to keep an eye out for

Intel’s product refreshes, although, massive gains aren’t

expected.

Crypto-currency prices: A fall in the prices of Crypto-

currencies will make mining unattractive, impacting GPU

sales for both Nvidia and AMD.

REFERENCES

1. AMD 10-K and 10-Q

2. PC World

https://www.pcworld.com/article/3214635/compone

nts-processors/ryzen-threadripper-review-we-test-

amds-monster-cpu.html

3. DCD

http://www.datacenterdynamics.com/content-

tracks/servers-storage/baidu-partners-with-amd-on-

gpu-software-tencent-and-jd-get-

epyc/98864.fullarticle

4. AMD investor factbook Q2 2017

5. AnandTech

http://www.anandtech.com/show/11143/amd-

launch-ryzen-52-more-ipc-eight-cores-for-under-330-

preorder-today-on-sale-march-2nd

6. AnandTech

http://www.anandtech.com/show/11544/intel-

skylake-ep-vs-amd-epyc-7000-cpu-battle-of-the-

decade/23

7. Trefis

https://www.trefis.com/stock/amd/model/trefis

8.

IMPORTANT DISCLAIMER

Henry Fund reports are created by students enrolled in the

Applied Securities Management (Henry Fund) program at

the University of Iowa’s Tippie School of Management.

These reports are intended to provide potential employers

and other interested parties an example of the analytical

skills, investment knowledge, and communication abilities

of Henry Fund students. Henry Fund analysts are not

registered investment advisors, brokers or officially

licensed financial professionals. The investment opinion

contained in this report does not represent an offer or

solicitation to buy or sell any of the aforementioned

securities. Unless otherwise noted, facts and figures

included in this report are from publicly available sources.

This report is not a complete compilation of data, and its

accuracy is not guaranteed. From time to time, the

University of Iowa, its faculty, staff, students, or the Henry

Fund may hold a financial interest in the companies

mentioned in this report.

AMD Inc.Revenue Decomposition

Fiscal Years Ending Dec 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021ETotal Revenue 5506.00 3991.00 4272.00 5182.97 6308.67 7550.44 8650.87 9592.41YoY %change 3.91% -27.52% 7.04% 21.32% 21.72% 19.68% 14.57% 10.88%

Net Sales by SegmentEnterprise, Embedded & Semi-Custom 2,374 2,186 2,305 2212.80 2655.36 3239.54 3822.66 4281.38YoY %change NA -7.92% 5.44% -4.00% 20.00% 22.00% 18.00% 12.00%% of total revenue 43.12% 54.77% 53.96% 42.69% 42.09% 42.91% 44.19% 44.63%

Computing & Graphics 3,132 1,805 1,967 2970.17 3653.31 4310.90 4828.21 5311.03YoY %change NA -42.37% 8.98% 51.00% 23.00% 18.00% 12.00% 10.00%% of total revenue 56.88% 45.23% 46.04% 57.31% 57.91% 57.09% 55.81% 55.37%

AMD reclassified product segments in 2014

AMD Inc.Sensitivity Analysis

DCF Target Price 15.96$

1.300 1.350 1.400 1.450 1.500 1.550 1.600 1.650 1.700 4.00% 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75% 6.00%1.50% 22.48 21.56 20.71 19.92 19.18 18.49 17.84 17.24 16.66 1.00% 16.25 16.20 16.16 16.11 16.06 16.02 15.97 15.93 15.88 1.70% 21.71 20.85 20.04 19.30 18.60 17.95 17.33 16.76 16.22 1.25% 16.22 16.18 16.13 16.08 16.04 15.99 15.95 15.90 15.86 1.90% 20.99 20.17 19.42 18.71 18.05 17.43 16.85 16.30 15.79 1.50% 16.20 16.15 16.10 16.06 16.01 15.96 15.92 15.87 15.83 2.10% 20.31 19.54 18.83 18.16 17.53 16.95 16.39 15.87 15.38 1.75% 16.17 16.12 16.08 16.03 15.98 15.94 15.89 15.85 15.80 2.30% 19.66 18.94 18.27 17.64 17.04 16.48 15.96 15.46 14.99 2.00% 16.14 16.10 16.05 16.00 15.96 15.91 15.87 15.82 15.78

2.50% 19.06 18.38 17.74 17.14 16.57 16.04 15.54 15.06 14.62 2.25% 16.12 16.07 16.02 15.97 15.93 15.88 15.84 15.79 15.75 2.70% 18.49 17.84 17.24 16.66 16.13 15.62 15.14 14.69 14.26 2.50% 16.09 16.04 15.99 15.95 15.90 15.86 15.81 15.77 15.72 2.90% 17.95 17.33 16.76 16.22 15.70 15.22 14.76 14.33 13.92 2.75% 16.06 16.01 15.97 15.92 15.87 15.83 15.78 15.74 15.70 3.10% 17.43 16.85 16.30 15.79 15.30 14.84 14.40 13.98 13.59 3.00% 16.03 15.99 15.94 15.89 15.85 15.80 15.76 15.71 15.67

33.30% 34.30% 35.30% 36.30% 37.30% 38.30% 39.30% 40.30% 41.30% -2.57% -0.57% 1.43% 3.43% 5.43% 7.43% 9.43% 11.43% 13.43%3.80% 20.17 20.17 20.17 20.17 20.17 20.17 20.17 20.17 20.17 0.60% 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 14.00 4.05% 18.94 18.94 18.94 18.94 18.94 18.94 18.94 18.94 18.94 0.70% 14.14 14.14 14.14 14.14 14.14 14.14 14.14 14.14 14.14 4.30% 17.84 17.84 17.84 17.84 17.84 17.84 17.84 17.84 17.84 0.80% 14.28 14.28 14.28 14.28 14.28 14.28 14.28 14.28 14.28 4.55% 16.85 16.85 16.85 16.85 16.85 16.85 16.85 16.85 16.85 0.90% 14.43 14.43 14.43 14.43 14.43 14.43 14.43 14.43 14.43 4.80% 15.96 15.96 15.96 15.96 15.96 15.96 15.96 15.96 15.96 1.00% 14.58 14.58 14.58 14.58 14.58 14.58 14.58 14.58 14.58

5.05% 15.14 15.14 15.14 15.14 15.14 15.14 15.14 15.14 15.14 1.10% 14.74 14.74 14.74 14.74 14.74 14.74 14.74 14.74 14.74 5.30% 14.40 14.40 14.40 14.40 14.40 14.40 14.40 14.40 14.40 1.20% 14.90 14.90 14.90 14.90 14.90 14.90 14.90 14.90 14.90 5.55% 13.72 13.72 13.72 13.72 13.72 13.72 13.72 13.72 13.72 1.30% 15.06 15.06 15.06 15.06 15.06 15.06 15.06 15.06 15.06 5.80% 13.09 13.09 13.09 13.09 13.09 13.09 13.09 13.09 13.09 1.40% 15.23 15.23 15.23 15.23 15.23 15.23 15.23 15.23 15.23

Market Risk Rate NOPLAT CV Growth

Beta Pre-Tax Cost of Debt

Risk Free Rate Normal Cash %

Tax Rate Net Intagibles/Revenue

AMD Inc.Income Statement

Fiscal Years Ending Dec 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021ESales 5,506.00 3,991.00 4,272.00 5182.97 6308.67 7550.44 8650.87 9592.41

COGS excluding D&A 3,478.00 2,743.00 3,141.00 3524.42 4132.18 4719.03 5233.78 5659.52Depreciation 189.00 164.00 133.00 114.80 117.91 128.07 147.99 163.50Amortization of Intangibles 14.00 3.00 0.00 0.00 0.00 0.00 0.00 0.00Gross Income 1,825.00 1,081.00 998.00 1,543.75 2,058.58 2,703.35 3,269.10 3,769.39SG&A Expense 1,656.00 1,412.00 1,467.00 1503.06 1640.25 1812.11 1989.70 2158.29EBIT (Operating Income) 169.00 -331.00 -469.00 40.69 418.32 891.24 1,279.40 1,611.09Nonoperating Income - Net -18.00 -23.00 232.00 310.98 378.52 453.03 519.05 575.54Interest Expense 177.00 160.00 156.00 134.90 112.64 102.55 94.21 88.61Unusual Expense - Net 372.00 132.00 55.00 0 0 0 0 0Pretax Income -398.00 -646.00 -448.00 216.76 684.20 1,241.72 1,704.25 2,098.03Income Taxes 5.00 14.00 39.00 28.18 102.63 211.09 306.77 419.61Equity in Earnings of Affiliates 0.00 0.00 -10.00 0.00 0.00 0.00 0.00 0.00Consolidated Net Income -403.00 -660.00 -497.00 188.58 581.57 1,030.63 1,397.49 1,678.42Discontinued Operations 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Net Income available to Common -403.00 -660.00 -497.00 188.58 581.57 1,030.63 1,397.49 1,678.42

Per ShareEPS -0.52 -0.83 -0.53 0.20 0.62 1.09 1.48 1.78EPS Growth 78% 38% -57% 138% 207% 77% 36% 20%Total Shares Outstanding 776.00 792.00 935.00 939.66 944.32 944.43 944.43 944.43

AMD Inc.Balance Sheet

Fiscal Years Ending Dec 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021EAssets

Cash & Short-Term Investments 1,040.00 785.00 1,266.00 1426.42 1776.75 2604.58 3815.76 5322.23Short-Term Receivables 818.00 533.00 311.00 570.13 693.95 830.55 951.60 1055.17Inventories 685.00 678.00 751.00 673.79 820.13 996.66 1150.57 1275.79Other Current Assets 193.00 324.00 202.00 259.15 315.43 377.52 432.54 479.62Total Current Assets 2,736.00 2,320.00 2,530.00 2,929.48 3,606.26 4,809.31 6,350.46 8,132.80

Net Property, Plant & Equipment 302.00 188.00 164.00 168.45 182.95 211.41 233.57 259.00Total Investments and Advances 10.00 1.00 59.00 63.02 69.82 82.37 105.30 134.69Net Goodwill 320.00 278.00 289.00 289.00 289.00 289.00 289.00 289.00Net Other Intangibles 284.00 189.00 232.00 185.60 139.20 92.80 46.40 0.00Deferred Tax Assets 33.00 48.00 11.00 0 0 0 0 0Other Assets 82.00 85.00 36.00 43.68 53.16 63.63 72.90 80.83Total Assets 3,767.00 3,109.00 3,321.00 3,679.23 4,340.40 5,548.52 7,097.63 8,896.33

Liabilities & Shareholders' Equity

ST Debt & Curr. Portion LT Debt 177.00 230.00 0.00 0 0 0 0 0Accounts Payable 633.00 524.00 695.00 777.45 883.21 1019.31 1124.61 1247.01Income Tax Payable 16.00 46.00 0.00 0 0 0 0 0Other Current Liabilities 614.00 603.00 651.00 777.45 921.07 1026.86 1124.61 1151.09Total Current Liabilities 1,440.00 1,403.00 1,346.00 1,554.89 1,804.28 2,046.17 2,249.23 2,398.10

Long-Term Debt 2,035.00 2,032.00 1,435.00 1349.04 1126.40 1025.46 942.06 886.11Provision for Risks & Charges 8.00 8.00 6.00 7.28 8.86 10.60 12.15 13.47Deferred Tax Liabilities 0.00 0.00 11.00 13.48 16.40 19.63 22.49 24.94Other Liabilities 97.00 78.00 107.00 129.82 158.01 189.11 216.68 240.26Total Liabilities 3,580.00 3,521.00 2,905.00 3,054.50 3,113.96 3,290.98 3,442.61 3,562.88

Common Equity 187.00 -412.00 416.00 416.00 416.00 416.00 416.00 416.00Additional Paid-In Capital/Capital Surplus 6,949.00 7,017.00 8,334.00 8,354.14 8,374.28 8,374.75 8,374.75 8,374.75Retained Earnings -6,646.00 -7,306.00 -7,803.00 -7,614.42 -7,032.84 -6,002.21 -4,604.73 -2,926.30Unrealized Gain/Loss Marketable Securities 1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00Other Appropriated Reserves -6.00 -7.00 -4.00 -4.00 -4.00 -4.00 -4.00 -4.00Treasury Stock -119.00 -123.00 -119.00 -119.00 -119.00 -119.00 -119.00 -119.00Total Shareholders' Equity 187.00 -412.00 416.00 624.72 1,226.44 2,257.54 3,655.02 5,333.45

Total Liabilities & Shareholders' Equity 3,767.00 3,109.00 3,321.00 3,679.23 4,340.40 5,548.52 7,097.63 8,896.33

AMD Inc.Cash Flow Statement

Fiscal Years Ending Dec 31 2012 2013 2014 2015 2016Operating Activities

Net Income / Starting Line -1,183.00 -83.00 -403.00 -660.00 -497.00

Depreciation, Depletion & Amortization 260.00 236.00 203.00 167.00 133.00

Deferred Taxes & Investment Tax Credit -40.00 1.00 0.00 0.00 11.00

Other Funds 405.00 146.00 393.00 154.00 263.00

Funds from Operations -558.00 300.00 193.00 -339.00 -90.00

Changes in Working Capital 220.00 -448.00 -291.00 113.00 180.00

Receivables 290.00 -200.00 7.00 280.00 222.00

Inventories -83.00 -322.00 199.00 -11.00 -73.00

Accounts Payable -232.00 266.00 - -129.00 10.00

Other Assets/Liabilities 245.00 -192.00 -497.00 -27.00 21.00

Net Operating Cash Flow -338.00 -148.00 -98.00 -226.00 90.00

Investing Activities

Capital Expenditures -133.00 -84.00 -95.00 -96.00 -77.00

Net Assets from Acquisitions -281.00 0.00 0.00 0.00 0.00

Sale of Fixed Assets & Businesses 0.00 238.00 0.00 8.00 0.00

Purchase/Sale of Investments 404.00 301.00 83.00 235.00 342.00

Purchase of Investments 944.00 1,043.00 790.00 227.00 0.00

Sale/Maturity of Investments 1,348.00 1,344.00 873.00 462.00 342.00

Other Funds -9.00 0.00 0.00 0.00 2.00

Other Uses -9.00 0.00 0.00 0.00 0.00

Other Sources 0.00 0.00 0.00 0.00 2.00

Net Investing Cash Flow -19.00 455.00 -12.00 147.00 267.00

Financing Activities

Change in Capital Stock 14.00 3.00 4.00 5.00 687.00

Sale of Common & Preferred Stock 14.00 3.00 4.00 5.00 667.00

Proceeds from Sale of Stock 14.00 3.00 4.00 5.00 667.00

Proceeds from Stock Options 0.00 0.00 0.00 0.00 20.00

Issuance/Reduction of Debt, Net 2.00 0.00 40.00 56.00 -561.00

Change in Long-Term Debt 2.00 0.00 40.00 56.00 -561.00

Issuance of Long-Term Debt 491.00 55.00 1,155.00 100.00 782.00

Reduction in Long-Term Debt -489.00 -55.00 -1,115.00 -44.00 -1,343.00

Other Funds 21.00 10.00 2.00 -2.00 -4.00

Other Uses -2.00 -1.00 -6.00 -2.00 -4.00

Other Sources 23 11.00 8.00 - -

Net Financing Cash Flow 37.00 13.00 46.00 59.00 122.00

Net Change in Cash -320.00 320.00 -64.00 -20.00 479.00

Free Cash Flow -471.00 -232.00 -193.00 -322.00 13.00

Free Cash Flow per Share -0.60 -0.30 -0.30 -0.40 0.00

Free Cash Flow Yield (%) -27.88 -8.14 -9.48 -14.08 0.14

Fiscal Years Ending Dec 31 2017E 2018E 2019E 2020E 2021E

Net Income 188.58 581.57 1030.63 1397.49 1678.42Depreciation 114.80 117.91 128.07 147.99 163.50Amortization 0.00 0.00 0.00 0.00 0.00OperationsShort-Term Receivables -259.13 -123.83 -136.60 -121.05 -103.57Inventories 77.21 -146.34 -176.53 -153.91 -125.22Other Current Assets -57.15 -56.28 -62.09 -55.02 -47.08Other Assets -7.68 -9.49 -10.46 -9.27 -7.93Accounts Payable 83.72 107.35 137.84 106.85 123.72Income Tax Payable 0 0 0 0 0Other Current Liabilities 126.45 143.62 105.79 97.75 26.48Unrecognized Tax Benefits 0 0 0 0 0Deferred Tax Liabilities 2.475722 2.92681766 3.228614579 2.861107 2.448004Other Liabilities 22.82 28.20 31.10 27.56 23.58Cash from Operation 292.11 645.64 1050.98 1441.25 1734.35

Investing Intangibles 46.40 46.40 46.40 46.40 46.40Gross PPE -108.25 -132.42 -156.53 -170.15 -188.92Total Investments and Advances -4.02 -6.80 -12.55 -22.93 -29.40Cash from Investing -65.87 -92.82 -122.67 -146.68 -171.92

Financing ST Debt & Curr. Portion LT Debt 0 0 0 0 0Long-Term Debt -85.96 -222.64 -100.94 -83.40 -55.95Additional Paid-In Capital/Capital Surplus 20.14 20.14 0.47 0.00 0.00Unrealized Gain/Loss Marketable Securities 0 0 0 0 0Other Appropriated Reserves 0 0 0 0 0Treasury Stock 0 0 0 0 0Dividends 0.00 0.00 0.00 0.00 0.00Cash from Financing -65.82 -202.50 -100.47 -83.40 -55.95

Net Cash Change 160.42 350.33 827.84 1211.17 1506.47

Cash at the Beginning 1266 1426.419307 1776.745891 2604.581 3815.756Cash at the end 160.42 350.33 827.84 1211.17 1506.47

Cash at the B/S 1426.42 1776.75 2604.58 3815.76 5322.23

AMD Inc.Common Size Income Statement

Fiscal Years Ending Dec 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021ESales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

COGS excluding D&A 63.17% 68.73% 73.53% 68.00% 65.50% 62.50% 60.50% 59.00%Depreciation 3.43% 4.11% 3.11% 2.21% 1.87% 1.70% 1.71% 1.70%Amortization of Intangibles 0.25% 0.08% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Gross Income 33.15% 27.09% 23.36% 29.79% 32.63% 35.80% 37.79% 39.30%SG&A Expense 30.08% 35.38% 34.34% 29.00% 26.00% 24.00% 23.00% 22.50%EBIT (Operating Income) 3.07% -8.29% -10.98% 0.79% 6.63% 11.80% 14.79% 16.80%Nonoperating Income - Net -0.33% -0.58% 5.43% 6.00% 6.00% 6.00% 6.00% 6.00%Interest Expense 3.21% 4.01% 3.65% 2.60% 1.79% 1.36% 1.09% 0.92%Unusual Expense - Net 6.76% 3.31% 1.29% 0.00% 0.00% 0.00% 0.00% 0.00%Pretax Income -7.23% -16.19% -10.49% 4.18% 10.85% 16.45% 19.70% 21.87%Income Taxes 0.09% 0.35% 0.91% 0.54% 1.63% 2.80% 3.55% 4.37%Consolidated Net Income -7.32% -16.54% -11.63% 3.64% 9.22% 13.65% 16.15% 17.50%Minority Interest 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Net Income 4.49% 18.37% 34.18% 0.00% 0.00% 0.00% 0.00% 0.00%Preferred Dividends 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Net Income available to Common -7.32% -16.54% -11.63% 3.64% 9.22% 13.65% 16.15% 17.50%

AMD Inc.Common Size Balance Sheet

Fiscal Years Ending Dec 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021EAssets

Cash & Short-Term Investments 18.89% 19.67% 29.63% 27.52% 28.16% 34.50% 44.11% 55.48%Short-Term Receivables 14.86% 13.36% 7.28% 11.00% 11.00% 11.00% 11.00% 11.00%Inventories 12.44% 16.99% 17.58% 13.00% 13.00% 13.20% 13.30% 13.30%Other Current Assets 3.51% 8.12% 4.73% 5.00% 5.00% 5.00% 5.00% 5.00%Total Current Assets 49.69% 58.13% 59.22% 56.52% 57.16% 63.70% 73.41% 84.78%

Net Property, Plant & Equipment 5.48% 4.71% 3.84% 3.25% 2.90% 2.80% 2.70% 2.70%Total Investments and Advances 0.18% 0.03% 1.38% 1.22% 1.11% 1.09% 1.22% 1.40%Long-Term Note Receivable 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Net Goodwill 5.81% 6.97% 6.76% 5.58% 4.58% 3.83% 3.34% 3.01%Net Other Intangibles 5.16% 4.74% 5.43% 3.58% 2.21% 1.23% 0.54% 0.00%Deferred Tax Assets 0.60% 1.20% 0.26% 0.00% 0.00% 0.00% 0.00% 0.00%Other Assets 1.49% 2.13% 0.84% 0.84% 0.84% 0.84% 0.84% 0.84%Total Assets 68.42% 77.90% 77.74% 70.99% 68.80% 73.49% 82.05% 92.74%

Liabilities & Shareholders' Equity

ST Debt & Curr. Portion LT Debt 3.21% 5.76% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Accounts Payable 11.50% 13.13% 16.27% 15.00% 14.00% 13.50% 13.00% 13.00%Income Tax Payable 0.29% 1.15% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Other Current Liabilities 11.15% 15.11% 15.24% 15.00% 14.60% 13.60% 13.00% 12.00%Total Current Liabilities 26.15% 35.15% 31.51% 30.00% 28.60% 27.10% 26.00% 25.00%

Long-Term Debt 36.96% 50.91% 33.59% 26.03% 17.85% 13.58% 10.89% 9.24%Unrecognized Tax Benefits 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Provision for Risks & Charges 0.15% 0.20% 0.14% 0.14% 0.14% 0.14% 0.14% 0.14%Deferred Tax Liabilities 0.00% 0.00% 0.26% 0.26% 0.26% 0.26% 0.26% 0.26%Other Liabilities 1.76% 1.95% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50%Total Liabilities 65.02% 88.22% 68.00% 58.93% 49.36% 43.59% 39.79% 37.14%

Common Equity 3.40% -10.32% 9.74% 8.03% 6.59% 5.51% 4.81% 4.34%

Additional Paid-In Capital/Capital Surplus 126.21% 175.82% 195.08% 161.18% 132.74% 110.92% 96.81% 87.31%

Retained Earnings -120.70% -183.06% -182.65% -146.91% -111.48% -79.49% -53.23% -30.51%

Unrealized Gain/Loss Marketable Securities 0.02% -0.03% -0.02% -0.02% -0.02% -0.01% -0.01% -0.01%

Other Appropriated Reserves -0.11% -0.18% -0.09% -0.08% -0.06% -0.05% -0.05% -0.04%

Treasury Stock -2.16% -3.08% -2.79% -2.30% -1.89% -1.58% -1.38% -1.24%

Total Shareholders' Equity 3.40% -10.32% 9.74% 12.05% 19.44% 29.90% 42.25% 55.60%

Minority Interest 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Total Equity 3.40% -10.32% 9.74% 12.05% 19.44% 29.90% 42.25% 55.60%

Total Liabilities & Shareholders' Equity 68.42% 77.90% 77.74% 70.99% 68.80% 73.49% 82.05% 92.74%

AMD Inc.Key Management Ratios

Fiscal Years Ending Dec 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021E

Liquidity RatiosCurrent Ratio (Current Assets/ Current Liabilities) 1.90 1.65 1.88 1.88 2.00 2.35 2.82 3.39Quick Ratio (Cash + Other Liquid Assets) / current liabilities 1.29 0.94 1.17 1.28 1.37 1.68 2.12 2.66Operating Cash Flow Ratio = Cash Flow From Operations/Current Liabilities -0.07 -0.16 0.07 0.19 0.36 0.51 0.64 0.72

Activity or Asset-Management RatiosAsset Turnover Ratio (Sales/Total Assets) 146.16% 128.37% 128.64% 140.87% 145.35% 136.08% 121.88% 107.82%Total Assets Turnover ex Cash 201.91% 171.73% 207.88% 230.07% 246.08% 256.47% 263.60% 268.39%

Financial Leverage RatiosDebt Ratio = Total Liab/Total Assets 95.04% 113.25% 87.47% 83.02% 71.74% 59.31% 48.50% 40.05%Equity Ratio (Total Equity/ Total Assets) 4.96% -13.25% 12.53% 16.98% 28.26% 40.69% 51.50% 59.95%

Profitability RatiosGross Margin Ratio= (Sales-COGS-SG&A)/Sales 6.76% -4.11% -7.87% 3.00% 8.50% 13.50% 16.50% 18.50%Profit Margin Ratio = Net Income/Sales -7.32% -16.54% -11.63% 3.64% 9.22% 13.65% 16.15% 17.50%ROA = Net Income/Avg Total Assets -9.95% -19.20% -15.46% 5.39% 14.50% 20.84% 22.10% 20.99%ROE= Net Income/Shareholder Equity -215.51% 160.19% -119.47% 30.19% 47.42% 45.65% 38.23% 31.47%

AMD Inc.Value Driver Estimation

Fiscal Years Ending Dec 31 2014 2015 2016 2017E 2018E 2019E 2020E 2021ENOPLAT Calculation

Sales 5,506.00 3,991.00 4,272.00 5,182.97 6,308.67 7,550.44 8,650.87 9,592.41

-COGS excluding D&A 3,478.00 2,743.00 3,141.00 3,524.42 4,132.18 4,719.03 5,233.78 5,659.52

-Depreciation 189.00 164.00 133.00 114.80 117.91 128.07 147.99 163.50

-Amortization of Intangibles 14.00 3.00 0.00 0.00 0.00 0.00 0.00 0.00

-SG&A 1,656.00 1,412.00 1,467.00 1,503.06 1,640.25 1,812.11 1,989.70 2,158.29

+PV of Interest on Operating Leases 15.57 13.59 12.48 15.81 17.78 21.64 25.90 29.67EBITA 184.57 -317.41 -456.52 56.50 436.10 912.88 1,305.30 1,640.77

Pre Tax Income -398.00 -646.00 -448.00 216.76 684.20 1,241.72 1,704.25 2,098.03Total Income Tax Provision (inc. tax) 5.00 14.00 39.00 28.18 102.63 211.09 306.77 419.61

Tax Rate = Total Inc. Provision/Pre Tax -0.01 -0.02 -0.09 0.13 0.15 0.17 0.18 0.20Plus Tax Shield on Interest Expense -2.22 -3.47 -13.58 17.54 16.90 17.43 16.96 17.72Plus Tax on Lease Interest -0.20 -0.29 -1.09 2.06 2.67 3.68 4.66 5.93Plus Tax Shield on Unusual Expenses -4.67 -2.86 -4.79 0.00 0.00 0.00 0.00 0.00Minus Tax on Non-Operating Income (Plus in this formula) (Nonop Int. Income+Other Inc) 0.23 0.50 -20.20 40.43 56.78 77.01 93.43 115.11Less Adjusted Taxes 2.35 9.74 44.53 7.35 65.42 155.19 234.95 328.15Plus Change in Deferred Taxes 0.00 0.00 11.00 13.48 2.93 3.23 2.86 2.45Equals NOPLAT 182.22 -327.15 -490.04 62.63 373.61 760.92 1,073.21 1,315.06NOPLAT Growth % 54% -280% 50% 113% 497% 104% 41% 23%Normal Cash % of Sales 2% 2% 2% 2% 2% 2% 2% 2%

Normal Cash (2% * Sales) 110.12 79.82 85.44 103.66 126.17 151.01 173.02 191.85Short-Term Receivables 818.00 533.00 311.00 570.13 693.95 830.55 951.60 1,055.17Inventory 685.00 678.00 751.00 673.79 820.13 996.66 1,150.57 1,275.79Other Current Assets 193.00 324.00 202.00 259.15 315.43 377.52 432.54 479.62Operating Current Assets 1,806.12 1,614.82 1,349.44 1,606.72 1,955.69 2,355.74 2,707.72 3,002.42Accounts Payable 633.00 524.00 695.00 777.45 883.21 1,019.31 1,124.61 1,247.01Income Tax Payable 16.00 46.00 0.00 0.00 0.00 0.00 0.00 0.00Non Interest-Bearing Current Liabilities(Accounts Payable + Income Tax Payable + Deferred Tax Liablities) 649.00 570.00 706.00 790.92 899.62 1,038.94 1,147.11 1,271.95Net Operating Working Capital 1,157.12 1,044.82 643.44 815.80 1,056.07 1,316.80 1,560.62 1,730.47Plus Net PPE 302.00 188.00 164.00 168.45 182.95 211.41 233.57 259.00PV of Operating Leases 271.76 249.70 316.27 355.55 432.77 517.96 593.45 658.04Net Other Intangibles 284.00 189.00 232.00 185.60 139.20 92.80 46.40 0.00Other Assets 82.00 85.00 36.00 43.68 53.16 63.63 72.90 80.83Plus Net Other Operating Assets 637.76 523.70 584.27 584.83 625.14 674.39 712.75 738.87Less other Liab. (BS line items) 711.00 681.00 758.00 907.26 1,079.08 1,215.97 1,341.29 1,391.35

Invested Capital 1,385.88 1,075.52 633.71 661.81 785.08 986.62 1,165.65 1,336.99

WACC 9.00% 9.00% 9.00% 9.00% 9.00% 9.00% 9.00% 9.00%

NOPLAT 182.22 -327.15 -490.04 62.63 373.61 760.92 1,073.21 1,315.06Beg Invested Capital 1,931.40 1,385.88 1,075.52 633.71 661.81 785.08 986.62 1,165.65Change in IC -545.51 -310.37 -441.81 28.11 123.27 201.54 179.03 171.34End Invested Capital 1,385.88 1,075.52 633.71 661.81 785.08 986.62 1,165.65 1,336.99ROIC (NOPLAT/Beg IC) 9.43% -23.61% -45.56% 9.88% 56.45% 96.92% 108.78% 112.82%FCF (NOPLAT - Change in IC) 727.73 -16.78 -48.24 34.53 250.34 559.38 894.18 1,143.72EP (Beg IC * (ROIC-WACC)) 8.33 -451.93 -586.88 5.58 314.03 690.24 984.38 1,210.12

Marginal Tax Rate CalculationPre Tax Income -398.00 -646.00 -448.00Tax at Statutory rate of 35% -139.30 -226.10 -156.80State Taxes 1.00 1.00 1.00Foreign Rate Differentials 1.00 9.00 -1.00

AMD Inc.Weighted Average Cost of Capital (WACC) Estimation

Marginal Tax Rate 35%Cost of equity CalculationRisk Free Rate 2.30%+Beta 1.6Market Risk Premium 4.80%= Cost of Equity 9.98%

WACC CalculationShares outstanding 935.00MV of share $11.07=Total MV of Equity [E] $10,350.45

MV of debt [D] 1757Cost of Debt 5.00%

MV of equity $10,350.45+MV of debt 1757= MV of the firm [V] $12,107.72

Cost of Equity * 9.98%(E/V) 0.855+Cost of Debt * 5.00%(1-Marginal tax Rate) 65%(D/V) 0.145= WACC 9.00%

AMD Inc.Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth 1.80% CV ROIC 112.82% WACC 9.00% Cost of Equity 9.98%

Fiscal Years Ending Dec 31 2017E 2018E 2019E 2020E 2021E

DCF ModelDiscount period 1 2 3 4 5NOPLAT 62.63 373.61 760.92 1073.21 1315.06Continuing Value 17965Free Cash Flow 35 250 559 894 1144Net FCF 35 250 559 18859PV of free cash flows 32 211 432 13359Value of Operations 14033

Non Operating AssetsExcess Cash 1181ST Instruments 311LT Instruments 59Value of Non Operating Assets 1551

Non Operating LiabilitiesPV of Operating Leases 316Total Debt 1435PV of employee stock options 0Value of Non Operating Liabilities 1751

Equity Value 13832Shares outstanding 935Intrinsic Share Price $14.79Current Share Price 11.07Upside Potential 34%

EP ModelPeriods to discount 1 2 3 4 5Economic Profit 6 314 690 984 1210Continuing Value 16800Net EP 6 314 690 17784PV of Economic Profit 5 264 533 12597Initial Invested Capital 634Value of Operations 14033

Non Operating AssetsExcess Cash 1181ST Instruments 311LT Instruments 59Value of Non Operating Assets 1551

Non Operating LiabilitiesPV of Operating Leases 316Total Debt 1435PV of employee stock options 0Value of Non Operating Liabilities 1751

Equity Value 13832Shares outstanding 935Intrinsic Share Price $14.79Current Share Price 11.07Upside Potential 34%

Today 11/16/2017Next FYE 12/31/2017Last FYE 12/31/2016Days in FY 365 Days to FYE 320 Elapsed Fraction 0.877Intrinsic Value Today $15.96Current Share Price 11.07Upside Potential 44.13%

AMD Inc.Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending Dec 31 2017E 2018E 2019E 2020E 2021E

1 2 3 4 5EPS 0.20$ 0.62$ 1.09$ 1.48$ 1.78$

Key Assumptions CV growth 1.80% CV ROE 31.47% Cost of Equity 9.98%

Future Cash Flows P/E Multiple (CV Year) 11.53 EPS (CV Year) 1.78$ Future Stock Price 20.48$ Dividends Per Share 0.00 0.00 0.00 0.00 0.00 Future Cash Flows 0.00 0.00 0.00 0.00 20.48$

Discounted Cash Flows 0.00 0.00 0.00 0.00 12.73

Intrinsic Value $12.73Current Share Price 11.07

Today 11/16/2017Next FYE 9/26/2017Last FYE 9/26/2016Days in FY 365Days to FYE 416Elapsed Fraction 1.14Intrinsic Value Today $14.04Upside Potential 26.87%

AMD Inc.Relative Valuation Models

EPS EPSTicker Company Price 2017E 2018E P/E 17 P/E 18INTC Intel Corp $45.46 $3.01 $3.10 15.1 14.7 NVDA Nvidia $209.98 $3.61 $3.97 58.2 52.9 AVGO Broadcom $265.60 $15.90 $17.57 16.7 15.1 QCOM Qualcomm $65.61 $4.17 $3.60 15.7 18.2 ADI Analog Devices $89.16 $1.36 $1.30 65.6 68.6

Average 34.3 33.9

AMD AMD Inc $11.07 $0.20 $0.62 55.2 18.0

Implied Value: Relative P/E (EPS17) $ 6.87 Relative P/E (EPS18) 20.88$

Present Value of Operating Lease Obligations (2016) Present Value of Operating Lease Obligations (2015) Present Value of Operating Lease Obligations (2014) Present Value of Operating Lease Obligations (2013) Present Value of Operating Lease Obligations (2012)

Operating Operating Operating Operating OperatingFiscal Years Ending Dec31 Leases Fiscal Years Ending Dec31 Leases Fiscal Years Ending Dec31 Leases Fiscal Years Ending Dec31 Leases Fiscal Years Ending Dec31 Leases2017 49 2016 51 2015 50 2014 59 2013 372018 51 2017 50 2016 46 2015 51 2014 342019 46 2018 45 2017 43 2016 43 2015 282020 43 2019 28 2018 41 2017 40 2016 212021 64 2020 26 2019 27 2018 39 2017 18Thereafter 135 Thereafter 106 Thereafter 133 Thereafter 156 Thereafter 22Total Minimum Payments 388 Total Minimum Payments 306 Total Minimum Payments 340 Total Minimum Payments 388 Total Minimum Payments 160Less: Interest 72 Less: Interest 56 Less: Interest 68 Less: Interest 77 Less: Interest 22PV of Minimum Payments 316 PV of Minimum Payments 249.70 PV of Minimum Payments 271.76 PV of Minimum Payments 311.42 PV of Minimum Payments 138

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre-Tax Cost of Debt 5.00% Pre-Tax Cost of Debt 5.00% Pre-Tax Cost of Debt 5.00% Pre-Tax Cost of Debt 5.00% Pre-Tax Cost of Debt 5.00%Number Years Implied by Year 6 Payment 2.1 Number Years Implied by Year 6 Payment 4.1 Number Years Implied by Year 6 Payment 4.9 Number Years Implied by Year 6 Payment 4.0 Number Years Implied by Year 6 Payment 1.2

Lease PV Lease Lease PV Lease Lease PV Lease Lease PV Lease Lease PV LeaseYear Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment1 49 46.7 1 51 48.6 1 50 47.6 1 59 56.2 1 37 35.22 51 46.3 2 50 45.4 2 46 41.7 2 51 46.3 2 34 30.83 46 39.7 3 45 38.9 3 43 37.1 3 43 37.1 3 28 24.24 43 35.4 4 28 23.0 4 41 33.7 4 40 32.9 4 21 17.35 64 50.1 5 26 20.4 5 27 21.2 5 39 30.6 5 18 14.16 & beyond 64 98.1 6 & beyond 26 73.5 6 & beyond 27 90.4 6 & beyond 39 108.4 6 & beyond 18 16.3PV of Minimum Payments 316.3 PV of Minimum Payments 249.7 PV of Minimum Payments 271.8 PV of Minimum Payments 311.4 PV of Minimum Payments 138.0

Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 20.00Average Time to Maturity (years): 4.29Expected Annual Number of Options Exercised: 4.66

Current Average Strike Price: 4.32$ Cost of Equity: 9.98%Current Stock Price: $11.07

2017E 2018E 2019E 2020E 2021E

Increase in Shares Outstanding: 4.66 4.66 0.11 0.00 0.00Average Strike Price: 4.32$ 4.32$ 4.32$ 4.32$ 4.32$ Increase in Common Stock Account: 20 20 0 - -

Change in Treasury Stock 0.00 0.00 0.00 0.00 0.00Expected Price of Repurchased Shares: 11.07$ 12.17$ 13.39$ 14.73$ 16.20$ Number of Shares Repurchased: - - - - -

Shares Outstanding (beginning of the year) 935.00 939.66 944.32 944.43 944.43Plus: Shares Issued Through ESOP 5 5 0 0 0Less: Shares Repurchased in Treasury - - - - - Shares Outstanding (end of the year) 939.662 944.324 944.433 944.433 944.433

VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol AMDCurrent Stock Price $11.07Risk Free Rate 2.30%Current Dividend Yield 0.00%Annualized St. Dev. of Stock Returns 18.50%

Average Average B-S ValueRange of Number Exercise Remaining Option of OptionsOutstanding Options of Shares Price Life (yrs) Price GrantedRange 1 20.000 4.32 4.29 7.16$ 143.17$ Total 20.00 4.32 4.29 7.16 143.17