Advanced Micro Devices' (AMD) Deutsche Bank Technology Brokers Conference (Transcript) - Seeking Alpha

Advanced Micro Devices, Inc. (NASDAQ:AMD)

Deutsche Bank Technology Conference

September 12, 2017, 10:40 AM ET

Executives

Devinder Kumar - CFO

Ross Seymore - Deutsche Bank

Analysts

Ross Seymore - Deutsche Bank

Ross Seymore

Good morning everybody, and welcome to the 2017 Deutsche Bank Technology Conference. I'm Ross Seymore. I run the semiconductor research effort here in the U.S. So excited to kick it off today with Advanced Micro Devices. We have the CFO, Devinder Kumar up here.

The format for the day will be probably across all the meetings but at least in mind will be - we'll start doing Q&A up here. I’ll have a fireside chat with Devinder, and then we'll run into Q&A for all of you. Only thing we ask is that, there will be a mic running around. If you have a question just raise your hand, I'll see you but wait till the mic gets there so that - for those that are listening in the webcast they can hear you. So with that, I'll sit down here and we'll get started with Devinder.

So Devinder thank you very much for coming. Why don't we start off with a very general question? It's been exciting times over the last two years for AMD. I think you've had as high as - as low as a $2 stock and as high a $16 stock. So let's talk a lot more about the $16 end of things. Talk about some of the changes that have happened at the Company that have driven such a turnaround?

Devinder Kumar

I think the key is, you know, as we've laid out over the last few years, we've had a strategy in terms of products and the markets we want to address. We have invested over the last multiple number of years, and I think the other part of it is obviously the leadership team with Lisa at the CEO role and the rest of the team was intact over the last few years.

And then the last thing is focused execution. I think the last couple of years have really been good from my standpoint financially and otherwise, and at this point you know given the guidance we gave in particular for 2017, we are positioned to continue increasing revenue and improving the financial performance, and I think that's really led to the increase as you position from a market cap standpoint.

Ross Seymore

So why don't we talk about some of those products that have driven the turnaround that you just mentioned. Let's start in the PC side and just go chronologically through the one that you introduced. You had the Zen core and you launched the desktop version Ryzen earlier this year, talk a little bit about the penetration of the market and the customer acceptance of that product year-to-date?

Devinder Kumar

So you're referring to Ryzen. We launched that in March and actually Ryzen is doing very well. We had growing adoption. We talked to the channel space first. It ramped revenue as you saw year-over-year compare for the Computing and Graphics segment as we reported did well. We have profitability in the last quarter that we reported for the first time in multiple number of years, and we had growing adoption from the PC OEMs.

This quarter in particular we gave the guidance for the revenue as you heard and all major PC OEMs have announced premium Ryzen-based desktop products and the mobile is to come later on this year from a viewpoint of launch. So consumer announcements you've seen Acer, Dell, Asus, Lenovo, HP and on the commercial side HP, Dell and Lenovo which really bodes really well from a viewpoint of the product.

The other thing with Ryzen I would mention quickly is, it allows us to play from top to bottom. If you go back and look at the products we have introduced along Ryzen, Threadripper, Ryzen 7, 5 and 3 all of this allow us to play across the board and we are commanding prices today that in the historical portion of AMD's business in the PC space, we have not been able to command and those prices obviously play very well both from an ASP standpoint but also helping the margin which I'm sure we’re going to talk about for the company.

Our goal is compete on performance and today from my standpoint I feel the addressable market that we can have in the PC space has grown significantly larger and continues to grow as we continue to introduce products as we get to the tail end of 2017.

Ross Seymore

So if I look in the Computing and Graphics business is up 50%, 60% year-over-year depending upon which quarter I pick, but great growth and I know there's a graphic side of it. But if we stay in the computing side, roughly speaking talk about the magnitude of the ASP increases with as much detail as you're willing to give.

Devinder Kumar

So if you look at ASP's, I’ll give you one data point. You know we introduced a product called Threadripper. It's the highest of the high end and in that particular space, the pricing ranges from 5.49 to 9.99. And I will share with you that the best-selling part is at $999. So that from a viewpoint of the pricing being able to play at the highest end competing performance allows us to live not just to ASP's for that particular product but also the overall ASP in the compute space.

You talk about the revenue growth year-over-year. Obviously the units are important, they'll be one to recapture the market share but also the ASP's been higher than what they have been from a year ago allows the revenue dollars which is what you just referenced to go up on a year-over-year basis and I'm - from my standpoint - from a CFO standpoint very pleased with that because after a long time, we can come on better prices and therefore leading to the higher revenue that you just referenced on a year-over-year compare.

Ross Seymore

And the customer reaction getting them to actually put AMD into SKUs that not only are higher price for you of course but that means it's a higher-end box for them as well. Talk a little bit about what you had to do to convince the customers to put AMD into more of their premium boxes. Is it just performance? Is it marketing? Some of the different factors that have allowed you to…

Devinder Kumar

It starts with the products. The products performance is there, and so that already gets you a seat at the table and excitement from a customer standpoint and wanting to put products into their platforms. And then the second thing is obviously requires some amount of marketing, some amount of platform expenses and that's why we've seen some of the OpEx go up because we are launching into this products with our customers the excitement on the customers is very large.

Like I said earlier, we are playing from top to bottom and they're able to take our products that we've been working on with the Zen core base product and putting the platforms that we have not been able to address here to full.

Ross Seymore

This is the final question on pricing on the Ryzen side of things. Historically people have thought of AMD pricing half, maybe 25%, 30% less than Intel. Is that still the primary value that you're at least initially bringing or is it truly the performance guidance of the Delta versus Intel isn't really a driving factor any longer?

Devinder Kumar

I think historically we look at AMD products, no doubt we've been in the low end of the market but frankly we've been low end of the market because we did not have the product that could play in the high-end of the market.

Today we have products top to bottom and our whole strategy is to compete on performance and then the price takes care of itself in terms of where you go ahead and establish the pricing viewpoint.

I can safely say from my standpoint at every established price point, we can compete on performance and we've the products today to do it with more to come in the mobile space in particular the Ryzen product launching in the consumer space in the second half of 2017 and then getting to the commercial space in Q1 of 2018.

Ross Seymore

So if we think about your computing side of Computing and Graphics and its entirety, you had a great launch in the desktop side, started with the channels, went to OEM, you just talked about the notebook side coming later. When you think of a full suite of products, is it really going to be 2018 versus 2017 where investors should look forward to seeing AMD across the board?

Devinder Kumar

I think if you look at the launches, obviously we've had many, we started with Ryzen in March. We also launched our EPYC product in the datacenter space, we had the Vega product launch in Ryzen the different varieties 7, 5, 3 and then Threadripper, I think they had the whole goal from our standpoint is launch the products out there and start 2018 with a premium set of portfolio products that's going to help us not just build revenue but also help from a margin standpoint.

So 2018 is going to be the year where all the products that we are launching in 2017 with the excitement of that would have been launch and then we look at Q1 2018 to have a complete suite of premium products across our product portfolio in all of the business that we participate in.

Ross Seymore

So you mentioned Vega there, why don't we switch gears to the other half of your Computing and Graphics business and talk about the graphic side of things. Recently something that's a little less under your control but still a big driver investors are thinking about is the cryptocurrency benefit. Talk a little bit about your view of how AMD can play that market? Your view on the sustainability of that market? And just your overall view on cryptocurrency and the duration of that business?

Devinder Kumar

Sure, I can do that Ross. Cryptocurrency is an interesting area. The first thing to note is, there is a lot of comparisons happening between the cryptocurrency [disk] around and a couple of years ago.

I think the single biggest difference this time is, there is a lot of commercial minors out there that can move between the currencies that are out there as the prices fluctuate, as oppose to 2015 where it was waited more towards the consumer side of it and consumer side of it is more volatile which happened in 2015.

From our standpoint AMD's view is, we take advantage as the opportunity presented itself. In Q2 there was a little bit of an impact positively to the revenue and Q3 the impact is definitely larger. But our view is to be conservative in that space. Our core strategy is to focus on the gaming market at its core and that's where we prioritize the supply that we have.

There is no doubt right now supply is not enough to meet all the demand but from our standpoint we want to go ahead and prioritize the gaming market. It is not in our view you know at least from a conservative standpoint a large growth driver.

We will watch the development, we are selling the GPUs to our customers and people are buying it. It is hard to sometimes figure out exactly where the product is going but commercial mining if you were to put that segment in two parts, is our priority and that's where you have a less of a volatile impact as cryptocurrency evolves.

And we're also keeping an eye on the blockchain technology that a lot has been written about. And we will obviously position ourselves to take advantage of that but like I said core to our market, we want to be conservative in that area because it is an evolving area. Starting in May 2017 is where we kind of kicked in and we'll see what happens as we move forward over the next few quarters.

Ross Seymore

Last question on the crypto side. Do you have crypto specific SKUs of GPU so that you can somewhat track and you mentioned it's difficult to know exactly where they're going but I think investors fear little bit that you and your competition can't really tell where they're going and all of a sudden something happens to the price of Bitcoin or whatnot and the fungibility of those products means, there's a flood of GPUs in the market.

Devinder Kumar

So the GPUs we sell is generally for the gaming market, that's our priority but by having said that they are our products that we're selling with [feature sets] that are specific to the crypto side of it, and those products cannot be then reused for the gaming side of it because certain features are disabled and therefore they can't be used in what we consider the core area that we want to go attack.

Ross Seymore

So why don't we switch over to the more - well somewhat more traditional side of the GPUs. When you guys launched EPYC in June, I believe it was - you actually talk a lot more about its applications in the server market than you did in gaming. Soon thereafter you got into the gaming side. But talk a little bit about the aspirations that AMD has in bringing GPUs to the datacenter?

Devinder Kumar

The datacenter itself has evolved. On the EPYC side as you referenced it, that's the CPU part. It's a large market TAM. We have essentially zero market share today in that area. We did have success in that if you go back many years and with the EPYC product, there is a lot of excitement from a viewpoint of our customers but by the same token the datacenter market has changed and today GPU compute is also a very significant area of growth.

And with the GPU product that we launched and particular the Vega product, it allows us to play in that space and we think with the GPU and CPU combined is a pretty large market TAM that we can address and in particular this area is exciting because the margins in this area are significantly higher than the corporate average and that from my standpoint if I look at the products we have launched is probably the most exciting piece of it because a very large market TAM our share today is essentially zero, we can grow revenue there and grow revenue at significantly higher gross margin.

You have seen some of our customers announce support for the product in both the datacenter customers, as well as the traditional enterprise customers and there is more to come. EPYC is ramping. We shipped some in Q2. The ramp typically in server happens slower than it happens in the products like Ryzen and I think there's a lot more to come on the GPU side and the CPU side for the EPYC product and for the GPU products going into 2018 and beyond as we attack a space that we haven't really played in for the last several years.

Ross Seymore

So if we stick on the more pure gaming side of GPUs with Vega, how has been the initial response after launch in that market and talk about the similarities or differences in your strategy of bringing that to market versus what you've done with Ryzen that we talked about a little earlier.

Devinder Kumar

Strategy is different only because the market is different. You've seen recently, Baidu for example announced a collaboration with AMD on optimizing software to use the AMD Radeon Instinct GPUs in their datacenters and you've also seen other customers that have announced a similarly like Amazon and Google.

There's a lot of excitement from a viewpoint of the only other player that can provide GPU compute is AMD and we obviously have a lot of interest on the customers if for no other reason other than the fact that customers typically do one an alternate supplier in an area that is rapidly growing and projected to continue growing over the next many, many years.

Ross Seymore

So if we put it altogether in the Computing and Graphics business that you guys breakdown that's 50%, 60% of your company, if we're to look a couple of years forward how is the balance between the Computing and the Graphic side work out and in your mind which side is bigger, which side is more challenging to gain share if we are thinking a couple of years out?

Devinder Kumar

I think if you look at a couple of years on the server piece of it, I think 2018 I would categorize the year of EPYC, that's where the revenue will ramp in a significant manner. Hard to predict the exact numbers right now and how the split is because the GPU space itself is evolving in a significant manner, so it's really hard to give you specific and talk which part is going to Vega.

From my standpoint I hope all parts compared to where we are right now at Vega and the revenue continues to grow as we said in our Financial Analyst Day in May having provided the guidance for 2017 in terms of significant growth in revenue over last year and even the prior year, we want to continue growing revenue on a double-digit basis and with better margins than what we are having right now.

Ross Seymore

So if we switch over to the other side of your business EESC side where the server chips do sit. Let's talk a little bit about EPYC. Talk about your strategy to attack that market. Investors look back to roughly a decade ago with Opteron and get very excited about where your market share went at that point, talk about what your aspirations are in that market share wise, as well as what the strategy to gain those shares would be?

Devinder Kumar

So, if you go back and look at that particular area as you observe, we did have success with Opteron that kind of the market share has gone down significantly over the last few years. The first thing is to go ahead in a competitive product. The product is very competitive. It addresses a very large portion of the data center market. We have the cloud compute space so that's pretty exciting. It is based on the Zen core that we’ve been working on for multiple number of years.

The new EPYC product or process that we introduced more cost, more memory and more IO. And then from our standpoint given our history, we focus in the datacenter space on total cost of ownership. We want to provide lower total cost of ownership. When you look at it from a performance, flexibility, security and power standpoint and that is something we have with EPYC.

And then obviously growing the revenue share, lot of discussion about when do we get to significant share, I think the first trigger point or milestone that we should look at is over the next couple of years, multiple number of quarters to get to the double-digit share in the service space would be our goal because that's where you become significant from a viewpoint of being a viable play in the datacenter space.

As I said earlier, we have major OEMs, ODMs even the cloud compute folks working with us, to ramp in the service space is going to be slower than compared to the PC side of it. And we’ll see it what happens over the last couple of years as we continue to grow the ecosystem and sell the EPYC products to our key partners of which they’re many that have introduced or announced introduction of products as we get in the later part of 2017 and early 2018.

Ross Seymore

Given the time from launch of the product design wins to revenue ramp it’s just naturally long in servers or longer in servers, talk about few of the benchmarks that investors can follow to say that AMD is on the right path even before the revenues come through?

Devinder Kumar

I think the key is the customer announcement that you see the collaboration that is going on, the platforms that have been introduced. Q2 was the first quarter where we started shipping the product and as we get into Q3 and Q4, you should hear us talk more about platforms that been launched not just by the enterprise customers but also the cloud compute folks.

Ross Seymore

As you delineate between those two, is it fair to assume the cloud guys just because they seem to ramp faster would in fact be the first to ramp with EPYC?

Devinder Kumar

It’s interesting, I think the way we look at it is the cloud space or the hyperscale folks their revenue when they buy the product and convert datacenters is lumpier. So when you get - when you look at it from the current standpoint, I think it allocates the enterprise side of it will ramp first but then the cloud compute ones that area takes off with the hyperscale folks, their purchasing will be lumpier and therefore that would have an impact and at some point I think that's will be the larger portion from an overall standpoint given the performance of the product and where cloud compute folks want to use these products.

Ross Seymore

And then finally on the EPYC side of things, you talk about I believe a $16 billion TAM on that side and then when you talk about datacenters you saw another five for the GPU side. If we talk about the $16 billion TAM when you talk about getting a goal of 10%, is it of the $16 billion so it’s a revenue goal or is it a unit goal and is there a big difference between on that ASP side versus either AMD in the past or versus where your primary competitor is today?

Devinder Kumar

At the business unit level typically it’s hard to talk publicly or even from a reporting standpoint the share from a revenue dollar standpoint. When I talked about the 10% share it’s all in units that's you know what we report, that's where you can count from a unit standpoint because lot of things go into revenue.

So when I talk about the 10% milestone, it is talking about units but obviously from an overall standpoint given the fact that we have competitive product, we do want to capture a portion of the $16 billion TAM on the CPU side. And we combine the CPU and GPU in our case it’s about $21 billion TAM which is what we can address with the combined product that we have on the EPYC and the Radeon side.

Ross Seymore

Last question actually on the EPYC side, you talked earlier about on the desktop and in the notebook of having products across the entire stack. How do you view that in the server side? Are you more coming from the bottoms up the top down or just layering them in across so by the end of next year you will have again a good coverage across the entire stack?

Devinder Kumar

I think it’s customer dependent, I think it is the segment of the market, it’s customer dependent. Essentially we addressed with the one P2P solutions, 80% plus of the market and we can address that in a significant manner with the product that we have launched starting in June of this year.

Ross Seymore

So why don’t we wrap up on these revenue segments by just talking about the last remaining piece which is the semi-custom part of the business. A couple of years ago that ramped very strongly with the game console ramps and now it seems like it’s going to be a bit down this year through no fault of AMD, that's just a normal lifespan of these products. Talk about semi-custom first from the game counsel side of things, how you see that evolving going forward? And then in the past you’ve talked about new design wins in semi-custom and when they might ramp so any updates on that would be helpful as well?

Devinder Kumar

Sure our partners Sony and Microsoft and we have had great success with the system that we launched going back to the 2013 timeframe. You’re right given the fifth year in the semi-custom game console space. Now we believe revenue will be down slightly year-over-year, but then you have the Xbox One X that Microsoft has recently announced coming in November 2017 on shelves. And that should help the semi-custom space.

The design wins you talked about is coming in 2018. That is a non-game console product and that revenue should be happening in the 2018 timeframe to continue to help the revenue on the semi-custom which sits within the EESC segment.

Ross Seymore

In the margin side of that business I know it's a little bit different and when you get paid and how you get paid and is it gross margin or operating margin but just remind the audience how you monetize that EESC side especially the semi-custom side?

Devinder Kumar

Yes it's starts out on a semi-custom it takes a kind of a visionary customer that is going to have high volume product over several years but the work on the collaboration standpoint and customizing the product happens two, three years before that and the customer prefunds the engineering efforts that we put in. And by definition then having pre-funded the R&D the margins are lower.

I can share with you that as we have gotten familiar with running that business, the margin even in that business compared to four, five years ago are better and therefore it helps from a viewpoint of revenue. But also the margin is better than where we started in the 2013 timeframe.

Ross Seymore

On both the gross and operating or on one?

Devinder Kumar

On both yes.

Ross Seymore

And then maybe the final question that we talked…

Devinder Kumar

And just to clarify on the operating because when you have scale in that business and the revenue grows, the expense is on the OpEx side of it excluding the R&D are essentially fixed and therefore more of it falls at the operating margin line within the EESC segment.

Ross Seymore

So you know I’ll put up for questions from the audience, I'll look and see if you raise your hand and we’ll just get a mic over to you, while you're all thinking of your great questions, I’ll keep going a little bit on my side so just wave your hand if you do have one.

Devinder one final part about the different segments is people look at what the competitive response might be. There is a lot of good things happening on the ASP side that are driven by the performance that you’re bringing with your new products but people always worried about what your two large competitors might do in response. Have you seen that response and how does AMD strategically think about responding to that response?

Devinder Kumar

I think the key response we have seen in 2017 as the product has come to fruition is one on the competitors accelerating the launches and introduction of products essentially to react in a manner whereby okay AMD has a product out there, it’s for real it is competitive so what can we do to go ahead and accelerate the product roadmap which is natural.

From our standpoint like I said earlier we compete on the performance side of things and yes I haven't really seen too much of a price competition but it's really accelerating the product in terms of competitiveness to bring it forward so that there is competition, the performance level of the product that we have launched. And we have in the areas that we are attacking very low or no market share.

So it’s a lot easier when you're trying to go up from zero essentially zero upwards and anything that the competitor does, they have to also worry about the impact it will have on their revenue and their margin. And I'm coming from a 30% gross margin level and trying to go up to the stated goal that we have of greater than 36% in 2018, greater than 40% in 2020 and a long way to go to reach anywhere close to the competitors gross margin and therefore coming from a position of strength capturing market share with competitive products but also improving the gross margin in the company as we go forward.

Ross Seymore

And I think we have a question from the audience?

Question-and-Answer Session

Q - Unidentified Analyst

Couple you talk about your foundry strategy especially for the 7-nanometer at TSMC next year when you expect to start ramping and when you expect the revenues from those products?

Devinder Kumar

I won't say when we’re going to start ramping, but I'll tell you that the foundry in our case from the foundries we have good relationship with both foundries, GLOBALFOUNDRIES in particular with a 14 nanometer node has performed very well that has served as well.

With the WSA Amendment that we did last year, essentially it’s a five year amendment which allows us to have the flexibility to have access to leading-edge process technology including the 7.

So right now we are working with both foundries on seven and we will have products on that and the announcement will come later in terms of when we actually introduce products on 7 but it’s going pretty well from that standpoint.

Ross Seymore

One more question coming from the audience?

Unidentified Analyst

I just want to go back to the semi-custom. The new design win that you have next year along with the new Xbox launch, is there a possibility that we could see an inflection point in the revenue and see it either flat to up I’m not asking for exact guidance, but is that new design win big enough to offset kind of just the headwind from game consoles getting older?

Devinder Kumar

Hard to be that specific I’ll tell you that is incremental revenue. It is not the game console product ramping in the 2018 timeframe and really it depends upon what happens to the game console market. The game console is going to be essentially in sixth year after introduction and so it's hard to predict if you're asking from an AMD specific standpoint inflection point because that will be pre-fetching whatever customers on the game console business are going to do in the 2018 timeframe.

And there will be obviously a refresh cycle both the customers have already announced the Slim on the performance versions and we’ll see what happens in the game console space. But fair to say that we do have a design win that is not game console that should benefit the revenue starting in 2018 because that is different from the game console business which is essentially most to all of the semi-custom business today.

Ross Seymore

Given that the revenue mix with those two dynamics lot of new products in the C&G side, as well as servers and then some of the semi-custom side and consoles going down the mix should be very positive in your favor. Talk a little bit about getting the gross margins from where they are today to that 36 and then eventually 40, what are the biggest levers to move?

Devinder Kumar

I think the largest levers is what I referenced earlier, premium products that are competing at the higher end of the market they participate in. Commanding the prices that are significantly higher than what we have today and that has fall through from a margin standpoint.

If you go back and look at recent history in the 2015 timeframe, we had 28% gross margin in 2016, 31% this year, we have a target of 34% next year with the premium product portfolio that I talked about earlier and starting 2018, we believe it can be greater than 36%.

And then in the 2019/2020 timeframe breaking through the 40% barrier which would mean that just in the multiple number of years the margin of the gross margin the company at the corporate level has gone from below 30% to about 40% which is pretty significant from a viewpoint of contribution not just a profit but having the dollars to spend for increased investments that we're making in several areas that we want to target.

Ross Seymore

So why don’t we talk a little about the OpEx side. We talked a lot about of our gross margin there in the last couple quarters AMD has started to ramp up OpEx and its interesting just to listen to the various questions you get on your earnings call some people say that’s horrible because its eating in the profit some people say it's the exact right thing to do to keep the sustainability of this improved operation going. Talk a little bit about your strategy on OpEx and how investors should look at OpEx growing or not going forward?

Devinder Kumar

I've been in my role now, this is my sixth year in the role. Go back to 2012, we were spending almost $600 million in OpEx per quarter, $600 million and today despite the increased investment that you talked about, we are still at about the $400 million level. It's really AMD and in particular with Lisa in the CEO role with me in the CFO role and the rest of the management team, we have shown that we can be very disciplined when it comes to OpEx.

We can take it down you have heard me say many times in the past that we modulate that with revenue and margin and that's exactly what we're doing. Today we are in a position going back to what you just said Ross, I've been criticized or we have been criticized about not spending enough. And now that we are investing which is what people want to do in particular in the R&D space, they are at some saying well maybe they’re spending too much.

We really targeted in the investments and you go back and look at what we invested in the early part of 2016, we prioritize software, we prioritize divers, we prioritize the graphics space by creation of the Radeon Group that be created within the company and that has paid off pretty handsomely with market share gains and also competitive product.

We are very focused in the datacenter in the GPU compute space and there is money required to go ahead and spend money in customer support, in the server space with field application and engineering in the GPU space in particular software and that is something we are doing across the board.

The business enforces the flexibility to spend the money. We are very targeted in terms of where we’re going to spend the money. There are many areas that we are saying we will not spend money on that.

And the last thing I’ll say on the OpEx is, this year we are targeting to about 31% of expense of revenue and our long-term market model says 26% to 30%. And as we enter 2018 with the lift in revenue and the continued discipline in OpEx, we will get within that 26% to 30% range probably at the high-end in 2018 and then we’ll take it from there. We do want to spend the money because there's a lot of opportunity for us in terms of the investment we are making and revenue and margin dollars that we could attract by spending the money in those areas.

Ross Seymore

So last topic I want to address in the last two minutes that we have here is the cash side of things and then the balance sheet side. Talk a little bit about when you think the company can be free cash flow positive and what are your priorities for that cash and maybe folding in their finally about the logic behind the refinancing and the equity offering that you did somewhat recently?

Devinder Kumar

Yes, I think going back to the refinancing that was something that we did in 2016, capitalize the balance sheet a little bit with the shares that we sold, we did a convertible which was very attractive from an interest expense standpoint. And on top of that and as I've stated previously, the debt levels in the company I still feel are too high.

So any cash that we have beyond the optimal range that we have we prioritize towards bringing down the debt and you have seen us use the cash from the refi, you have seen us sell some treasury stock that we have. We have a revolving line of credit use those dollars because it’s cheaper money to buyback expensive debt.

And our cash target is to operate within $600 million and $1 billion and I think it's a good news problem we have right now. Ramping business they are working capital needs. You have to go spend the money to go ahead and by the wafers and that does put a little bit of pressure on cash. But I'm very comfortable with the cash levels that we have not just to operate the balance sheet from that standpoint, but also fund the business from an R&D standpoint but also fund the business from buying wafers that are required as we ramp the revenue in 2016 to 2017 and going into 2018.

Ross Seymore

And maybe in the last 50 seconds we have because of some of that refinancing you’ve had a share count that’s popped pretty significantly. I know there's some convert issues and warrants et cetera that come into the fully diluted share count when you turn to profitability. But if you think about going forward from here, are there any large levers remaining that will create a pop in the share count beyond just normal share price appreciation or just in general how should we think about the trajectory of share count going forward?

Devinder Kumar

Yes, I think the short answer is no. The convertible notes at some trigger point inflection point based on the accounting when it’s diluted is 101 million shares. The warrant is kept at 75 million and I think on a go forward standpoint you shouldn’t anticipate any substantial increase in the share count other than the equity awards that are given to employees which is you know call it about 2% dilution on a year-over-year basis.

But with those two within the equation which take the share count just over 1 billion shares, that's it from a viewpoint of having any substantial increase going forward.

Ross Seymore

Great well we are right on time. Devinder so thank you very much for your time and your participation.

Devinder Kumar

Thank you Ross, and thanks to all of you.

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