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AMD beats revenue expectations, still in red

by on18 April 2014

$20m loss on strong revenues

AMD has managed to beat revenue forecasts for the first quarter of the year, but it is still in the red. The company reported revenue of $1.4 billion, a solid 28 percent increase year-on-year, boosted by console sales. However, the chipmaker also reported a $20 million loss.

Still, this is a substantial improvement. In Q1 2013 the company reported a loss of $146 million on revenue of just $1.09 billion. The figures also included a $200 million payment to GlobalFoundries.

Overall the results are better than expected. Analysts expected the profit side to be flat, but few expected to see a substantial surge in revenue.

Figures don’t paint the full picture

AMD’s gross margin was flat sequentially, at 35 percent. Debt went up slightly, from $2.06 billion to $2.14 billion. Processor ASPs were flat sequentially and decreased slightly year-on-year.

The Graphics and Visual Solutions segment saw a 15 percent drop in revenue compared to Q4, but revenue increased 118 percent year-on-year, thanks to semi-custom SoCs. AMD’s GPU business is looking good, with strong demand for Radeon R7 and R9 products. Operating income was $91 million, down from $121 million in Q4. The decline was caused by decreased shipments of console SoCs.

A couple of things are worth pointing out. Sony has shipped 7 million PlayStation 4 consoles so far, Microsoft managed to ship 5 million Xbox One units. AMD had to ship enough parts for the launch ahead of time, so revenue was bound to drop off. Luckily demand for both consoles appears to be quite strong and this will be a stable revenue stream for AMD moving forward. On the discrete GPU side of things AMD saw additional demand from cryptocurrency miners. This was more or less a fluke and since GPUs are falling out of favour as Scrypt miners, the spike in demand is already over. In a gold rush you don't mine for gold, you sell shovels - that's exactly what AMD did.

However, there’s a much more positive long-term trend emerging for AMD’s GPU business. AMD FirePro cards made their way to the new Mac Pro and they could generate as much as $800 million in revenue for AMD over the course of two years. Mind you, it’s not just about the volume - margins in professional graphics are significantly higher than what AMD can expect to get from the rest of its GPU business.

Wall Street needs more convincing

In spite of AMD’s encouraging results many on Wall Street aren’t impressed. Most analysts are neutral or negative and the tech slump isn’t helping, either. However, hardware makers seem to be weathering the storm quite well, internet companies bore the brunt of the sell-off.

AMD went through a rough patch, so it is easy to see why analysts are cautious, but it’s hard to dispute that Rory Read, John Byrne and Raja Koduri have done an impressive job at turning things around. AMD has lessened its reliance on the PC market, it is diversifying and pursuing alternative sources of long-term revenue and the strategy appears to be working. What’s more, the PC market is bottoming out and AMD still a number of competitive x86 products, especially in the ‘good enough’ segment.

AMD is still facing numerous challenges and it’s hard to be bullish, but at least the doom and gloom of years gone by has been replaced by a healthy dose of optimism. 


Last modified on 18 April 2014
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