A Rocky Q3 Leads AMD to a Pair of Semi-Custom Design Wins

Mixed results with a sprinkling of technical details…

AMD Chips (1 of 1)

Yesterday AMD announced their Q3 2014 earnings report where the company missed revenue expectation slightly and turned a small profit. As usual AMD’s traditional PC business was weak and AMD’s enterprise, embedded, and semi-custom business showed modest growth. For the quarter AMD posted revenue of $1.43 billion, operating expenses of $428 million, a gross margin of 35 percent, and a small GAAP profit of $17 million. The company noted that its gross margin was boosted two percent by IP licensing revenue through the Synopsys agreement.

The all-important cash and cash equivalents number remained within AMD’s safety range of $600 million to $1 billion at $938 million. Total debt stands at a whopping $2.2 billion but largely AMD appears to be in a tenuous but financially stable position. AMD is guiding revenue down 10 to 16 percent for Q4 2014 which is concerning given that Intel’s guidance is flat and Q4 has traditionally been an okay quarter for AMD.

AMD Debt Q3 2014

Computing and graphics revenue was down by six percent from Q2 and sixteen percent from the year prior quarter. This is a decline of about $100 million dollars in revenue and is likely the effect of a number of different factors. According to AMD the decline this quarter is from weakness in the Chinese market resulting in lower than expected desktop and discrete graphics shipments. Additionally the year over year drop in AMD’s computing revenue could be attributable competitive pressure and AMD’s stated goal to ignore low volume design wins.

On a brighter note AMD has apparently doubled its design win count in the commercial client market which has resulted in a 50 percent uptick in APU shipments in this segment from Q2 to Q3. AMD also believes that it’s improving its product mix in the notebook space where they’ve seen another 50 percent uptick in high-end mobile APU sales. Mobile discrete GPU shipments are also supposed to be up this quarter thanks to new design wins. And AMD mentioned new deals with Dell and HP which should result in another wave of AMD laptops in Q1 2015.

This was a strong quarter for AMD’s enterprise, embedded, and semi-custom group which saw revenue increase by six percent from Q2 and 21 percent year over year. The company noted that Q3 will be the peak quarter for semi-custom shipments in 2014 as Microsoft and Sony complete their ramp up for the holiday season. And while the revenue increase in this business was mostly because of semi-custom sales, embedded revenue is said to have grown by a double-digit percentile from the prior quarter.

AMD scored two new semi-custom SoC design wins that will land in 2016 and provide about a billion dollars in revenue for the company over a life span of three years. AMD will not name the companies that these chips are being built for but it did emphasis the fact that these chips are aimed at non-gaming applications. Importantly one of these design wins uses a 64-bit ARM core as opposed to the x86 cores that have landed in AMD’s semi-custom chips up until now. In her commentary AMD’s CEO Lisa Su noted that the semi-custom pipeline remains strong and is very important to AMD’s future.

AMD Layoffs 2014

AMD is also laying off 7 percent of its workforce or about 700 of its 10,000 person staff. Although the company was very clear that it was not cancelling any existing product lines due to these reductions. AMD expects to save about $85 million dollars over the course of 2015 because of these staff reductions. When pressed on the nature of the layoffs AMD’s CEO added that unlike the prior two rounds which were across the board cuts the current round of layoffs is much more specific and will not affect AMD’s core competencies. Our heartfelt condolences go out to those affected by the layoffs.

At a strategic level AMD believes that they’ve entered the final, “Transform AMD to Win” period of the three stage turn around that Rory Read and his staff laid out for the company in 2012. The company also believes that it’s on track to see forty percent of its total revenue come from its Enterprise, Embedded, and Semi-Custom business for the whole of 2014. With product line refreshes expected in almost all of AMD’s core markets before the end of the first half of 2015 AMD’s ability to execute will be put to the test. It’s too early to say if those new products will be enough to return AMD to an era of profitable and sustainable growth, but for now at least it the company appears to be financially stable.S|A