Softness Evident in AMD’s First-Quarter Report Card

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Advanced Micro Devices reported first-quarter results that were affected by softness in the global PC market. For the quarter, revenue was $1.09 billion, down 6% sequentially, and a decline from sales of $1.59 billion a year ago. By segment, AMD’s main computer processor, or CPU, business saw revenue fall 9% sequentially, to $751 million. The weakness in global PC demand caused lower PC processor sales to computer manufacturers, though this was slightly offset by higher server processor revenue in the quarter.

Although PC chips account for a much bigger portion of AMD’s CPU segment than server chips, we expect the firm to see healthy growth from server chips over time, driven by build outs of the cloud infrastructure. In the graphics chip, or GPU, segment, revenue grew 3% sequentially, to $337 million. Although sales of GPUs used in PCs were soft, the unit benefited from higher game console royalties, as well as record sales from workstation graphics, which are used in applications such as computer aided design.

On the profit front, AMD posted an operating loss of $98 million in the first quarter. While the firm saw a $20 million boost from the sale of previously written down inventory, it had a restructuring charge of $47 million during the quarter. For the second quarter, management expects revenue to be in the range of up 5% to down 1% sequentially. It indicated that uncertainty in the PC market will likely continue next quarter.

Nonetheless, AMD is taking steps to diversify beyond its PC exposure by using its CPU and GPU expertise to enter into embedded and semi-custom processor applications, such as game consoles and industrial controls, which management continues to think will account for about 20% of total sales by the end of the year. The firm’s semicustom chips will be used in the Sony SNE Playstation 4 console, and there are rumors that Microsoft’s MSFT nextgeneration Xbox systems will also contain semi-custom processors from AMD. While computer processors will remain AMD’s core business for the foreseeable future, the firm could potentially see some significant growth opportunities emerge if it can successfully execute in its foray into the embedded and semi-custom processor space.

 

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