Q4-2012 In a Nutshell

AMD has announced “mostly positive” results for their latest quarter.

Tis the reporting season.  Yes, that time of year when some of the major players in the computing world get together and tell us all how well they did this past quarter.  Ok, so they do not necessarily get together to announce results, but they sure time them that way.  Today was AMD’s turn (and Apple’s), and the results were not nearly as positive as what Intel had to offer a few days ago.

Q4 2011 was flat in terms of revenue as compared to Q3.  The company had gross revenue of $1.69 billion and had a net income loss of $177 million.  That net income is not necessarily a bad result, but more on that later.  Margins rose to 46%, which is still a far cry from Intel’s 65% for the past quarter.  Gross revenue was up 2% from last year, which considering the marketplace and Intel’s dominance, is a solid win for AMD.

When we start talking about non-GAAP results, AMD had a net income of $138 million.  The difference between those two numbers (a loss vs. a nice profit) is that the loss came from one time writeoffs.  AMD has lowered its stake in GLOBALFOUNDRIES to 8.8%, and in so doing incurred a hefty charge.  This is not so much money lost as it is lost value in the company.

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For the year AMD posted gross revenues of $6.57 billion and a net income of $491 million.  For a company in its position, pulling any kind of profit is a big step in the right direction.  The only real issue that we are likely seeing is that AMD is probably passing its loss off to GLOBALFOUNDRIES.  Hence the write down of AMD’s stake in GF.  That is going to likely change since AMD and GLOBALFOUNDRIES are working on a new agreement.  While in previous years AMD would have to eat the cost of defective wafers and bad dies, the current agreement is more favorable for AMD.  The new agreement should be more equitable when it comes to sharing risk when dealing with new process technology.

The quarter did not start out so great for AMD, but it recovered for the most part.  The first issue they had were the suboptimal yields on GF’s 32 nm SOI process.  GF was not able to supply enough good dies for both Llano and Bulldozer based processors, so supply was very slow in catching up with demand.  There was also a 45 nm issue that was not fixed until the middle of the previous quarter.  Detail was lacking on this situation, but if we look at the current supply of Phenom II X6 processors, I wonder if they were not in fact the victim of this issue.  AMD has recovered from this issue and the 45 nm problem has been resolved.

Llano was the second breakout product for AMD in 2011.  Brazos/Zacate still appears to be the better seller overall though.

The 32 nm process has also seen great improvements with both the Llano and Bulldozer cores.  There was an 80% increase in delivered 32 nm products from Q3 to Q4.  AMD does not expect there to be a supply issue in Q1 of this year, unlike what occurred in Q3 and Q4 of 2011.  AMD has claimed as well that no 45 nm notebook chips are being shipped.  32 nm production dominates the notebook landscape for AMD, and this is complemented by the 40 nm Brazos based chips.  Brazos was in fact the catalyst that jump started AMD’s resurgence in mobile computing.

The server market has also grown for AMD.  The introduction of the new Opteron 6000 and 4000 series provided a boost in marketshare for the company.  Major manufacturers like Dell and HP have several models out using these chips.  Improvements in yields will also obviously help here.   The ability to pack up to 8 modules/16 cores per Interlagos chip is a big win for AMD.  The server market for AMD has grown by double digits over the past two quarters due to the introduction of Bulldozer.  While the product has not impressed on the desktop, it apparently is quite a step up from the previous generation of parts from AMD in many server type workloads.

The other weakness in Q4 was that of graphics.  There was a significant drop in notebook graphics sales, as well as a dip in desktop add-in board sales.  This is partially offset by the dominance of the APU in the AMD notebook space, but it was still a drop as compared to last quarter.  Oddly enough, PC sales for AMD were not majorly impacted by the hard drive shortage, but the correlation between lower GPU sales and the higher HD prices seemed to be indisputable for the management team at AMD.  This would likely make sense as increases in hard drive prices might cause consumers to look at buying an integrated graphics based system instead of a higher priced unit with a standalone graphics card.  The end of the quarter did see the introduction of the Radeon HD 7970, which is the fastest single chip graphics card currently (un)available.

The Llano APU has done very well for AMD, and it is featured in 5 of the top 10 selling retail systems.  Unfortunately, the 32 nm problem and the inability to meet demand kept it from being a bigger success for the company.  Brazos is again staying very solid for AMD, and we are seeing more full sized notebook models feature this rather robust, but inexpensive part.  AMD has refreshed the Brazos lineup, but there were no major changes other than clockspeed and a slightly better understanding of TSMC’s 40 nm process which has allowed AMD to optimize power consumption for these parts.  We are also seeing Brazos chips being introduced into tablets which would be a big positive for AMD, considering how the tablet market is exploding.

AMD also seemed quite proud to have reduced their headcount this past quarter.  Estimates show that this is saving the company around $200 million a quarter.  While trimming the fat is always a good idea, I wonder how many of these cuts could truly be considered fat?  When people like Carrell Killebrew are sent packing (who made some huge decisions in terms of design to keep AMD competitive with NVIDIA after the R600 disaster), we only hope the cuts did not in fact take too large of a toll.

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