Fighting for Relevance
AMD had a disappointing quarter, but not as bad as expected
AMD is still kicking. While the results of this past year have been forgettable, they have overcome some significant hurdles and look like they are improving their position in terms of cutting costs while extracting as much revenue as possible. There were plenty of ups and downs for this past quarter, but when compared to the rest of 2015 there were some solid steps forward here.
The company reported revenues of $958 million, which is down from $1.06 billion last quarter. The company also recorded a $103 million loss, but that is down significantly from the $197 million loss the quarter before. Q3 did have a $65 million write-down due to unsold inventory. Though the company made far less in revenues, they also shored up their losses. The company is still bleeding, but they still have plenty of cash on hand for the next several quarters to survive. When we talk about non-GAAP figures, AMD reports a $79 million loss for this past quarter.
For the entire year AMD recorded $3.99 billion in revenue with a net loss of $660 million. This is down from FY 2014 revenues of $5.51 billion and a net loss of $403 million. AMD certainly is trending downwards year over year, but they are hoping to reverse that come 2H 2016.
Graphics continues to be solid for AMD as they increased their sales from last quarter, but are down year on year. Holiday sales were brisk, but with only the high end Fury series being a new card during this season, the impact of that particular part was not as great as compared to the company having a new mid-range series like the newly introduced R9 380X. The second half of 2016 will see the introduction of the Polaris based GPUs for both mobile and desktop applications. Until then, AMD will continue to provide the current 28 nm lineup of GPUs to the market. At this point we are under the assumption that AMD and NVIDIA are looking at the same timeframe for introducing their next generation parts due to process technology advances. AMD already has working samples on Samsung’s/GLOBALFOUNDRIES 14nm LPP (low power plus) that they showed off at CES 2016.
On the CPU side AMD still competes with the 32 nm based FX series and the latest 28 nm Kaveri parts for desktop. For mobile there was a small uptick in sales due to Carrizo based parts being adopted throughout the last two quarters. AMD looks to be introducing new AM4 processors later this spring with many thinking that these will be Excavator based APUs and CPUs (Carrizo with disabled graphics). It is still too early for AMD to be introducing 14/16 nm parts in the CPU marketplace. That particular transition will happen in late 2016 with the introduction of high end Zen based CPUs.
The Semi-Custom, Embedded, and Enterprise sections all saw a decrease from the previous quarter. This is not unexpected as the console SOCs are seasonally constrained. It takes time to build and ship the consoles, so revenue from those products in the form of royalties show up at least a quarter before the final products are sold. Sony and MS ramped up production earlier in the year to meet holiday sales estimates, but have to ramp down production for the typically slow Q1 and Q2 quarters. That is reflected in the lower revenue experienced in this section. AMD only recently released their ARM based server chips so that revenue will not be reflected for another quarter at least.
AMD reorganized the company last year to allow the graphics group a little more leeway and independence. Raja Kodouri is in charge of that organization, and we have heard whispers of “Raja is not a nice man…” when it comes to people not living up to expectations or products showing up late or underperforming. Jim Keller left AMD but his Zen architecture is still looking to bring AMD back from the brink and be more competitive in the CPU market. High end Zen parts are expected in late 2016 with 2017 being the target for products up and down the range being released. HBM looks to also play a part in higher end CPUs and APUs from AMD, but those will likely be further down the line.
AMD hopes to become profitable in the second half of 2016. We have heard this before, and we have been optimistic for AMD, but so far those promises have had limited returns. AMD does continue to cut expenses where they can (their packaging joint venture with Fujitsu) as well as being aggressive with workforce numbers. If AMD can get their 14nm GPUs out first then they will have a very significant power and performance advantage over NVIDIA. Even if NVIDIA releases product in the same timeframe, the value and performance proposition of these new products will likely spur a significant upgrade cycle up and down the stack. Zen will have a limited impact on 2016, but AMD looks to have enough new products on the CPU side between now and then (plus the new AM4 platform) that they should see a decent boost in sales when these hit the market.
The company continues the push to stay relevant. Their graphics are still competitive and strong and they have a lead in producing HBM enabled parts that should be beneficial when it comes to HBM 2.0 and high end new products. There is a lot of excitement around the upcoming Zen architecture with some hoping that it will be a true successor to the Athlon 64 that was released in the heyday of 2003 through 2005. While I do not believe that AMD will have that same power and performance advantage as the Athlon 64 did over the Pentium 4, I do believe it will be competitive with the latest generation of Intel parts. AMD needs to execute on time and on budget from here on out, or 2017 could be a very, very rough year for the company.
In the short term AMD expects Q1 2016 to be down around 10% in revenue due to seasonal constraints. Q2 is a bit of an unknown right now as they do not like to comment that far in the future. It could start to see some improvements with new products and a new platform coming to market, but they real optimism is coming in the second half of the year.