AMD Posts Q2 Loss, Expects Profitability in Q3

Advanced Micro Devices (AMD) posted an 18 percent drop in sales to $1.161 billion, a net loss of $74 million, or 10 cents a share, and a $29 million operating loss for its Q2 2013, compared to a $37 million, or 5 cents a share, profit it recorded during the same period last year.

Still, the chipmaker exceeded analysts’ $1.108 billion sales expectation for the quarter and projected its Q3 revenue will jump some 22 percent, give or take 3 percent, on a sequential basis to some $1.42 billion. AMD said it expects to post a Q3 profit, driven by an expansion into game consoles, targeting the low end of the PC market and delving into new markets such as dense servers, professional graphics, semi-custom fabs and embedded technology.

“We are making progress on our three-step strategy to restructure, accelerate and ultimately transform AMD for growth,” said Rory Read, AMD president and chief executive, on an earnings call. “We expect a return to profitability in the third quarter based on the midpoint of our revenue guidance,” he said.

Read said that new AMD-based computers from Acer, ASUS, Dell (DELL), Lenovo and Samsung, along with expected new rollouts, drove Q2 revenue. He also credited channel partners moving the vendor's Richland desktop APU with advancing sales.

“The introduction of a Richland APU help drive a sequential increase in desktop processor channel revenue,” he said. “We expect to continue to build on this improving channel trend in the second half.”

Some additional, interesting points Devinder Kumar, AMD chief financial officer, made:

• AMD is evolving past PCs. The chipmaker is on track to generate 20 percent of its revenue from outside the traditional PC space to semi-custom and embedded products by Q4 2013.
• In the next two to three years, half of AMD’s revenue will come from new sources. Expect up to 50 percent of its sales to come from semi-custom, dense server, professional graphics, ultra-low power client and embedded technology.
• AMD's SeaMicro technology is scoring in the data center. A number of SeaMicro-driven “large data center wins” in Q2 helped sales and unit shipment spikes. AMD bought SeaMicro in February, 2012 to back its cloud-centric data center blueprint.
• The dense server market is ripe for the picking. AMD plans to “further attack” the dense server market next year with next-generation x86 APUs and CPUs and an ARM-based server product.
• PCs still are a viable market. AMD will continue to poke at the $300 to $600 desktop system slice of the overall segment, which it called a “300 million-plus unit” market, expecting it will get bigger over time.

“We are executing a three-step turnaround strategy,” said Read. “We did the restructure. We have completed that. Now, we are in the beginning of the turn and the acceleration as we execute the product plan and the move, and then ultimately we transform the company to that 40 percent, 50 percent of the mix in a diversified portfolio on those high growth segments. Now, we are about four quarters, three quarters into this transition, and we are right on track on that strategy.”