AMD financials show slowing losses

April 19, 2013 | 10:06

Tags: #apu #bulldozer #financial #playstation-4 #rory-read #wii-u #xbox-720

Companies: #amd #intel

AMD has joined its rival Intel in offering investors news as to its most recent quarterly performance, and while it's still making a not-inconsiderable loss things could be turning in the company's favour.

The semiconductor underdog, which is a fraction of the size of rival Intel, hasn't been having a great time of it over the last few years. Market acceptance of its Bulldozer architecture, which is easily outperformed by equivalent Intel processors, has been slow, and the company has all but lost the enthusiast market. The news is better in discrete graphics, where it continues to jostle Nvidia for market share, and its accelerated processing unit (APU) products - which combine relatively impressive graphics hardware with cheap general-purpose processors to produce bargain-basement hardware - have been making something of an impact at the lower end of the market.

These aren't having a massive effect on the company's profitability, however: AMD has been making huge losses for years, shrinking headcount and tightening its belt with moves that included spinning off its foundry business into a separate entity and selling its headquarters and leasing it back to grab some much-needed cash.

The company's latest figures show the losses continuing: according to the quarterly report issued by the company late last night, it made a net loss of $146 million based on revenue of $1.09 billion. When rival Intel is talking of profits of $2.05 billion on revenue of $12.58 billion, that's a clear indication of the disparity between the two biggest companies in the x86 processor market - and Intel doesn't even have a discrete graphics division to help prop up its earnings.

Losses, naturally, are bad, and continued losses doubly so - but there is an indication that things may be turning around for AMD. While its loss of $146 million for the quarter is substantial, it's considerably lower than it has been in the past - the lowest, in fact, for a year. By contrast, its loss for the last quarter of FY12 hit $473 million for a full-year loss of $1.18 billion. While the slowing PC market and growing trend in tablet computing may be to blame, AMD simply can't weather those kinds of losses for as long as Intel - which makes the company's most recent financial figures something it can cautiously celebrate.

Increases in the company's profit margins - exactly the opposite of the 25 per cent dip experienced by its rival Intel - are a major factor in the company's lessened losses, as revenue figures show significant dips in its major markets: the Computing Solutions division has been hit by a 38 per cent revenue dip compared to the same period last year, while its Graphics division saw a 12 per cent year-on-year dip.

The real secret of AMD's improved fiscal performance, however, comes in the form of a bit of creative accounting: the aforementioned sale and leaseback of its headquarters in Texas freed up $164 million in cash, while the company was also able to make $20 million selling previously-reserved inventory. Without those two figures, which it won't be able to repeat next quarter, AMD would have made a loss of $330 million.

Despite this, AMD is still confident it will be the comeback king: the company has claimed it expects to be cash-flow positive by the second half of the year, with its first real profits to appear by year's end when its APU products finally hit shop shelves in the Sony PlayStation 4 and, if pre-release leaks are to be believed, Microsoft Xbox 720 consoles.

'The PC market will remain an important business for AMD for years to come,' claimed AMD chief executive Rory Read during the call. 'With more than 300 million PCs expected to ship annually for the foreseeable future across the variety of form-factor, the PC is far from dead. [However,] a large part of the momentum this year will come from our game console wins. The game console industry is expected to ship more than 40 million game consoles in 2013. That number is expected to grow as game consoles further evolved into broader entertainment devices that serve as home media hubs and local cloud distribution systems. Our graphics win in the Nintendo Wii U set the foundation for this growth, which we have built upon with Sony’s announcement that the PlayStation 4 will feature a semi-custom AMD APU.'

'So, in summary, we continue to make good progress in our three-step strategy designed to restructure, accelerate, and transform AMD while returning the company’s operating profitability by the second half of 2013. We have started shipping a powerful set of new products that provide strong opportunities for share growth in the traditional PC market. And our semi-custom and embedded design wins continue to accelerate as we transform AMD for the new cloud era and attack these high growth markets with our differentiated IP. We look forward to continued strong execution in 2013 as we enable our customers to innovate across a diversified set of markets based on our differentiated and tailored technology solutions.'

Should the PS4 and Xbox 720 struggle as Nintendo's next-generation Wii U console has, however, AMD is likely to find it difficult to stay afloat. Investors, however, seem confident in the company, with AMD's share price shooting up almost five per cent in trading following the call - reversing a month-long downward trend.
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