AMD Q4’11 & FY 2011 Earnings Report: 1.69B Revenue For Q4, 6.57B Revenue For 2011

Late yesterday AMD released their earnings report for Q4 2011 and the entirety of 2011. 2011 was an important year for AMD as they finally shipped their first APUs (integrated CPU/GPU), the TSMC-produced ultra-mobile Brazos APU earlier in the year, and the GlobalFoundries produced Llano desktop/mobile APU in the summer.  At the same time it was the second year that AMD has operated as a fabless company, and the first in which a new process node (32nm) was delivered by the now-independent GlobalFoundries. However it was also a year of turmoil, with long-time AMD staffer turned-CEO Dirk Meyer resigning at the start of the year, followed up by outsider Rory Read taking the helm of AMD in August.

For 2011, AMD brought in $6.57 billion in revenue, with a net income of $491 million, versus $6.49B in revenue and $471M in 2010; or in other words AMD was flat on the year. Meanwhile for the all-important Q4 and the holiday sales that go with it, AMD earned $1.69B, but took a net loss of $177M. This compares to $1.65B of revenue and a net income of $375M for Q4 2010, making Q4 effectively as flat as the year itself in revenue, but far less profitable.

So what drove AMD’s earnings? Starting with a focus on Q4, the single biggest factor here is that AMD has once again taken a substantial charge related to GloFo. Even though GloFo operates independently, AMD continues to own 8.8% of the company, which means the status of GloFo is reflected in AMD’s earnings in some cases. To that end, AMD took a $209M “impairment of investment” charge reflecting the loss of value of GloFo, making it the primary reason the company slipped into the red for the quarter. As this is a charge for recognizing the loss of value of an asset, AMD has not actually lost $209M, but it was booked as such. Meanwhile AMD also took a restructuring charge in Q4 related to their workforce reduction, which cost the company a further $98M. Altogether the company took $315M in one-time losses for Q4; their net income excluding those loses would have been $138M.

In terms of product shipments, Q4 marked the launch of AMD’s Bulldozer architecture. AMD technically began shipping Bulldozer products for revenue in Q3, but Q4 was the first complete quarter. For that reason server and chipset revenue grew by double-digits over Q3, while desktop Bulldozer sales went unmentioned in AMD’s report. Meanwhile compared to Q4 of 2010 AMD’s CPU & chipset revenue was up slightly, with the bulk of the difference due to higher mobile CPU (Brazos and Llano) and chipset sales. Unfortunately for AMD this didn’t do anything to help their ASP for the quarter, and a result it’s flat versus 2010.

In discussing Q4 2010, AMD mentioned that they have been impacted by the hard drive shortage that started late last year. As virtually all CPUs are sold with new systems, AMD can only ship as many CPUs as their partners have hard drives to equip those systems with, creating a hard drive bottleneck in PC product. As a result not only does AMD face a limit in sales, but because the remaining hard drives are more expensive, PC manufacturers are cutting corners to make up the difference. NVIDIA and Intel have also been impacted by this, and as we’ll see it’s not the CPU division that’s taking the largest hit from the shortage.

Meanwhile for the entire year AMD ended up shipping 30M APUs. Most of AMD’s APU sales for the year were Brazos (a specific breakdown was not provided), reflecting the fact that Brazos has been a significant hit for the company, getting them into nettops and other cheap small form factor designs. The company-wide gross margin was 46%, which was up a point from 2010.

GPUs

On the GPU side however things were less rosy. As we’ve noted before APU sales eat into GPU sales, not only because APUs displace the need for low-end GPUs in some cases, but because APU revenue is booked alongside CPU revenue instead of GPU revenue.

For Q4 2011 AMD’s graphics division had 382M in revenue and $27M in operating income, versus $424M revenue and $68M operating income the year before. On a yearly basis AMD booked $1.56B in revenue and $51M in operating income, compared to $1.66B and $149M respectively for 2010.

For AMD’s graphics division there were a few different driving factors for the quarter and for the year. From a product standpoint AMD launched the Radeon HD 6000 series early into the quarter last year, while the first true 7000 series part (Tahiti) did not launch until 2012 and only started shipping for revenue very late into 2011. Still, it was enough to have a significant impact on AMD’s GPU ASP, increasing it over 2010’s ASP even with the limited number of new products.

Meanwhile the biggest loser here was the desktop GPU segment, thanks both to a general decrease in desktop sales and the hard drive shortage. Compared to CPU sales desktop GPU sales in particular are being significantly impacted by the hard drive shortage as fewer desktop PCs are being sold and manufacturers cut back on or remove the discrete GPU entirely to offset higher hard drive prices. As a result AMD’s graphics revenue is down 10% year-over-year, with both dGPU sales to partners and direct board sales (FirePro) sliding versus 2010.

What’s Next

While AMD has officially closed the book on 2011, AMD expects to continue to be dogged by some 2011 issues for some time to come. The hard drive shortage in particular is going to extend through at least the first part of 2012 (no one seems to be quite sure when it will end), which is going to continue to hammer sales. At the same time AMD will be launching several new products in the next half year, including two new GCN GPUs (Pitcairn and Cape Verde), and of course their first Bulldozer APU, Trinity.

The bigger question though is what AMD’s long-term plans starting in 2012 will be. It’s widely expected that Rory Reed will announce a major new strategy for the company at AMD’s Financial Analyst Day 2012 next week, which would have a significant impact on the future of some product lines. As to what that might be, AMD’s own earnings report reiterated something the company said during last year’s workforce reduction: "the Company plans to reinvest a significant portion of the anticipated savings to fund initiatives designed to accelerate AMD's strategies for lower power, emerging markets, and the cloud". We’ll be at AMD’s Financial Analyst Day next week to find out just what AMD’s new strategy might be, so stay tuned.