Continuing the spate of earnings announcements this week we have both AMD’s Q4’12 and fiscal year 2012 earnings. The 4th quarter presents something of a culmination of several events for most companies; not only is it the final quarter of the year and the time when they release both quarterly and yearly results, but it also encompasses the holiday shopping season that is most tech companies’ strongest quarter. For AMD in particular it also marks the end of what has been a rough year for the company, as they continue to work on a gradual reorganization that will see the company’s focus shift to ultra low power client devices, semi-custom SoCs and dense servers through 2014.

For the quarter ending on December 29th, 2012, on a GAAP basis AMD booked $1.16B in revenue, with a net loss of $473M. With the exception of Q2’12, AMD has been losing money for the last few quarters, and Q4 was expected to be much the same. Compared to both Q3’12 and Q4’11, this marks both a drop in revenue and net income, making this one of the roughest quarters yet for the company. The overall gross margin for AMD was a mere 15%, far below the break-even point as they currently operate.

AMD Q4 2012 Financial Results (GAAP)
  Q4'2012 Q3'2012 Q4'2011
Revenue $1.16B $1.27B $1.69B
Net Income -$473M -$157M -$177M

Yet despite these initially bleak numbers, it’s interesting to note that these numbers are considered to be relatively good for AMD. Wall Street analysts were actually expecting AMD to lose more than this for Q4, so AMD essentially lost less money than was expected. Which isn’t to say that this was a good quarter for AMD – losing money is losing money – but for what AMD has been going through the last few quarters, merely beating the street is an important accomplishment for AMD as they need to keep investors satiated if they’re to complete their product transition.

So what’s dragging down AMD at this point in time? First and foremost of course is the continuing weakness in the PC market, which will remain AMD’s core market for at least the next year until they’re farther along with their shift. This is the same weakness that finally drove Intel’s gross margins below 60% for the first time in years, and unfortunately for AMD when Intel’s being pressed upon, Intel in turn begins pressing upon AMD. Unfortunately for both companies, Windows 8 did not generate a significant increase in PC sales or margins, so while other computing markets like tablets are still seeing growth, some of that growth is coming at the expense of PCs, where AMD suffers significant exposure.

Along with weak PC sales, AMD has also once again had to take a number of one-time charges for various aspects of their business. As announced back at the start of the quarter, AMD is cutting 15% of their workforce and taking a restructuring charge on that. Meanwhile due to those weak PC sales, AMD had to amend their wafer share agreement with fab partner Global Foundries, as AMD was contracted to buy many more wafers from GloFo than the company ended up needing. The amendment saves AMD money in the long-run by reducing the number of wafers the company needs to buy to a more realistic level given AMD’s situation, but in the short-term AMD has to pay a significant penalty to GloFo which is being reflected in their results. Altogether AMD paid $363M in various one-time charges in Q4, making it the single biggest factor driving the company into the red.

In fact if we look at AMD’s non-GAAP results, which effectively exclude one-time charges, we can see that AMD had a better quarter; not great, but better. Even without those charges AMD still lost $102M for the quarter, which is actually a smaller non-GAAP loss than the previous quarter and hence the reason this quarter is being considered relatively good for AMD. Non-GAAP gross margin reflects the much smaller loss at 39%, which is better but again lower than where AMD needs to be.

AMD Q4 2012 Financial Results (Non-GAAP)
  Q4'2012 Q3'2012 Q4'2011
Revenue $1.16B $1.27B $1.69B
Net Income -$102M -$150M $138M

Moving on to AMD’s yearly results, with AMD having lost money most quarters of 2012, it comes as no surprise then that their FY 2012 results are equally dour. Again on a GAAP basis AMD booked $5.42B in revenue, with a staggering net loss of $1.18B. The vast majority of these losses were in the form of payments to GloFo as part of AMD’s wafer share agreement amendment and AMD’s earlier limited waiver of exclusivity, adding up to just shy of a billion dollars at $976M. This means that much like AMD’s Q4, their non-GAAP yearly results are far better with AMD having only lost $114M, but again this is still a loss and comes amid a $1.3B drop in revenue compared to 2011.

AMD FY 2012 Financial Results (GAAP)
  2012 2011 2010
Revenue $5.42B $6.57B $6.49B
Net Income -$1.18B $491M $471M

Diving into the results for AMD’s various divisions, once again AMD’s CPU/APU division (Computing Solutions) has taken a significant hit. Revenue for Q4’12 was $829M, down some $480M from Q4’11. This translates into an operating loss of $323M for the division for the quarter, with a loss for the year of $231M. Meanwhile CPU/APU average sales prices were also down compared to Q4’11, exacerbating the situation further by reducing the amount of revenue AMD pulled in on the smaller number of parts they were able to sell.

AMD Q4 2012 Computing Solutions Division Financial Results
  Q4'2012 Q3'2012 Q4'2011
Revenue $829M $927M $1309M
Operating Income -$323M -$114M $165M

AMD’s Graphics division on the other hand continues to truck along. Graphics has never been AMD’s primary business and consequently nowhere near their largest business, but the division has continued to turn out a small operating profit each and every quarter, including Q4. For the quarter Graphics booked $326M in revenue with an operating income of $22M, while for the year they booked $1.41B revenue with $105M in operating income. Graphics has been affected by the slowdown in PC sales just like AMD’s CPU/APU business has, but it hasn’t been hit nearly as hard overall, with revenue falling less than $150M while operating income has actually more than doubled. This is thanks in part to the fact that Graphics ASPs were up on a yearly basis, helping to offset the decline in units shipped.

AMD Q4 2012 Graphics Division Financial Results
  Q4'2012 Q3'2012 Q4'2011
Revenue $326M $342M $382M
Operating Income $22M $18M $27M

Wrapping things up, with 2012 ending on a sour note AMD is looking towards what it can do in 2013 to make sure the company makes it through their planned reorganization. With AMD having taken the brunt of their recent one-time charges in Q4, there should be few (if any) charges in 2013 so long as something new doesn’t come up. AMD’s operating situation has been rough, but it’s the one-time charges that have really hurt the company in the last year, so avoiding further costs like restructuring charges or contract amendments will go a long way to keeping the company going. 2014 is when most of AMD’s major initiatives come to fruition, making the next year extremely important to the company.

The biggest factor over the next year will be to conserve cash. As of the end of Q4 AMD had just over a billion dollars of cash and cash equivalents in the bank. This is actually quite a bit of cash given AMD’s declining revenues, however due to the nature of the semiconductor business AMD needs to keep quite a bit of cash on-hand for day-to-day operations. It’s not clear just how much is enough right now – AMD’s post-transition goal is $700M-$800M – but it has been getting low enough to take more drastic actions such as selling their Lone Star campus in Texas.

AMD Cash, Cash Equiv, & Short-Term Securities
Q4'2012 Q3'2012 Q4'2011
$1B $1.3B $1.76B

To that end, due to operating losses and various one-time charges AMD’s cash reserve has shrunk by nearly $300M in the last quarter. AMD’s turnaround will take several quarters, so until that completes AMD may need to raise additional cash and to otherwise control their cash flow if they are to make it through 2013.

Looking forward, while AMD’s ultimate goal is to get to 2014, 2013 will still see the launch of several products. AMD has stated that their Trinity-derived Richland APU is already shipping to OEMs, meanwhile APUs based on their forthcoming low-power Jaguar core are due in H1. Also shipping this year will be AMD’s Sea Islands GPU family, and AMD’s first HSA capable APU, Kaveri, is still scheduled for this year. It’s too early to tell how any of those product families will do, but of everything AMD will be launching this year it’s their Jaguar products that stand to shake up the market the most. Jaguar and its successors are also a major part of AMD’s post-restructuring plans, so early success there would bode well for AMD’s long term plans.

Source: AMD Investor Relations

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  • chizow - Friday, January 25, 2013 - link

    You're both right in some respects, imo.

    When AMD had the performance crown for long periods while Intel and Nvidia stumbled, they charged a premium for their products (Athlon 64 and 9800Pro to X1950XTX). So there was certainly a time AMD/ATI products commanded hefty price premiums.

    The problem on the CPU side has been obvious. Ever since Core 2 launched, AMD has been running a performance deficit and could never compete in performance so they were forced to compete on price.

    The problem on the GPU side has been less obvious, because AMD has been for the most part, very competitive in terms of performance. AMD's mistake, imo, was their pricing of the HD4850/4870, something I've been very critical of. The 4870 was very competitive with the much pricier GTX 260/280, and despite launching after the 280, AMD cut Nvidia's pricing by more than half.

    AMD claimed they had to price it so low to regain market share after the failed HD 2900 and 3800 series, but they priced the 4870 so low that made AMD GPUs synonymous with value brand. Since then, they've never been able to recover from this price mistake, as subsequent generations have been good improvements but not enough to justify the type of premium to significantly shift the pricing structure set by the 4870. Making it even harder is the fact Nvidia has generally held the single-GPU crown in each generation since.

    All you have to do is look at AMD's recent attempts to jump up their pricing with the 7970 to see what the 4870 did to their long-term outlook.
    Reply
  • BiggieShady - Monday, February 04, 2013 - link

    "... they priced the 4870 so low that made AMD GPUs synonymous with value brand"

    What made me thing of AMD as a value brand was the fact that back in the day my 4870 died after 2 months of use, and the GTX 260 is still happily running games in my GF's rig
    Reply
  • Alucard291 - Saturday, February 16, 2013 - link

    You're almost making it sound like Nvidia never makes shit silicon :)

    I mean using made up "facts" and all that

    But wait that would be trolling and you wouldn't do that on Anand would you? :P
    Reply
  • Spinman - Saturday, March 16, 2013 - link

    I'm still using a PowerColor 4870 in my primary i7 based gaming rig today, it runs flawlessly... oops it's 2013 right?!? I guess I need an upgrade... Reply
  • karasaj - Wednesday, January 23, 2013 - link

    Competition is good... I hope AMD can make some good comebacks or design wins this year. Reply
  • tim851 - Friday, January 25, 2013 - link

    We've all been hoping for recovery for 6 years now. Hasn't happened. Won't happen.

    Phenom was a little behind, Bulldozer is lot behind. The trajectory is clear. Turning things around doesn't get easier when you're in all kinds of financial troube and have to split the company up five ways and sell for parts.
    I think AMD is only kept alive to figure out what to do with "ATI".

    I mixed AMD and Intel between '95 and '99, went AMD exclusive between '99 and '06. Haven't even considered them for my own machines since then. Last time I used AMD in a build for someone else was in 2010.

    Sad story this.

    OTOH Intel has been pricing their stuff decently in the absence of competition. Their 200$ parts are worth the money, I think.
    Reply
  • shivoa - Wednesday, January 23, 2013 - link

    Do those cash reserves not look less healthy when taken with the continued $2bn debt (was $1.5bn a year ago, unchanged since last quarter but obviously they have $300m less cash over that quarter) AMD are carrying?

    I also hope for an AMD recovery as nVidia need competition to force their prices down and make sure they bring the fastest chips they can design to the market to compete and Intel could be pushed to offer better value for people who don't want to spend money on transistors for an iGPU they don't plan to use (but would certainly like a hexacore or a more aggressive product for peak performance in the traditional 100W+ TDP envelope without buying a server grade CPU at server prices).
    Reply
  • arnoldtm3 - Wednesday, January 23, 2013 - link

    Did anyone forget xbox 720 and ps4 comes out with amd chips.this will be the biggest year for amd,wii u already got a radeon gpu...way to go AMD........... Reply
  • frogger4 - Wednesday, January 23, 2013 - link

    That's a good point, but the Wii U hasn't sold huge quantities yet, and the xbox 720 and ps4 don't exist yet - if those do turn out to sell like hotcakes, then I agree, that could be very good for AMD. Reply
  • tipoo - Wednesday, January 23, 2013 - link

    They were already in 2 of the 3 seventh generation consoles. Unless Durango sells in huge numbers on day one, I don't think it will really help in terms of quarterly reports, just more long term steady revenue. Reply

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