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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.

AMD 2011 Financial Results
  Q4'2011 Q4'2010 FY2011 FY2010
Revenue $1.69B $1.65B $6.57B $6.49B
Net Income -$177M $375M $491M $471M

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.

AMD 2011 Graphics Division Financial Results
  Q4'2011 Q4'2010 FY2011 FY2010
Revenue $382M $424M $1.56B $1.66B
Operating Income $27M $68M $51M $149M

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.

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  • Beenthere - Wednesday, January 25, 2012 - link

    Considering the production issues at GloFo and TSMC AMD didn't fair too badly in Q4 but they obviously need to improve and can improve even in a down economy. Delivering Trinity laptop and Vishera would go a long ways towards helps fill AMD's coffers. Reply
  • BSMonitor - Wednesday, January 25, 2012 - link

    Maybe they should send their designs to Intel and have them Fab their chips. Reply
  • Beenthere - Wednesday, January 25, 2012 - link

    Don't think for a minute that Intel doesn't have production and design issues of their own. One little mistake this past quarter cost them $700 million. Reply
  • Impulses - Wednesday, January 25, 2012 - link

    That P65 recall was a black eye for sure. Reply
  • RedMustang - Thursday, January 26, 2012 - link

    That cost Intel less that 2% of their gross earnings for the year..... Pocket change for them. AMD cannot afford ANY misses. Intel made ~ $147 million A DAY last year gross... Reply
  • Beenthere - Thursday, January 26, 2012 - link

    Considering AMD made a half Billion dollars net with all of GloFo and TSMC's production issues and a $209 Million write-off for GloFo, I think AMD will be just fine with Trinity ready to launch and Vishera in Q3-4. Opterons are also selling well so it's looking much better for AMD now than a few months ago when both Fabs were struggling. Reply
  • chizow - Thursday, January 26, 2012 - link

    Yeah Intel didn't skip a beat, which is pretty amazing. They still posted record profits for that quarter in the height of the recession just after the housing market/Wall Street collapse. And it certainly didn't leave any negative lasting impression on their products, as Sandy Bridge/P67 has been a huge success (leading to more record profits).

    I don't think Intel is infallible though, but I also don't think their main concern and source of competition is AMD. Intel is ~2 generations ahead of AMD now in the performance desktop market, it will be 3 generations ahead once Ivy Bridge launches. I think the bigger risk for Intel is going to come from ARM-based chips and devices, especially once Win8 hits with full ARM support sometime next year.
    Reply
  • chizow - Thursday, January 26, 2012 - link

    $492M of their net income was the result of a non-cash accounting basis change in Q1'11, further diluting their interest in GloFo. Take that out of the equation and they lost $1M on the year.

    GloFo has been serving as their bank the last few years though, and since they're down to 8.8% holding (and still taking impairments on that as well), its pretty obvious that Oasis has all but run dry (pun intended). On top of that, there's reports AMD has but back production at GloFo due to problems and shifted production to TSMC, probably at a higher cost.

    In the big picture, the scariest part of it all is after 5-6 years of all this restructuring, AMD is still barely afloat and has much less to show for their efforts. They originally purchased ATI in 2006 for $6B? And the market cap of the combined firm today is <$5B after taking impairment after impairment to correct their overvaluation. Same with GloFo, big cash infusion when they needed it by splitting off their fabs, but at the time they were still majority shareholder, and now that line of credit and value has been widdled down to nothing.

    Maybe their APU line will save them, maybe not, but I don't think its looking too good for AMD if they're not able to compete with ARM-based chips or even Intel's Medfield in the burgeoning tablet/smartphone market. I don't recall anything from CES about AMD's design wins there, mostly about APUs in the Ultra"thin" and desktop market.
    Reply
  • silverblue - Friday, January 27, 2012 - link

    I distinctly remember AMD saying that they weren't affected, and that the shortages didn't really exist. Seems they decided that, after a month or so and after looking at the full Q4 figures, there was some affect after all.

    Before:
    http://www.tomshardware.com/news/amd-rory-read-har...

    After:
    http://www.tomshardware.com/news/Thai-floods-hard-...
    Reply
  • Beenthere - Friday, January 27, 2012 - link

    It's pretty laughable really. Intel has tried every illegal action possible to kill AMD and was unsuccessful and is still in litigation over their crimes. AMD has been profitable the last two years after eliminating the huge debt from GloFo. Had GloFo and TSMC even delivered decent volumes in 2011 AMD would have had a very profitable year. In 2012 they must try to ramp as the world wide economic situation continues to deteriorate.

    If only AMD could have illegally acquired their installed base as Intel did, the story would be quite different. Instead AMD has delivered better quality and value products. Consumers voting with their wallet have kept AMD in Biz for 40+ years as a result and I don't see anything but good news for AMD and consumers in the forseeable future despite the Fab issues.

    I personally am waiting to purchase a Trinity powered laptop and Vishera CPU. Pigs will fly before a convicted criminal corp. like Intel ever get another dime of my money.

    http://www.theinquirer.net/inquirer/news/2120866/i...
    Reply

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