AMD’s Q1 earnings are in, capping off a very important quarter for the company. For the first quarter of the year, AMD booked $984 million in revenue, a sizable 18% jump over Q1 last year. This revenue increase was enough to narrow the company’s losses, but not to wipe them out entirely. On a GAAP basis the company lost $73M for the quarter, leading to an overall loss of $0.08 per share. Q1 is also a relatively weak quarter for technology companies in general, and AMD is no exception, with revenue down and losses up slightly compared to their revenue-strong fourth quarter of 2016.

March of course saw the launch of their first CPUs based on the Zen architecture, kicking off AMD’s big comeback into the CPU space that has long been their core competency and biggest breadwinner. The Ryzen 7 launch in turn isn’t meant to turn AMD’s fortunes around overnight – especially when it was only on retail shelves for one month of the quarter – but it’s the start of something bigger for AMD. The impending launch of Naples – which AMD has reiterated is on track for this quarter – will be the second part of this turnaround.

AMD Q1 2017 Financial Results (GAAP)
  Q1'2017 Q4'2016 Q1'2016
Revenue $948M $1110M $832M
Gross Margin 34% 32% 32%
Operating Income -$29M -$3M -$68M
Net Income -$73M -$51M -$109M
Earnings Per Share -$0.08 -$0.06 -$0.14

One bit of good news here is that AMD’s gross margin is up, and is now at 34%. AMD has structured their business to be able to operate with margins in the 30% range, but 35% has long been considered the soft floor for profitability, which means AMD is getting close to that. AMD’s cash flow is a bit less rosy though; the company has $943M in cash and short-term investments as of the end of Q1’17, versus $1.26B in the prior quarter. On an overall basis, AMD’s asset value is largely unchanged, with the difference in cash being offset by an increase in the company’s inventory and accounts receivable.

AMD’s non-GAAP results, which the company reports as a means to better show the state of the core business, show similar results. Non-GAAP results show a smaller loss overall, but the company is still in the red on operating income and net income. There is no single large factor this time around hurting GAAP results – AMD isn’t taking any large write-offs or the like – but rather it’s a number of smaller items, including the cost of employee stock-based compensation and charges related to AMD’s $1.41B in long-term debt.

AMD Q1 2017 Financial Results (Non-GAAP)
  Q1'2017 Q4'2016 Q1'2016
Revenue $984 $1110M $832M
Gross Margin 34% 32% 32%
Operating Income -$6M $26M -$55M
Net Income -$38M -$8M -$96M
Earnings Per Share -$0.04 -$0.01 -$0.12

Breaking results down by segments, AMD’s situation in Q1’17 was fairly similar to past quarters. The Computing and Graphics segment is still the largest part of AMD’s two divisions, and outside of overall stock-based compensation, is still the division losing AMD money. Overall the Computing division booked $593M in revenue for the quarter, which is up 29% from Q1’16 and in fact is barely down from the always-strong Q4. The operating loss for the quarter was $15M, down significantly from Q1’16’s $70M loss, and even still better than Q4’16’s $21M loss.

The biggest factor here, of course, is Ryzen. With its high prices compared to AMD’s past desktop processors, it has been a big part in increasing AMD’s overall average selling price both on a quarterly and yearly basis. Similarly, GPU ASPs were up as well.

AMD Q1 2017 Computing and Graphics
  Q1'2017 Q4'2016 Q1'2016
Revenue $593M $600M $460M
Operating Income -$15M -$21M -$70M

Meanwhile AMD’s Enterprise, Embedded, and Semi-Custom segment continued to stay in the black for the quarter, but revenue did drop from the previous quarter as holiday console sales tapered off. Revenue for the quarter was $391M, up slightly from the $372M of Q1’16, while the operating income was $9M, versus last year’s $16M. Otherwise the All Other segment booked a $23M loss due to the aforementioned stock-based compensation.

AMD Q1 2017 Enterprise, Embedded, and Semi-Custom
  Q1'2017 Q4'2016 Q1'2016
Revenue $391M $506M $372M
Operating Income $9M $47M $16M

Looking towards the future, AMD a 17% revenue increase for Q2, while gross margins are expected to dip slightly to 33%. Besides enjoying a full quarter of Ryzen sales, AMD has once again confirmed that they will be launching both the Naples server CPU and the Vega GPU architecture in this quarter. Both are high-end, high-profit products that should significantly help AMD’s bottom line if they perform as expected. Though even with the Q2 launch, AMD won’t enjoy the full benefits of those launches until Q3 when they have further ramped up and collect revenue for those products over the whole quarter.

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  • Meteor2 - Tuesday, May 02, 2017 - link

    Right, how can a company have a positive margin, but a net loss? What costs aren't they booking against product sold? Reply
  • ckbryant - Wednesday, May 03, 2017 - link

    Margin's can be positive and still make a loss; the products margins are defined as either gross margin or net margin. The main idea of margin is the (Net Profit - Cost)/Net Profit. It doesn't account for overhead or anything else when you categorize things into different market segments like the GAAP numbers. They seperate out Computing, Graphics, Custom IP and it's possible for a company with high ASP and high 35% margins on products to not meet profitability. Even in restaurants if you aren't making 50% margins you probably aren't making any money by the time you factor in overhead and etc; when I managed a restaurant we preferred something termed "keystone" margins which is about 250% on food; and due to waste and etc there were times when 212% margins and something like a fridge or freezer going out would prevent profitability. Margins are the best frame of a companies profitability; Debt to Income structure is a little bit better. I'm a tad bullish on AMD right now; they can't go much further down in terms of their Server CPU sales theres room to go since ARM hasn't been the huge leap in the Server market that investors and etc thought. Reply
  • ckbryant - Wednesday, May 03, 2017 - link

    aren't the best frame*** no edit Reply
  • mapesdhs - Thursday, May 04, 2017 - link

    (yeah, bummer about the edit thing; come on Anand, we're practically into the where's-my-jetpack era and still no edit function??)

    In general, anything less than a 100% margin in business is a bad idea.

    Talked to a lady recently who'd visited a function event at a place that had it's own cafeteria, they were charging 8.50 UKP for a baked potato & cheese. :D
    Reply
  • harobikes333 - Tuesday, May 02, 2017 - link

    Still Bullish on AMD. Their Vega should turn out pretty decent & the Server Market share should increase. Purchased on their nosedive today... I believe they'll upright the ship in the coming couple months. Reply
  • mapesdhs - Thursday, May 04, 2017 - link

    Should, should, believe. Hope is not a plan or a rationale.

    What you ought to be saying is that AMD should learn from Ryzen, make sure Vega doesn't have any equivalent launch issues, ensure adequate supply, double check its power consumption, heat and noise levels don't suck, make sure it behaves properly and for dear god's sake make sure the drivers don't suck (the main reason I've avoided AMD cards in my own systems; I have some anyway for benching, always more issues, especially with CF, and I don't think DX9/CF was ever fixed despite repeated promises).

    I'm not saying you'll be wrong about a turnaround, but atm such a belief cannot be based on anything more than hope and optimism.

    I'd want to see something better than just pretty decent though if it's to pull sales away from NVIDIA. If AMD did want to make a big splash, it wouldn't be that hard, just make sure the cards are reliable and have strong FP64 or small int for compute and deep learning, areas where NVIDIA have ditched their old style strong showing entirely.

    Ian.
    Reply
  • mapesdhs - Thursday, May 04, 2017 - link

    (by the latter I meant what used to be potent performance in cards like the 580, original Titan, etc., and even the 10x0 have greatly restricted small int) Reply

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