AMD Q3 FY 2014 Quarterly Earnings Analysis - 7 Percent Workforce To Be Cutby Brett Howse on October 16, 2014 6:30 PM EST
This afternoon, AMD released their financial results for the third quarter, which ended September 27, 2014. While revenue was down slightly from Q2, the net income was positive for this first time this fiscal year. non-GAAP Earnings Per Share was $0.03, which missed analysts’ projections of $0.04. Earlier in the quarter projections were as high as $0.07 per share, but the Computing and Graphics segment was mixed this quarter due to “challenging market conditions” according to AMD.
Starting July 1st, 2014, AMD reorganized their reporting structure into two groups. The Computing and Graphics group focuses on desktop and notebook processors, chipsets, discrete desktop GPUs, and workstation GPUs. The Enterprise, Embedded, and Semi-Custom group includes server processors, embedded processors, dense servers, semi-custom SoCs, engineering services, and royalties, which is pretty much every market AMD is in other than the traditional desktop/notebook market.
|AMD Q3 2014 Financial Results (GAAP)|
|Operating Income (Millions)||$63||$63||$95|
|Net Income (Millions)||$17||-$36||$48|
|Earnings Per Share||$0.02||-$0.05||$0.06|
Revenue for Q3 2014 was $1.43 billion, down just under 1% from Q2 2014’s $1.44 billion. As compared to Q3 2013, revenue was down 2%. Operating Income was $63 million (non-GAAP $66M) for the quarter, which is also down from the previous quarter and year-over-year. Net income was $17 million (non-GAAP $20M) for the quarter which is up from the $36 million loss last quarter, but down from $48 million profit in Q3 2013. Gross margin was flat from last quarter at 35%.
|AMD Q3 2014 Financial Results (Non-GAAP)|
|Operating Income (Millions)||$66||$67||$78|
|Net Income (Millions)||$20||$17||$31|
|Earnings Per Share||$0.03||$0.02||$0.04|
The Computing and Graphics segment revenue decreased 6% from last quarter and 16% year-over-year. AMD states the primary decrease is due to by lower chipset and GPU sales as compared to last quarter, and decreased notebook processor and chipset sales as compared to a year ago. The Operating Loss for the division was $17 million, which is up (or down, depending on how you look at negative numbers) substantially from the $6 million loss last quarter and $9 million loss in Q3 of last year. The Average Selling Price (ASP) of CPUs/APUs actually increase sequentially and year-over-year. Discrete GPU ASP decreased over last quarter, but increased over the same period last year. The Computing and Graphics segment is a tough market for AMD right now. Intel is moving to 14 nm while AMD has to rely on Global Foundries and other fabs to attempt to catch up. This hampers their ability to match Intel on the performance per watt metric certainly. On the GPU front, NVIDIA just released the Maxwell based GTX 980 and 970, as well as the mobile counterparts which have shown impressive performance, and efficiency. Hopefully AMD can counter with some new products in the near term.
The Enterprise, Embedded, and Semi-Custom division fared much better for Q3, with a 6% sequential gain in revenue and 21% year-over-year. Operating income for the quarter was $108 million which was up from the $97 million of Q2, and $92 million of Q3 2013. As with the last couple of quarters, AMD attributes the gains primarily due to increased sales of semi-custom SoCs. Their embedded revenue grew by “double digits” as compared to last quarter. Clearly AMD has found a niche here where they can use their expertise in new markets to shore up the company, and so far, it has been successful. In addition, AMD has closed two new Semi-Custom SoC designs this quarter which should help this division continue its growth.
|Results Per Division|
|Computing and Graphics Revenue (Millions)||$781||$828||$925|
|Computing and Graphics Operating Income (Millions)||-$17||-$6||$9|
|Enterprise, Embedded, and Semi-Custom Revenue (Millions)||$648||$613||$536|
|Enterprise, Embedded, and Semi-Custom Operating Income (Millions)||$108||$97||$92|
In addition, AMD is also trying to cut costs by reducing their workforce by about 7% Currently, they have 10,149 employees as of the end of Q3, which means around 710 people will be cut from the company. Most of these cuts should be done by the end of Q4. AMD will then adjust their real estate footprint to accommodate the smaller workforce, which could mean additional infusions of cash from the sale of buildings. They are hoping to have savings of $9 million for Q4 and $85 million for FY 2015.
Their forecast for Q4 is not rosy either. AMD is expecting revenue to decrease 13% from Q3, plus or minus 3%. However they are also hoping to drop expenses from the current guidance of $420 to $450 million, to $385 million, which means they are hoping for a positive non-GAAP free cash flow.
Although AMD did miss investor earnings, they did not miss by much and the net result was a quarter where the company managed to turn a tiny profit, which is in stark contrast to the first couple of quarters for 2014. Unfortunately, AMD’s losses all stem from the desktop PC industry. Intel just had a record quarter, so there is certainly money to be made in this sector. We will have to see how Dr. Su, the new CEO of AMD, addresses this for the next quarter.
Source: AMD Investor Relations
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webdoctors - Thursday, October 16, 2014 - linkIt's 700, not 7K layoffs LOL. 7K would be almost the entire company.
RussianSensation - Thursday, October 16, 2014 - linkThe headline needs to be corrected -- Did you mean 7% of the company's workforce is to be cut instead of 7K jobs? From the source: "Reduce global headcount by 7 percent, largely expected to be completed by the end of Q4 2014"
Hrel - Thursday, October 16, 2014 - linkConsoles are helping a lot, but their computing division is still far too weak. Man, I feel like AMD has been on life support for nearly a decade and it's getting close to time to pull the plug.
Maybe sell off ATI to Intel.
meacupla - Thursday, October 16, 2014 - linkYeah, but then, without the graphics division, AMD will be left with nothing good to sell.
And then intel will squander ATI, because they lack any competence in writing some proper graphics drivers that will work and harness the full potential of the GPU.
Wreckage - Thursday, October 16, 2014 - link"The Computing and Graphics segment revenue decreased 6% from last quarter and 16% year-over-year. "
Da W - Friday, October 17, 2014 - linkSale of fabs to Global foundries put them at a 2 gen lag versus Intel, but their Buldozer architecture is the nail in the coffin. I'm sure they saw their mistake 3 years ago but it takes time to develop a new architecture, so for the time being they make what they can with their dual module crap.
melgross - Friday, October 17, 2014 - linkFeh! They've always been behind Intel in process technology. I remember when they were a year behind, and Ruiz said they were working to get to six months. Instead, they fell to eighteen months. This is nothing new, it's just continuing the path set earlier.
Samus - Friday, October 17, 2014 - linkWhat was amazing is the time (over a decade ago) when AMD was still two generations behind Intel's manufacturing technology, but still producing technologically superior, higher performance, and less expensive chips.
AMD did have some manufacturing breakthroughs, though. Copper interconnects and integrated memory controller...and of course 64-bit x86 extensions.
dragonsqrrl - Friday, October 17, 2014 - linkYou guys have strange memories. Around a decade ago AMD was first to 90nm, and SOI was superior. How were they 2 generations behind Intel in manufacturing tech? In addition they also had the superior architecture... And it was all down hill from there.
Alexvrb - Friday, October 17, 2014 - linkThe problem was that they were almost too successful for their own good. They awakened a slumbering giant. In the short term Intel held them at bay via questionable business practices, back when AMD had the technological upper hand. Meanwhile Intel buckled down and poured money into their fabs as well as R&D, to catch up and pass AMD. Intel has done a pretty good job of keeping their guard up ever since.
AMD has done pretty well overall in the graphics market and their APUs are competitive for the money. I have hope that Keller's team will create something interesting for 2016.