AMD Q3 FY 2014 Quarterly Earnings Analysis - 7 Percent Workforce To Be Cut
by Brett Howse on October 16, 2014 6:30 PM ESTThis 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) | |||||
Q3'2014 | Q2'2014 | Q3'2013 | |||
Revenue (Billions) | $1.43 | $1.44 | $1.46 | ||
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) | |||||
Q3'2014 | Q2'2014 | Q3'2013 | |||
Revenue (Billions) | $1.43 | $1.44 | $1.46 | ||
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 | |||||
Q3'2014 | Q2'2014 | Q3'2013 | |||
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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vicbdn - Saturday, October 18, 2014 - link
Apple didn't want to pay taxes on bringing foriegn earned cash back into the US to do a stock buyback. This is a very different situation. Unless AMD has their loan from an affiliate, paying a ton of interest is not good for AMD. That's still money out the door that can be used for operations or investment.TiGr1982 - Thursday, October 16, 2014 - link
It's just a pity that their reasonably good discrete GPU business (Radeons plus Fire Pro) is now formally inside this unfortunate "Computing ..." division. I'm wondering what may happen to their Radeons in the longer term...Arnulf - Friday, October 17, 2014 - link
LISA SU, I HAVE THIS AWESOME IDEA I WANT TO RUN BY YOU:If getting rid of 7% of workforce results in $85 million savings in 2015 then perhaps you should cut 100% of workforce for $1.2 billion savings ... Or better yet, cut 1000% of workforce for 12 billion savings (and chump change). Look at me, I'm CEOing!!!
OWAIT ...
yannigr2 - Friday, October 17, 2014 - link
"two new Semi-Custom SoC designs"What are those?
The Q4 is very very very disappointing. Maybe the reason Rory left early and maybe GTX970 and the cancellation of 285X had something to do with it. I think the board felt that after Meyer and the lost of mobile market, plus the bulldozer fiasco, the company needed to move faster to the next face before becoming NON-competitive also in the GPU business.
HighTech4US - Friday, October 17, 2014 - link
Quote: "two new Semi-Custom SoC designs" What are those?AMD stated these won't happen before 2016 and then they stated a number like $3 billion in revenue but gave no time frame so it may be $3 billion over 10 years or only $300 million per year.
Meanwhile 2015 will be a bloody year for AMD financially.
yannigr2 - Friday, October 17, 2014 - link
Thanks for the info. Just read an article elsewhere where the author was talking about only 1 billion in 3 years starting from 2016.HighTech4US - Saturday, October 18, 2014 - link
Wow that is even worse.fujiyama - Friday, October 17, 2014 - link
AMD is profitable - that's most important. Second, there are plenty of new products in the pipeline:- Carrizo L/Carrizo Q4 2014/Q1 2015
- Radeon 3xx 20nm - 1H 2015
- ARM Opteron - 1H 2015
The biggest miss is the lack of big CPU competitive with i3/i5 with AM3+ compatibility.
There are millions of PCs with no upgrade path for Phenom X4/X6. FX is too weak and power hungry.
jimjamjamie - Friday, October 17, 2014 - link
The Thuban core is the best AMD has ever built in my opinion.creed3020 - Friday, October 17, 2014 - link
The no upgrade path on AM3 is what had me just leave that platform.I finally said enough was enough and built an Intel Socket 1150 Haswell rig using a Core i5-4690k. I'm very happy :)
AMD still has my business as I put a Radeon R9 270X 2GB in the aforementioned rig, which was a replaced for a Radeon 6850. I love their chips for HTPC and general purpose office machines, because well FM2+ is really cheap with the right APU.