AMD Announces FY 2015 Q3 Results: Decreased Computing And Graphics Sales Hurt Bottom Line

Today AMD has announced their third quarter earnings for fiscal year 2015. AMD saw a 13% increase in revenue over Q2 2015, but revenues were down almost 26% over their Q3 2014 numbers. Revenue for the quarter was $1.06 billion USD, down from $1.43 billion a year ago. AMD continues to use GAAP and Non-GAAP earnings to help show the state of the business in greater detail. On a GAAP basis, AMD had an operating loss of $158 million for the quarter, and a $197 million net loss, which works out to $0.25 per share. Compared to last quarter, both losses were larger despite the increased revenue, and the numbers are down significantly over the $17 million net income a year ago.

On a Non-GAAP basis, AMD had a $97 million operating loss, which is once again a larger loss than last quarter, and down 211% from the $87 million in operating income last year. Net loss was $136 million, or $0.17 per share, compared to a $41 million net profit and $0.05 per share last year. GAAP to Non-GAAP differences are due to $48 million in restructuring fees and $13 million in stock based compensation.

The Computing and Graphics segment continues to struggle, although AMD did see stronger sequential growth here with the recent launch of Carrizo. Revenue increased 12% over last quarter, although it is still down 46% year-over-year. This segment had an operating loss of $181 million for the quarter, up from a loss of $147 million last quarter and a loss of $17 million a year ago. Sequentially, the loss is mostly attributed to a write-down of $65 million which AMD is taking on older-generation products. Annually, the decrease is due to lower overall sales. Unlike Intel, AMD processors had a decrease in Average Selling Price (ASP) both sequentially and year-over-year, so there was no help there from the lower sales volume. The GPU ASP was a different story, staying flat sequentially and increasing year-over-year. Recent launches of new AMD graphics cards have helped here.

The Enterprise, Embedded, and Semi-Custom segment had a better showing. Revenue increased 13% over last quarter, and was down only 2% year-over-year. Semi-custom sales (read Consoles) drove the sequential increase but lower embedded and server processor sales caused a year-over-year decline. Operating income for this segment came in at $84 million, up from $27 million in Q2 but down from $108 million in Q3 2014. Q2’s numbers were skewed though by a $33 million hit on moving to a new process node.

All Other had an operating loss of $61 million for the quarter, up from $17 million loss in Q2 and a $28 million loss in Q3 2014. This is where they stick their “restructuring charges” and they nicely align with the GAAP vs Non-GAAP values.

The bad news doesn’t stop here either. We’ve seen the departure of a couple of key people at AMD, and AMD is also spinning off some of the company. Revenues for Q4 are expected to decrease an additional 10%, plus or minus 3%, compared to today’s numbers. AMD is doing more corporate restructuring in an attempt to reduce expenses further. Perhaps the most troubling aspect of today’s results is their gross margin is only 23%. They really need closer to 35% for profitability and are a long way from that today.

Source: AMD Investor Relations

AMD To Spin-Off Back-End Testing & Assembly Operations Into Joint Venture For $371 Million

AMD’s Q3 2015 earnings release just hit the wire a bit ago, and while we’re still working on putting together that story we wanted to immediately jump into what is the biggest news to come out of today’s release. As part of their wave of news releases this afternoon, AMD is announcing that they will be spinning off their back-end manufacturing operations into a new joint venture with Nantong Fujitsu Microelectronics (NFME), with NFME essentially buying the bulk of these operations off of AMD.

Briefly then, in the world of semiconductor manufacturing the complete process of creating a chip is divided into two halves. There is the front-end manufacturing step where a complete wafer of chips is fabbed, and the back-end manufacturing step where those finished wafers are tested and cut up into individual chips for customer use. Dubbed ATMP – for assembly, test, mark, and pack – these back-end operations are in modern times split up from the fabbing step for cost reasons. Consequently capital-intensive and technologically advanced fabbing process will take place in facilities like TSMC Taiwan, GlobalFoundries Germany, and Intel US, while ATMP takes place at facilities in China, Malaysia, and Vietnam.

Up until their spin-off of GlobalFoundries in 2009, AMD had a complete chip manufacturing operation, including facilities for both the fabbing and ATMP operations. Even after the spin-off however, AMD held on to their ATMP operations. It is these operations that AMD is now spinning-off as well, as the company pursues an operations strategy more befitting of a fabless semiconductor designer.

An AMD CPU Wafer (Image Courtesy Hexus.net)

For the deal with NFME, AMD will be spinning-off their ATMP operations into a new, unnamed joint venture in partnership with NFME. The joint venture will see AMD contribute their ATMP facilities in Penang, Malaysia and Suzhou, China, along with their roughly 1,700 person ATMP staff. Meanwhile, though not mentioned in the release, NFME will be contributing their own facilities and employees as well, with the complete joint venture set to have 5,800 employees spread over five facilities.

On the financial side of matters, NFME will immediately be buying an 85% stake of AMD’s ATMP operations, putting NFME in control of the overall joint venture while AMD serves as the minority partner with their remaining 15% share. In turn, NFME will be paying AMD approximately $371 million, and after taxes and other costs this will be a net gain of about $320 million for AMD.

Overall AMD is touting this as a beneficial change for the company, though they also don’t attempt to hide their current financial state in the announcement, stating that the joint venture and sale “further strengthens our balance sheet with significant asset monetization.” AMD on the whole has been struggling with a series of losses over what has now been a number of years, and it has taken a toll on their cash reserves. In the last few years the company has been slowly selling off non-essential or legacy assets in order to both contain ongoing costs and to raise much-needed cash for day-to-day operations. This, among other things, has included selling off and then leasing back their “Lone Star” campus in Austin, Texas.

AMD’s Leased Lone Star Campus (Image Courtesy Austin Business Journal)

For AMD, the spin-off means they will be removing 1,700 employees from their payroll, which would put their adjusted headcount at around 7,500 to 8,000 employees after the deal closes. Furthermore as ATMP is capital-intensive, this allows AMD to further contain their spending on capital expenditures. AMD has until now held on to their ATMP operations, and at the time of the GlobalFoundries deal stated that they were keeping these operations as they were specifically tailored to AMD’s microprocessor business. However there’s no doubt that the have been an increasing drag on AMD as the company’s revenues and chip volume have continued to shrink. Ultimately as AMD was already fabless, it’s rare to see a fabless company with their own back-end operations anyhow, and AMD believes they can continue to meet their ATMP needs through this joint venture.

As for the joint venture itself, this gives NFME the ability to further expand into the market for semiconductor assembly and test services (SATS). With AMD’s lower product volumes no doubt making it harder to fully utilize their high-volume AMTP facilities, a joint venture with NFME can bring more work into those facilities by having them work for additional customers beyond AMD. Furthermore NVME also gains the R&D experience that comes with AMD’s AMTP operations, which for them is a competitive advantage against other 3^rd party SATS providers.

Ultimately today’s announcement of a joint venture is at best mixed news for AMD. Containing costs is important for the company’s ongoing health and clearly the company no longer has the resources or demand to stay in any kind of manufacturing. On the other hand as the company continues to sell off assets in one form or another – and all the while continues to lose cash as happened again this quarter – it puts them in a perilous position of having to operate off of fewer and fewer assets. So hopefully this joint venture and accompanying sale helps the company focus on the chip and architectural development they need to do, and provide the funding over the next few years to accomplish it.

Intel Announces FY 2015 Q3 Results: Strong Earnings Despite Client Computing Drop

Intel released their third quarter earnings for fiscal year 2015 today, and it was certainly a rocky quarter. Their revenue for the quarter was $14.5 billion, which was in-line with their expectations, and revenues were flat as compared to Q3 of 2014. They actually did very well to remain flat though since the Client Computing Group struggled due to the combination of PC and tablet sales. Gross margin was down slightly to 63%, and operating income and net income were also down 8% to $4.2 billion and $3.1 billion respectively. Earnings per share fell 3% to $0.66.

In Q3, Intel launched Skylake which is their 6^th generation Core processor, and the also announced their 3D X-Point memory technology. Sales of Skylake have just begun, and I would expect to see a broader rollout in Q4. The memory tech is still going to be a while before we see it in a purchasable product.

The biggest underperformer from Intel was the Client Computing Group. Revenue for this group was down 7% to $8.5 billion with platform volumes down 19%. This was somewhat helped by an increase in Average Selling Price (ASP) of 15%. Notebooks and desktops were down 14% and 15% respectively, and ASP for these units were up 4% and 8%. The PC market is certainly struggling despite the rollout of Windows 10 and Skylake. The free upgrade for Windows 10 certainly won’t be helping matters. But the biggest drop from Intel was in the tablet sector, where Intel powered tablet sales were down 39%. The tablet market is almost like a compressed version of the PC market when looked at over time.

Intel’s Data Center Group had a much stronger quarter. Revenue was $4.1 billion, up 12%, which was driven by platform volume up 6% and ASP also up 6%. Much of this was driven by growth in cloud computing which is growing even faster than Intel had predicted.

The remainder of their revenue came from Internet of Things which had growth of 10% to $581 million, Software and services had a flat revenue of $556 million, and the “all other” segment had 19% growth to $682 million.

Looking forward for Q4, Intel is looking for revenues of $14.8 billion plus or minus $500 million, which would be up 2% from Q3, and gross margin is expected to drop 1.0% to 62%. The drop in margin is attributed to a ramp up of their Ireland fab ahead of schedule which is outputting wafers at a higher cost than the more established fabs for the time being. In addition, the costs for 14 nm is still higher per chip than 22 nm, but the percentage of 14 nm to 22 nm is certainly shifting towards the newer process which drives down margins.

I think the overall quarter is actually fairly good for Intel. Despite a definite drop in the PC market, they managed to make up most of that with a strong showing in cloud computing. The ramp up to Skylake and Windows 10 should start in full in Q4. Intel seems cautiously optimistic that the rollout of Windows 10, especially in enterprise, should be much quicker than the last upgrade which should help sales.

Source: Intel Investor Relations