AMD Posts Q2 2015 Results: Revenue Falls Once More

As financial week rolls along this week, today AMD announced their second quarter 2015 financial results. Earlier this month ahead of today’s announcement the company issued a warning for their Q2 earnings, significantly revising down their projections for revenue and gross margin. As a result of AMD’s earlier warning today’s announcement doesn’t have too many surprises in it, but it’s none the less an important and unfortunately painful quarter for AMD.

For the quarter AMD recorded $942 million in revenue. This marks the first time in quite a number of years that AMD’s quarterly revenue has dipped below $1 billion, indicating the challenges the company has faced as the PC market continues to be soft and AMD CPU/APU sales have declined. All told the company’s revenue has dropped 8% compared to Q1, and on a year-over-year basis it has dropped 35%

Unsurprisingly given AMD’s low revenue, operating and net income for the quarter were both losses. On a GAAP basis operating income was a $137 million loss while the net loss was $181 million, both of which are virtually unchanged from AMD’s Q1’15 performance. Meanwhile on a non-GAAP basis the operating income loss was $87 million and the net loss $131 million, both of which were accelerated versus the last quarter. On a year-over-year basis both GAAP and non-GAAP show a significant increase in losses versus Q2’14.

Meanwhile AMD’s gross margin has taken a hit as well. The GAAP gross margin is just 25%, while the non-GAAP gross margin is slightly better at 28%, the difference being due to AMD’s $33 million charge to move 20nm products to FinFET. Both metrics are well below the kind of 30-35% margins AMD wants to sustain in the long run.

In discussing their financial results for the quarter, AMD cited the soft PC market as the biggest factor pulling down the company’s performance. Historically in turn Q2 is typically the softest quarter for technology companies, however in AMD’s case it has been especially soft. With AMD’s single biggest product line being APU sales and with those sales weaker than expected, it has significantly impacted AMD’s bottom line.

Of particular note, AMD is stating that they believe the impending launch of Windows 10 was a significant factor in their weak sales for the quarter, as consumers held back on buying new systems until the new OS is out, and OEMs held back in releasing newer designs in order to align those releases with the new OS. This has particularly impacted Carrizo, AMD’s latest generation mobile APU, given that it was released only two months before the launch of Windows 10. AMD is expecting that mobile sales will rebound once Windows 10 launches, though as we’ve seen with the launch of Windows 8 in 2012, that isn’t necessarily a given.

Breaking down AMD’s revenue by business, soft APU sales pulled down the Computing and Graphics business overall, and led to Enterprise, Embedded, and Semi-Custom carrying a larger share of the company. Computing and Graphics revenue was down 29% over Q1’15 and a staggering 54% over Q2’14, primarily due to weak sales of notebook APUs, while graphics revenue was also down. Despite this the ASPs for both CPUs/APUs and GPUs were up on both a sequential and year-over-year basis, as while overall sales are lower, the prices of what AMD has sold has increased thanks to a richer product mix and the launch of the R9 300/Fury series at the tail end of the quarter.

Enterprise, Embedded, and Semi-Custom on the other hand had a much stronger quarter, with revenue there increasing 13% sequentially, though year-over-year revenue was still down by 8%. As part of AMD’s long-term plans they are attempting shift more of their resources and revenue over to this business, so any kind of growth is welcome growth for the company. However for this quarter in particular AMD was not prepared for such a high ratio of revenue from this business group, with the lower margin of AMD’s semi-custom products dragging down the overall gross margin.

Finally, compounding AMD’s difficulties this quarter was the impact of their previously announced plan to move the rest of their in-development 20nm products to a newer FinFET node. This project resulted in a further $33 million hit to AMD’s books, driving up losses and decreasing gross margins. The good news for AMD is that this is a one-time charge, so they won’t have to pay for it again.

Looking forward, AMD’s projections for Q3 are that sales will pick up in both the Computing and Graphics business and the Enterprise, Embedded, and Semi-Custom business. AMD is expecting improved PC sales as a result of Windows 10 and Carrizo reaching the market – in particular shoring up the company’s poor notebook sales – while orders for semi-custom processors for the game consoles will pick up in order to build up inventory for Christmas. AMD expects overall revenue to be up 6% (+/- 3%) sequentially, though the non-GAAP gross margin is expected to come in at just 29%, which is below where AMD would like to be and means there’s a good chance AMD will be in the red again for Q3.

Longer term, the company is still working on bringing their expenses under control and better aligning them with revenue, a task that becomes harder after quarters like these, with AMD admitting that the profitability timeline for the company has been pushed out. As it stands AMD still has over $800 million in cash and equivalents on-hand, however the company has also mentioned that restructuring to further cut expenses is not off the table, and that the company is assessing the option.

Tick Tock On The Rocks: Intel Delays 10nm, Adds 3rd Gen 14nm Core Product “Kaby Lake”

For almost as long as this website has been existence, there has been ample speculation and concern over the future of Moore’s Law. The observation, penned by Intel’s co-founded Gordon Moore, has to date correctly predicted the driving for…

Intel Announces Fiscal Year 2015 Quarter Two Results

Today Intel announced their second quarter earnings, which came in at $13.2 billion. This is down 5% from Q2 2014, but was in-line with Intel’s forecast. It actually beat many investors’ predictions, with some calling for Q2 to be closer to $13 billion. The trend down is mostly due to declining PC sales now that the XP refresh cycle is complete. Intel also had quite a bit of news to announce which we will get to in a moment.

Taking a look at the comprehensive numbers, Intel lost a couple of points on gross margin as compared to Q2 2014, with the most recent quarter coming in at 62.5%. Operating income was down 25% at $2.9 billion, but net income was only down 3% at $2.7 billion. Earnings per share came in at $0.55 which is flat year-over-year.

Investors received $1.1 billion in dividends last quarter, and Intel used $697 million to repurchase 22 million outstanding shares.

Now that Intel has merged their mobile group into the Client Computing Group, we have a slightly less clear picture of what all of their products are doing, but it should help push their mobile efforts forward, which is something we saw with the Atom x7 launch, which moved Atom to 14nm before Intel’s quad-core desktop parts. It may be repeated at 10nm, but for that we will have to wait until 2017 to know for sure. For the quarter, the Client Computing Group had revenue of $7.5 billion, which is up 2% over Q1 2015 but down 14% over Q2 2014. As I already alluded to, a big part of that is declining PC sales. The decline was stronger than Intel forecasted and inventory levels did not come down as quickly as expected. This will have a lingering effect as OEMs purchase less hardware moving forward until they are able to move through what they have already purchased.

During the quarter, Atom x3, x5, and x7 were announced and are rolling out. We’ve already had a chance to see the x7 in the Microsoft Surface 3 and the rest of the Cherry Trail stack is ramping up with the SoFIA 3G and 3G-R products. The 4G version of x3, SoFIA LTE, is sampling now for network certification and is expected to ship in volume in the first half of 2016. The CAT-10 7360 LTE modem is on track for shipment this year to customers.

Looking forward to Q3, Intel has announced that the sixth generation of Core Products, code named Skylake, has been qualified for production which means that it should be ramped up for launch in the next while. This is going to be the 14nm tock, and will introduce a new architecture on their 14nm FinFET platform. This, as well as the Windows 10 launch, may help soften the PC sales decline.

Intel’s Data Center Group had revenue of $3.9 billion, which is up 5% over Q1 2015 and 10% year-over-year. Operating income for this group was $1.8 billion, which surpassed the $1.6 billion of the Client group. Intel expects their server infrastructure to continue to grow for the rest of the fiscal year. Though not as stimulating as discussion of Skylake, Intel’s growth in this area has been on the back of their high IPC Core lineup and as Johan De Gelas has shown, it’s going to be difficult for someone to overthrow Intel in this arena at the moment.

Internet of Things is always a hot topic, and this group had revenue of $559 million, which was up 5% over Q1 2015 and 10% over Q2 2014, so they have seen some small growth in this area. If their plans succeed, they should have a larger piece of this growing pie going forward. At the beginning of June, Intel announced that they are purchasing FPGA specialist Altera. CEO Brian Krzanich discussed this on the earnings call, and Intel sees this as a good opportunity to leverage their advanced process for Altera’s FPGA business. The expect to continue to support and develop, as well as increase the install base, of Altera’s ARM based products. Brian Krzanich stated: “history tells us that the FPGA vendor who is first to a manufacturing process node enjoys a market segment share advantage over the life of that node” and if Intel can leverage its process advantage for this they should be able to gain some traction in the market. More info with Altera will be brought up on the Q3 earnings call.

Intel’s Software and Services group, which includes McAfee, had revenue of $534 million, which was flat sequentially and down 3% year-over-year.

Looking forward, Intel’s earnings expectations for Q3 is $14.3 billion, plus or minus $500 million, with a gross margin of 63%. For the full fiscal year 2015, Intel has revised their outlook to be down 1% rather than flat for the entire year.

They also announced a big change in their tick-tock which we will cover in its own piece.

Source: Intel