AMD Returns to Profitability Thanks to Orders for Microsoft Xbox One and Sony PlayStation 4 Chips

AMD Posts Profit Despite Sliding Sales of Microprocessors and Graphics Chips

by Anton Shilov
10/17/2013 | 10:33 PM

Advanced Micro Devices on Thursday revealed financial results for the third quarter of fiscal 2013. The company’s core businesses – microprocessor business and graphics processor business – suffered declines, but the chip designer still managed to post increase in revenue and even returned to profitability thanks to orders for chips that power next-generation game consoles from Microsoft Corp. and Sony Corp.

 

“AMD returned to profitability and generated free cash flow in the third quarter as we continued to successfully execute the strategic transformation plan we outlined a year ago. We achieved 26% sequential revenue growth driven by our semi-custom business and remain committed to generating approximately 50% of revenue from high-growth markets over the next two years. Developing industry-leading technology remains at our core, and we are in the middle of a multi-year journey to redefine AMD as a leader across a more diverse set of growth markets,” said Rory Read, president and chief executive of AMD.

For Q3 2013, AMD reported revenue for the third quarter of 2013 of $1.46 billion, operating income of $95 million and net income of $48 million, or $0.06 per share. The company reported non-GAAP operating income of $78 million and non-GAAP net income of $31 million, or $0.04 per share. Gross margin for the quarter was 36% in Q3 2013, down from 40% in Q2 2013 and 41% in Q1 2013. Operating expenses were $426 million; R&D was $288 million, 20% of net revenue; SG&A was $155 million, 11% of net revenue.

Computing Solutions segment revenue (which includes microprocessors, accelerated processing units, chipsets, embedded processors and server chips) was $790 million (historic low for CS was $751 million per quarter), down 6% sequentially, due to decreased notebook and chipset unit shipments, partially offset by an increase in desktop unit shipments. Computing Solutions operating income was $22 million, an improvement from operating income of $2 million in Q2 2013. Q3 2013 operating income included the impact of a $19 million benefit from sales of previously reserved inventory and Q2 2013 operating income included the impact of a similar $11 million benefit.

Graphics and Visual Solutions (GVS) segment revenue (which includes consumer and professional GPUs, revenue from semi-custom products and development and game console royalties) was $671 million, up 110% compared to the prior quarter, driven by AMD’s semi-custom business due to Sony and Microsoft next generation video game consoles due in Q4. GVS segment operating income was $79 million, up from breakeven in the prior quarter primarily due to increased revenue. Operating margin for the semi-custom business was in the mid-teens, primarily due to higher revenue and a smooth ramp in AMD’s first full quarter of production.

For Q4 2013 AMD expects revenue to increase 5% sequentially +/-3%; non-GAAP operating expenses to be approximately $450 million; non-GAAP gross margin to be approximately 35%; Inventory to be flat compared to Q3 2013 ($922 million).