AMD Turns Profitable In Q2’16: Expected Growth In All Businesses To Help Deliver Non-GAAP Profitability In 2H’16

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Advanced Micro Devices

AMD (NYSE:AMD) reported its Q2 2016 earnings on July 21st. After reporting a net loss for seven consecutive quarters, the company finally managed to turn things around, reporting $69 million in net profit in Q2 2016. A 9% year-over-year and 23% quarter-over-quarter increase in revenue ($1.03 billion), and cash inflow from the ATMP joint venture transaction with Nantong Fujitsu Microelectronics, led to the improved profitability in Q2 2016. Strong semi-custom demand and better-than-seasonal graphics sales helped AMD beat its Q2 2016 revenue guidance.

The ongoing semi-custom SoC ramps, the introduction of Polaris GPUs, and the launch of the 7th generation APUs can help AMD keep the positive momentum alive going forward. The company expects low single-digit revenue growth for the full year (2016) and is confident of delivering non-GAAP operating profitability in the second half of the year. For Q3 2016, the company estimates that: 1) revenue will  increase by 18% sequentially (+/-3%); 2) the non-GAAP gross margin should be 31%;  and, 3) non-GAAP operating expenses will be approximately $350 million, due to an increase in R&D investments.

Note – Our current price estimate for AMD is significantly lower than the market. We are in the process of updating our model for the Q2 2016 earnings.

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See our complete analysis for AMD here

AMD

Key Q2’16 Highlights

  • First half 2016 GPU sales increased by a double digit percentage from a year ago.
  • Stronger than seasonal GPU sales and higher client notebook processor sales were offset by a decline in desktop processor sales, led by channel softness in China.
  • Mobile APU sales increased for the third straight quarter.
  • Professional graphics revenue also grew  for the third straight quarter of sequential. AMD believes it gained share driven by increased adoption of Firepro graphics by OEMs, as well as several cloud data center GPU compute wins.

Strong Polaris Demand Will Drive Growth In The Computing and Graphics Segment

AMD’s strong second quarter graphics performance was capped by the launch of its new Polaris-based RX 480 GPUs at the end of June, which helped contribute to the highest desktop channel GPU shipments since Q4 2014. Judging by the initial channel sales and OEM design wins, AMD is confident that the strong demand will continue to drive revenue growth in Q3 2016 and beyond. The company will launch the rest of the Radeon RX family in the near future, which will hopefully add to the growth momentum.

The 14 nm Polaris architecture based Radeon Graphic series extends AMD’s leadership in DirectX 12, gaming and Virtual Reality. Additionally, the high-performance x86 Zen processor core architecture (expected to be launched in the first half of 2017) can help AMD scale across multiple markets including high-performance desktops, servers, notebooks and embedded solutions.

Ramping Semi-Custom Sales & New Deals To Drive Growth In The Semi-Custom Business

AMD expects semi-custom shipments to peak for the year in the third quarter, as both Microsoft and Sony prepare for the holidays. Based on strong demand, the company believes that the semi-custom unit shipments and revenue will grow on an annual basis.

Last quarter, Microsoft announced two new members of the Xbox One family powered by AMD. The Xbox One S is the slimmest Xbox console ever and the first to support HDR (High Dynamic Range) imaging. The system is expected to go on sale in the coming weeks. Microsoft also announced their next generation game console, codenamed Project Scorpio, for the 2017 holidays. Project Scorpio is one of the three semi-custom design wins AMD announced a few quarters back.

Project Scorpio, along with 2 other undisclosed deals, is expected to generate nearly $1.5 billion for AMD over the next three to four years.

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