AMD’s Earnings Were Weak But Long-Term Positives Are Intact

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Advanced Micro Devices

While Intel (NASDAQ:INTC) posted healthy Q2 2012 earnings, AMD (NYSE:AMD) seems to have succumbed to the tough macroeconomic environment with a 10% y-o-y decline in Q2 revenues. In its earning preview, the company had announced that it registered a 11% sequential decline in revenues to $1.41 billion, but managed to post net income of $37 million on account of stable margins.

While the second quarter started on a relatively positive note, weakness in the global economy, lower channel demand for desktop processors primarily in China and Europe, and soft consumer PC market made the last few weeks of the quarter challenging for AMD. The lower desktop channel sales led to a 13% sequential and y-0-y decline in AMD’s computing solutions group. The GPU business, which was relatively flat last quarter, was down 4% in a seasonally down quarter.

Though we believe that AMD will continue to face macro-economic headwinds in the next quarter, the strength of its core businesses as well as future opportunities from its next generation APUs and Brazo 2.0 technology will help the company register profits in the future.

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The partnership with ARM Holdings (NASDAQ:ARM.L), the growing adoption of the Bulldozer platform, and the launch of the world’s fastest GPU and next generation Trinity APUs are some of the factors that reinforce our belief that AMD continues to have strong fundamentals despite a temporary setback.

See our complete analysis for AMD

Trinity and Brazos 2.0 to Drive Growth in Notebook Shipments

The notebook processor business contributes close to 25% to our current price estimate of $8.39 for AMD. While this business failed to meet the company’s expectation this quarter, it did manage to register a y-o-y increase in mobile processor revenue as well as unit shipments.

During the quarter, AMD came out with its next generation Trinity APUs, which boasts up to 12 hours of battery life and almost double the performance per watt compared to its Llano APUs launched last year. AMD claims to have received a good response for its Trinity systems, and this is evident as it saw its Trinity notebook shipments more than double from the last quarter.

Systems powered by the new APUs are available from leading PC manufacturers inlcuding HP, Samsung, Lenovo, Toshiba, Asus and Acer. AMD is set to come out with another round of ultrathins, around the time of the launch of Windows 8 systems operating (OS) later this year.

Additionally, the introduction of Brazo 2.0 led to the sixth consecutive quarter of share gains in the retail price band of $499 and below. As AMD would have most of its Trinity and Brazo 2.0 transitions complete by the end of this year, we expect it to register a slight increase in its market share.

Positive Outlook for the Graphics Business

Graphic processors constitute close to 25% of our current price estimate of $8.39 for AMD. While this division did register a slight decline, considering the seasonal expectations and history the division had a good second quarter as the growth remained flat y-o-y, according to the company.

AMD continued to expand its industry leading graphic solutions with the launch of new AMD FirePro processors, which is the industry’s first graphic card to support six displays with independent audio streams. It also released a full-line of mobile discrete graphics to market this quarter, apart from recapturing the graphic performance leadership position with the launch of world’s fastest GPU. (Read: AMD Takes On Nvidia With The World’s Fastest GPU)

While Nvidia (NASDAQ:NVDA) might have the upper hand in GPUs right now, which was reiterated by the company winning back Apple’s (NASDAQ:AAPL) order for its new Macbook Pro, we believe the stiff competition between the two will make any significant market share gain by either unsustainable in the long run. (Read: Nvidia Notches New Macbook Pro Win Over AMD)

We are in the process of updating our current price estimate of $8.39 for AMD.

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