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AMD’s Computing and Graphics Unit Hit by Weakness in PC Sales

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Computing and Graphics unit at a glance

In the previous part of the series, we saw that Advanced Micro Devices (AMD) reported a revenue fall of 19.2% YoY (year-over-year) in 1Q16. The company’s CCG (Computing and Graphics) unit has been weak for the past few years due to a continued slowdown in PC (personal computer) sales.

However, AMD’s president and CEO Lisa Su stated that the company “outperformed the PC market” in fiscal 1Q16. Let’s look at the performance of AMD’s CCG unit, which accounted for 55% of the company’s revenue in the quarter.

The CCG unit comprises client desktop and notebook CPUs (central processing units) and discrete and professional GPUs (graphics processing units).

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CCG’s performance in 1Q16

In 1Q16, CCG’s revenue fell 14% YoY to $460 million compared to the expectation of a high-teens fall. The segment’s revenue was hit by falling sales and ASPs (average selling price) of notebook and desktop CPUs. This was partially offset by a rise in ASPs for professional GPUs. CCG’s operating losses improved from $75 million in 1Q15 to $70 million in 1Q16 due to a reduction in operating expenses.

On the other hand, rival Intel (INTC) reported a rise in computing revenue, as it increased its exposure in professional PCs. This was evident in a 15% YoY fall in its volumes and a 19% YoY rise in its ASPs.

According to Gartner and International Data Corporation, global PC shipments fell 9.6% and 11.5% YoY, respectively, in 1Q16. Intel is looking to cut jobs in its non-performing client PC segment. Even though the client PC market is slowing, reduced competition from Intel would enable AMD to grab market share and increase volumes.

Technology

AMD is looking to boost CCG sales with its new Polaris GPU, which is scheduled to launch in 2Q16. The Polaris 10 is designed for desktops and high-end gaming notebooks, and the Polaris 11 is designed for notebooks. AMD would manufacture Polaris on Samsung (SSNLF) and GlobalFoundries’ 14nm (nanometer) FinFET (fin-shaped field effect transistor) technology.

In the next part of the series, we’ll look at the performance of AMD’s semi-custom processor business in 1Q16. The VanEck Vectors Semiconductor ETF (SMH) has exposure to 26 semiconductor stocks, including 3.9% to NVDA and 13.9% to INTC.

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