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Understanding AMD’s Strategy to Improve Cash and Profits

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Dec. 4 2020, Updated 10:53 a.m. ET

AMD targets high-margin products

Advanced Micro Devices (AMD) is looking to grow its margins by targeting enterprise customers and gamers in the PC space. The company is meanwhile building Polaris GPU (graphics processing unit) on Samsung’s (SSNLF) and Global Foundries’ 14 nm (nanometer) FinFET (fin-shaped field effect transistor) technology. The GPU is set for launch in mid-2016, but it should face tough competition from NVIDIA’s (NVDA) Pascal GPU, which has already begun volume production.

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Cash position

The development of revolutionary technologies like Polaris GPU needs a huge amount of cash. As of December 26, 2015, AMD’s total cash reserves stood at $785 million, compared to its $2 billion in debt. The company reported positive operating cash flow of $53 million in fiscal 4Q15, after three consecutive quarters of negative operating cash flow.

AMD aims to maintain its cash reserves within a target range of $600 million–$1 billion. Under such conditions, the company is undergoing restructuring by offloading non-core assets and expanding its core business in order to fund technology development. In October 2015, the company entered into a joint venture with Nantong Fujitsu Microelectronics, under which it should receive $320 million cash in fiscal 1H16.

Notably, the iShares Russell 1000 Value ETF (IWD) has holdings in large-cap stocks across various industries, with about 1.5% in INTC.

Intellectual property

Moreover, AMD is looking at monetizing its IP (intellectual property) to enhance its cash position. Recently, rumors have flooded in the market regarding a possible licensing deal between Intel (INTC) and AMD, but there’s been no follow-up on that rumor so far. Still, let’s look into how the company’s stock has reacted to these rumors in the next part of the series.

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