AMD’s business segments
In the previous part of this series, we saw that, in fiscal 2Q16, Advanced Micro Devices (AMD) is likely to report its first YoY (year-over-year) revenue growth in six quarters. This growth is expected due to GPU (graphics processing unit) orders from HP (HPQ) and Apple (AAPL) and seasonal strength in the semi-custom space.
AMD has divided its business into two segments. The CG (Computing and Graphics) segment includes CPU (central processing unit) and GPU products, and the EESC (Enterprise, Embedded and Semi-Custom) segment includes server processors, semi-custom chips for gaming consoles, and processors for embedded devices.
The CG segment
The CG segment has been posting losses for the past few quarters, as Intel (INTC) and NVIDIA (NVDA) ate up AMD’s market share in the CPU and GPU space, especially the high-end market. Generally, the second half of the year is seasonally strong for this segment due to the holiday season. In the first quarter, retailers usually try to offload their holiday inventory.
In the CPU space, AMD’s market share fell from 23.1% in calendar 2Q15 to 19.5% in 2Q16, while Intel’s market share rose from 76.8% to 80.5%, according to PassMark Software. While AMD’s CPU revenue was hit by declines in both units and ASPs (average selling prices), Intel’s CPU revenue grew due to an increase in ASPs.
There is a wide technology gap between the two companies. AMD seeks to bridge this gap with its new Zen PC processor, which will be built on the 14-nm (nanometer) node, just like Intel processors. Moreover, Intel has slowed its innovation cycle from two to three years, giving AMD time to bridge the technology gap. Zen is due to launch by the end of fiscal 2016.
In the discrete GPU space, AMD is moving fast to regain the market share it lost to NVIDIA. According to Jon Peddie Research, AMD’s share rose from 11.8% in calendar 4Q15 to 13.2% in 1Q16, while NVIDIA’s share rose from 16.6% to 16.7%. Intel’s fell from 71.6% to 70.1%.
AMD’s Polaris GPU, targeted at mainstream customers, was launched in order to increase its market share in the discrete GPU space. This could boost sales in the graphics segment in fiscal 3Q16 and beyond. Meanwhile, fiscal 2Q16 is likely to be stronger than fiscal 1Q16 for AMD, as the GPU orders for HPQ and AAPL notebooks would be reflected in this quarter’s earnings. Next, we’ll look at the EESC segment.