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How Could Advanced Micro Devices’ Fiscal 2Q16 Turn Out?

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AMD set to release fiscal 2Q16 earnings

The semiconductor season is back. Recently, Micron Technology (MU) reported weak earnings and guidance. This was not because of slow unit sales but because of falling product prices. Advanced Micro Devices (AMD), the next in line to report, is expected to report revenue growth in fiscal 2Q16 ended June 30, 2016, driven by growth in semi-custom processors and licensing revenue from its China JV (joint venture).

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AMD launches first Polaris GPU

AMD launched its first Polaris GPU (graphics processing unit), the Radeon RX 480, on June 29, 2016, at the attractive price of $199. Recent product reviews state that Radeon RX 480 offers performance similar to, and in some cases better than, NVIDIA’s (NVDA) $500 GPUs. However, reviews also found that the RX 480 consumes a lot of power. AMD has been quick to respond and is currently working on resolving this issue.

Aside from the RX 480’s initial problems, it adds value for money and has a higher price-performance score than NVIDIA’s GeForce GTX 900 series, according to MyGaming. With a price tag of $199, AMD is looking to attract mainstream customers and take some of the discrete GPU market share it lost to NVIDIA. There are rumors that Apple (AAPL) might use Polaris GPUs in its latest Macs. However, the effect of Polaris GPUs won’t be visible in AMD’s earnings until fiscal 3Q16.

Analysts’ mixed views on AMD

Analysts have mixed views on cash-strapped AMD. Considering its fundamentals and past financial data, AMD is on the verge of bankruptcy, with a debt of more than $2 billion and cash of less than $1 billion, declining revenues, and continued losses. Moreover, the company has failed to deliver on its commitments in the past.

However, considering the company’s future cash flow potential, there are many positives. One positive is its product roadmap. Ranging from Polaris GPUs to Zen PC (personal computer) processors, it is believed to bridge the technology gap between AMD and Intel (INTC) processors. Also, AMD has entered into the licensing arena, where it licenses its technology to others in return for a royalty fee. It has received orders for three new semi-custom products for gaming consoles.

AMD is optimistic about its outlook and expects to return to profit in fiscal 2H16. In this series, we’ll explore AMD’s strengths and weaknesses and what investors can expect from the company’s upcoming fiscal 2Q16 results.

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