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What Will Drive AMD’s Revenue in Fiscal 2Q16?

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The EESC segment

In the previous part of this series, we saw that Advanced Micro Devices (AMD) is making efforts to regain its share in the computing and graphics space by launching competitive products. These efforts are likely to be visible in its fiscal 2H16 earnings results.

A more immediate effect could be visible in the EESC (Enterprise, Embedded and Semi-Custom) segment, as the company has secured three orders for semi-custom chips used in game consoles. These orders are believed to be for Sony’s (SNE) PlayStation 4.5, Microsoft’s (MSFT) Xbox 1.5, and the Nintendo NX. EESC is the company’s most profitable segment and enjoys seasonal demand in the second and third quarters.

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Enterprise

In the enterprise space, Intel (INTC) dominates the data center processor market, with a market share of more than 99%. As in the PC (personal computer) space, AMD and Intel have a duopoly. Customers are encouraging competition in order to improve performance and reduce prices.

AMD has licenses for both ARM and x86 architectures. Although AMD’s products are competitive in terms of design, they are less efficient. While they are manufactured on the 28-nm (nanometer) node, Intel has moved to the 14-nm node and is now developing chips for the 10-nm mode. AMD is gearing up to bridge this gap by developing its new Zen architecture on Samsung’s (SSNLF) 14-nm FinFET (fin-shaped field effect transistor) node.

Also, it has licensed its x86 server chip technology to a Chinese (FXI) company. This is expected to generate $52 million in revenue in fiscal 2016, which equates to ~$15 million every quarter after deducting the $7 million realized in fiscal 1Q16. The company is looking for more licensing deals to improve liquidity. A few months back, AMD was rumored to be entering into a GPU (graphics processing unit) licensing deal with Intel but no further update was provided.

Semi-custom

AMD dominates the gaming console market with its semi-custom APU (application processing unit). The company has secured three new orders, which are expected to generate $1.5 billion in revenue over the span of three years. This equates to $125 million in quarterly revenue.

Moreover, fiscal 2Q16 is a seasonally strong quarter and is likely to drive the company’s overall revenue. While the revenue environment shows optimism, the expenses environment remains bleak. We’ll look at the expenses and profits of the company in the next part of this series.

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