uploads///Series  A

Advanced Micro Devices: What Drove Earnings to Positive?

By

Aug. 9 2016, Published 5:34 p.m. ET

AMD’s earnings move from negative to positive

This earnings season was a time for semiconductor investors to cash in. Two weak companies—Qualcomm (QCOM) and Advanced Micro Devices (AMD)—reported a reversal in earnings.

In fiscal 2Q16, Qualcomm posted its first revenue growth in five quarters. AMD reported its first revenue growth in seven quarters. It also reported its first non-GAAP (generally accepted accounting principles) operating profit in five quarters.

What was even more surprising was that AMD’s strong rival, Intel (INTC), reported weaker fiscal 2Q16 earnings and guidance. AMD’s share price has increased almost 140% so far in 2016. QCOM and INTC stocks have increased 23.4% and 3%, respectively.

Article continues below advertisement

Update on AMD 

AMD has been very active over the last six months:

  • It secured three semi-custom design wins.
  • It signed its first IP (intellectual property) licensing deal.
  • It completed its ATMP (assembly, test, mark, and pack) joint venture with Nantong Fujitsu Microelectronics.
  • It launched its first Polaris GPU (graphics processing unit) Radeon RX480 and its seventh-generation APU (application processing unit) Bristol Ridge.

What drove AMD’s earnings?

AMD’s fiscal 2Q16 revenue was driven by strong growth in semi-custom sales. Licensing and joint ventures helped AMD turn to profit. Excluding the one-time gain of $150 million from the joint venture, the company reported a net loss. While the company is still facing losses, the launch of its new Polaris GPUs and the seasonal demand for semi-custom chips are expected to turn these losses into profits in the second half of fiscal 2016.

AMD expects to post low single-digit percentage growth in revenue in fiscal 2016. While the company is optimistic, its long-term growth depends on the success of its Polaris GPU and Zen CPU (central processing unit). Polaris will face tough competition from Nvidia’s (NVDA) Pascal GPUs.

Impact of the SoftBank-ARM deal on AMD

The recent acquisition of ARM Holdings (ARMH) by SoftBank would have a positive impact on AMD, which has a license of ARM architecture. SoftBank would invest heavily in ARM to help the latter expand in the server and IoT (Internet of Things) markets. This would open new licensing opportunities for AMD.

To sum it up, AMD is currently on the brink of growth. If all factors play in its favor, the company has a strong growth potential. In this series, we’ll look at each of these factors in detail and how they could reflect on AMD’s earnings.

Advertisement

More From Market Realist