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AMD Gears Up to Compete with Intel in High-End Computing Market

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Nov. 2 2016, Updated 11:04 a.m. ET

AMD’s computing and graphics business

In the previous part of the series, we saw that Advanced Micro Devices’ (AMD) profits are largely driven by its semi-custom business. The company has been making efforts to grow its other CG (computing and graphics) business where it sells CPUs (central processing units), GPUs (graphics processing units), and APUs (application processing units) for PCs and notebooks.

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CG earnings trend

In fiscal 3Q16, AMD’s CG revenue grew 9% sequentially and 11% YoY (year-over-year) to $472 million driven by strong demand for APUs and Polaris GPUs. However, this growth was offset by declines in the desktop processor market, which is dominated by Intel (INTC).

The CG growth in fiscal 3Q16 was driven by the launch of a limited edition Oculus-ready PC priced at $500. The PC featured the AMD FX processor and the Radeon RX 470 GPU.

APU shipments grew for the fourth straight quarter driven by strong demand for AMD’s recently launched seventh generation APU. The new PRO series APUs would feature in Hewlett-Packard (HPQ) and Lenovo’s business PCs due to be launched in the holiday season. This would boost computing sales in fiscal 4Q16.

The CG segment’s operating loss narrowed from $81 million in fiscal 2Q16 to $66 million in fiscal 3Q16. Strong GPU and APU demand could not pull CG out of losses as the company continued to target the low-end market where margins are low. Now, all eyes are set on AMD’s next big launch, Zen, which will target the high-end market.

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Zen due to launch in fiscal 1Q17

At the fiscal 3Q16 earnings call, AMD’s president and chief executive officer, Lisa Su, stated that the company would launch its Zen desktop processors built on a 14-nm (nanometer) node in fiscal 1Q17. She said, “So we believe we’ll be competitive certainly with Core I5 as well as Core I7 and we will be launching in those areas.”

Zen-based processors are expected to deliver better price-performance ratios. However, they may enjoy competitiveness only for a few months, as Intel plans to roll out its 10-nm Kaby Lake processor sometime in fiscal 2Q17 or 3Q17. This move likely wouldn’t give AMD sufficient time to launch a competitive 10-nm processor.

Both AMD and Intel plan to showcase their respective desktop CPUs at the CES 2017 (Consumer Electronics Show) in January 2017. AMD’s computing segment may post strong earnings in fiscal 4Q16 and 1Q17 on the back of strong demand for its seventh generation APUs and Zen desktop processors. Next, we’ll look at the company’s graphics business.

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