Inside AMD’s Reviving Growth in Computing and Graphics

AMD’s business segments

In previous parts of this series, we discussed how Advanced Micro Devices (AMD) reported revenue declines in fiscal 4Q16 due to seasonal weakness in its profitable semi-custom segment. The company supplies GPUs (graphics processing units), CPUs (central processing units), and APUs (application processing units) for PCs and notebooks, game consoles, servers, and embedded systems.

AMD divides its business into two large segments: CG (Computing and Graphics) and EESC (Enterprise, Embedded, and Semi-Custom).

Inside AMD’s Reviving Growth in Computing and Graphics

The CG segment’s earnings

AMD’s CG segment made new records in fiscal 2016 as Polaris GPUs drove growth during the year. The CG segment reported 9% YoY (year-over-year) revenue growth in fiscal 2016, its first annual revenue growth since 2011. The segment’s fiscal 4Q16 revenue grew 28% YoY to $600 million—its highest level in two years.

The revenue from computing reached its highest level in seven quarters, while revenue from GPUs reached its highest in 11 quarters. The revenue was driven by strong demand for its mobile APUs and desktop CPUs.

These high revenues reduced CG’s operating loss from $66 million in fiscal 3Q16 to $21 million in fiscal 4Q16.

AMD versus Intel

On the other hand, Intel’s (INTC) computing segment’s revenue grew 4% YoY revenue growth, and its operating margin stood at 38.6% during the same quarter. Amid declining global PC sales, the company has managed to remain profitable by targeting specific PC segments like notebooks and gaming PCs.

AMD is now looking to make its CG segment profitable by entering high-end markets with its Ryzen CPUs. The company looks to target these CPUs at gamers and video editors who are willing to spend more for improved performance.

AMD’s Ryzen to drive future growth in computing

AMD plans to launch the desktop variant of Ryzen CPUs on March 2, 2017, and a notebook variant in 2H17. If Ryzen turns out to be a success, AMD’s computing revenue would rise significantly in fiscal 4Q17, with one full quarter of sales of Ryzen’s desktop and notebook CPUs included.

In the declining PC market, AMD’s growth is not dependent on the market expansion because of its small market share. Instead, AMD is looking to grow by gaining some market share from Intel in the high-end space. There are also rumors that Apple (AAPL) may switch or second-source the processors for it MacBook from AMD.

Now let’s look at AMD’s graphics business.