Continuing the spate of earnings announcements this week we have both AMD’s Q4’12 and fiscal year 2012 earnings. The 4th quarter presents something of a culmination of several events for most companies; not only is it the final quarter of the year and the time when they release both quarterly and yearly results, but it also encompasses the holiday shopping season that is most tech companies’ strongest quarter. For AMD in particular it also marks the end of what has been a rough year for the company, as they continue to work on a gradual reorganization that will see the company’s focus shift to ultra low power client devices, semi-custom SoCs and dense servers through 2014.

For the quarter ending on December 29th, 2012, on a GAAP basis AMD booked $1.16B in revenue, with a net loss of $473M. With the exception of Q2’12, AMD has been losing money for the last few quarters, and Q4 was expected to be much the same. Compared to both Q3’12 and Q4’11, this marks both a drop in revenue and net income, making this one of the roughest quarters yet for the company. The overall gross margin for AMD was a mere 15%, far below the break-even point as they currently operate.

AMD Q4 2012 Financial Results (GAAP)
  Q4'2012 Q3'2012 Q4'2011
Revenue $1.16B $1.27B $1.69B
Net Income -$473M -$157M -$177M

Yet despite these initially bleak numbers, it’s interesting to note that these numbers are considered to be relatively good for AMD. Wall Street analysts were actually expecting AMD to lose more than this for Q4, so AMD essentially lost less money than was expected. Which isn’t to say that this was a good quarter for AMD – losing money is losing money – but for what AMD has been going through the last few quarters, merely beating the street is an important accomplishment for AMD as they need to keep investors satiated if they’re to complete their product transition.

So what’s dragging down AMD at this point in time? First and foremost of course is the continuing weakness in the PC market, which will remain AMD’s core market for at least the next year until they’re farther along with their shift. This is the same weakness that finally drove Intel’s gross margins below 60% for the first time in years, and unfortunately for AMD when Intel’s being pressed upon, Intel in turn begins pressing upon AMD. Unfortunately for both companies, Windows 8 did not generate a significant increase in PC sales or margins, so while other computing markets like tablets are still seeing growth, some of that growth is coming at the expense of PCs, where AMD suffers significant exposure.

Along with weak PC sales, AMD has also once again had to take a number of one-time charges for various aspects of their business. As announced back at the start of the quarter, AMD is cutting 15% of their workforce and taking a restructuring charge on that. Meanwhile due to those weak PC sales, AMD had to amend their wafer share agreement with fab partner Global Foundries, as AMD was contracted to buy many more wafers from GloFo than the company ended up needing. The amendment saves AMD money in the long-run by reducing the number of wafers the company needs to buy to a more realistic level given AMD’s situation, but in the short-term AMD has to pay a significant penalty to GloFo which is being reflected in their results. Altogether AMD paid $363M in various one-time charges in Q4, making it the single biggest factor driving the company into the red.

In fact if we look at AMD’s non-GAAP results, which effectively exclude one-time charges, we can see that AMD had a better quarter; not great, but better. Even without those charges AMD still lost $102M for the quarter, which is actually a smaller non-GAAP loss than the previous quarter and hence the reason this quarter is being considered relatively good for AMD. Non-GAAP gross margin reflects the much smaller loss at 39%, which is better but again lower than where AMD needs to be.

AMD Q4 2012 Financial Results (Non-GAAP)
  Q4'2012 Q3'2012 Q4'2011
Revenue $1.16B $1.27B $1.69B
Net Income -$102M -$150M $138M

Moving on to AMD’s yearly results, with AMD having lost money most quarters of 2012, it comes as no surprise then that their FY 2012 results are equally dour. Again on a GAAP basis AMD booked $5.42B in revenue, with a staggering net loss of $1.18B. The vast majority of these losses were in the form of payments to GloFo as part of AMD’s wafer share agreement amendment and AMD’s earlier limited waiver of exclusivity, adding up to just shy of a billion dollars at $976M. This means that much like AMD’s Q4, their non-GAAP yearly results are far better with AMD having only lost $114M, but again this is still a loss and comes amid a $1.3B drop in revenue compared to 2011.

AMD FY 2012 Financial Results (GAAP)
  2012 2011 2010
Revenue $5.42B $6.57B $6.49B
Net Income -$1.18B $491M $471M

Diving into the results for AMD’s various divisions, once again AMD’s CPU/APU division (Computing Solutions) has taken a significant hit. Revenue for Q4’12 was $829M, down some $480M from Q4’11. This translates into an operating loss of $323M for the division for the quarter, with a loss for the year of $231M. Meanwhile CPU/APU average sales prices were also down compared to Q4’11, exacerbating the situation further by reducing the amount of revenue AMD pulled in on the smaller number of parts they were able to sell.

AMD Q4 2012 Computing Solutions Division Financial Results
  Q4'2012 Q3'2012 Q4'2011
Revenue $829M $927M $1309M
Operating Income -$323M -$114M $165M

AMD’s Graphics division on the other hand continues to truck along. Graphics has never been AMD’s primary business and consequently nowhere near their largest business, but the division has continued to turn out a small operating profit each and every quarter, including Q4. For the quarter Graphics booked $326M in revenue with an operating income of $22M, while for the year they booked $1.41B revenue with $105M in operating income. Graphics has been affected by the slowdown in PC sales just like AMD’s CPU/APU business has, but it hasn’t been hit nearly as hard overall, with revenue falling less than $150M while operating income has actually more than doubled. This is thanks in part to the fact that Graphics ASPs were up on a yearly basis, helping to offset the decline in units shipped.

AMD Q4 2012 Graphics Division Financial Results
  Q4'2012 Q3'2012 Q4'2011
Revenue $326M $342M $382M
Operating Income $22M $18M $27M

Wrapping things up, with 2012 ending on a sour note AMD is looking towards what it can do in 2013 to make sure the company makes it through their planned reorganization. With AMD having taken the brunt of their recent one-time charges in Q4, there should be few (if any) charges in 2013 so long as something new doesn’t come up. AMD’s operating situation has been rough, but it’s the one-time charges that have really hurt the company in the last year, so avoiding further costs like restructuring charges or contract amendments will go a long way to keeping the company going. 2014 is when most of AMD’s major initiatives come to fruition, making the next year extremely important to the company.

The biggest factor over the next year will be to conserve cash. As of the end of Q4 AMD had just over a billion dollars of cash and cash equivalents in the bank. This is actually quite a bit of cash given AMD’s declining revenues, however due to the nature of the semiconductor business AMD needs to keep quite a bit of cash on-hand for day-to-day operations. It’s not clear just how much is enough right now – AMD’s post-transition goal is $700M-$800M – but it has been getting low enough to take more drastic actions such as selling their Lone Star campus in Texas.

AMD Cash, Cash Equiv, & Short-Term Securities
Q4'2012 Q3'2012 Q4'2011
$1B $1.3B $1.76B

To that end, due to operating losses and various one-time charges AMD’s cash reserve has shrunk by nearly $300M in the last quarter. AMD’s turnaround will take several quarters, so until that completes AMD may need to raise additional cash and to otherwise control their cash flow if they are to make it through 2013.

Looking forward, while AMD’s ultimate goal is to get to 2014, 2013 will still see the launch of several products. AMD has stated that their Trinity-derived Richland APU is already shipping to OEMs, meanwhile APUs based on their forthcoming low-power Jaguar core are due in H1. Also shipping this year will be AMD’s Sea Islands GPU family, and AMD’s first HSA capable APU, Kaveri, is still scheduled for this year. It’s too early to tell how any of those product families will do, but of everything AMD will be launching this year it’s their Jaguar products that stand to shake up the market the most. Jaguar and its successors are also a major part of AMD’s post-restructuring plans, so early success there would bode well for AMD’s long term plans.

Source: AMD Investor Relations

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  • chizow - Wednesday, January 23, 2013 - link

    It won't matter, the GPU licensing agreements AMD has for their console chip designs pays them peanuts, pennies per console sold. It's similar to ARM's licensing of their chips, the main difference is ARM sells a lot more chips but also has a lot less overhead and operating costs. But in the big picture, ARM is still a tiny company in terms of overall revenue, a couple dozen million in revenue per quarter is not even going to be a blip on AMD's financials and certainly not enough to pull them out of the red.

    I suspect that's why Intel and Nvidia haven't cared too much about getting their ASICs into the next-gen consoles, there's simply no money in it. It's like giving away the tech for free, and in some cases, directly supporting indirect competitors.

    I forget the exact numbers but last I checked it was pretty insignificant. Ryan or some other interested party might be able to pull them out of the financials but I believe in years past AMD made ~20M annually on their XBox 360 liensing fees. Double, even triple that and it's still not going to make much dent in that operating deficit.
    Reply
  • tim851 - Friday, January 25, 2013 - link

    Yeah, I think it's clear that the ATI part is the one that will survive, the CPU division needs to go.

    ATI must also love that AMD execs sold off Imageon, the company's handheld chip, to Qualcomm. They call it the Adreno.

    AMD must be the worst managed company in IT. The engineering dept. clearly was industry competitive, but the suits always made the wrong decisions.
    Both ATI and AMD would probably be better off today if the companies had stayed seperated. All the time and money that was wasted on that merger...
    Reply
  • chizow - Friday, January 25, 2013 - link

    Yeah it's really amazing what happened with some of the mistakes AMD made, SnapDragon/Adreno one of many. It's no wonder many in AMD's graphics division are making a mass exodus to Qualcomm.

    I agree the merger was a huge waste of time and money and while ATI may be the only division in AMD worth anything at this point, it's really the biggest reason for AMD's problems, a point that's typically overlooked.

    AMD paid 6B for ATI when they merged, many at the time thought they overpaid, and that's clearly the case today as AMD's graphics division while outperforming the rest of the company is still clearly underperforming it's price expectations. 300-500M in revenue and <25M in profit per quarter simply does not justify a $6B acquisition price. The interest and hefty write-offs attached to the acquisition alone attest to this fact.

    If and when AMD spins off ATI for peanuts (maybe even to Qualcomm, how ironic), it will be a drop in value of historical proportions.
    Reply
  • Kevin G - Friday, January 25, 2013 - link

    And?

    It won't make any difference if they follow the same licensing for the Xbox 360 GPU. AMD didn't manufacture the GPU's for MS, rather they sold the design and allowed MS to shop around for suppliers. Similarly MS got the same deal from IBM for the CPU. Hence MS was not burdened by a vendor who refused to shrink their designs to lower component prices like what happened with the original Xbox (*cough* Intel *cough* nVidia *cough*). This was a one time deal and not something AMD received continual revenue overtime. On that note, reading through MS recently quarterly report you can see some deferred items for the Home and Entertainment division. This my hint that MS hasn't yet paid AMD for next gen parts so it isn't entirely doom and gloom.

    The only restriction I can see to his arrangement is if MS and/or Sony went with an x86 CPU. Due to the Intel/AMD cross license, there are some restrictions on who has access to x86 IP. While AMD has sold their fabs, they will likely have a say in where the console chip is manufactured. Being x86 also means that MS and/or Sony cannot purchase the design whole sale like MS did with the Xbox 360's GPU. Though I'm under the impression and contrary to recent rumors that AMD is sticking with PowerPC due to the desire for backwards compatibility.
    Reply
  • mrdude - Wednesday, January 23, 2013 - link

    The successor to their highly successful Brazos/Bobcat series is certainly a product that's something to get excited about. Unfortunately for AMD and Intel both, regardless of what products they put out they'll be inextricably tied to MS and the Win8 failtrain. Intel at least has the high margin server segment to help keep it afloat, but AMD is actually hovering below ARM's current server market share at sub-5%.

    So even if Kabini and Haswell exceed most people's expectations, chances are they're just not going to sell like they need to unless MS gets their ship in order first.
    Reply
  • creed3020 - Wednesday, January 23, 2013 - link

    Well I've bought three AMD APUs (all Trinity) in the last 3 months for various lower power office / HTPC computers that I built. I'm also looking at an upgrade for my own desktop but not sure I want to go the APU route or not. The only problem is that AM3+ mATX motherboard selection is AWFUL. The good AMD mATX boards are all FM2/FM1. Reply
  • Notmyusualid - Wednesday, January 23, 2013 - link

    I purchased 2 x 7970Ms, and that was no small potatoes, I can tell you.

    I'm miffed how they could lost so much really, and whilst I am absolutely no fanboi either way, I pray for their continued success, lest Intel gain a monopoly.

    And if they can lose so much money, can they hire some coders to get the drivers right for product launch?

    Bought my 7970Ms in August.

    It's nearly February, and it's really only been a couple of months the drivers have been acceptable (save for the 13.11 which failed to install at all).

    Had they launched with the drivers in the current state, I'm guessing Nvidia would have had some difficulties selling their 680Ms at double the price (or thereabouts).
    Reply
  • jjj - Wednesday, January 23, 2013 - link

    The only good thing this year for AMD are the consoles, Jaguar is low ASP and somewhat collides with tablets so if there are any Win 8 tablets that sell well and they get to into those,it could be good for them. For Jaguar based SoCs i hope they'll do a better job at launching it than with Brazos 2, Brazos 2 was so low key that it went under the radar.
    Kaveri .. is it for this year? AMD doesn't have resources and money to waste,doing both Rrchland and Kavery in a year seems a bit much and late in the year might be too late to go 28nm, I guess we'll see.but it would be nice to see them go 20nm early.
    I do hope their revenue stops declining ,we need them in desktop at least with Intel bailing out.
    Reply
  • Penti - Thursday, January 24, 2013 - link

    Richland is just Llano, it's the same chip and chipset. It's just a revision and it's an existing 32nm product. Reply
  • lmcd - Thursday, January 24, 2013 - link

    It isn't just Llano, in fact it isn't even just Trinity. As I understood it will integrate GCN with Piledriver. Reply

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