AMD's Q3 2016 Earnings Call - Revenue is Up, Debt is Down

[Raevenlord]

AMD today released their earnings call for 3Q 2016, giving us some interesting tidbits in regards to their financial robustness. The balance of AMD's economics seems to be pending towards better execution, and, coeteris paribus, a much better outlook for the coming quarters, after the monumental missteps in the past that almost threw AMD under the proverbial bus. Reception for the results seems to be a tangled mess, however, with some sides claiming that AMD beat expectations, while others prefer to draw attention to AMD's 2% stock decline since the report was outed.

AMD posted revenue of $1,307 million, up 27% sequentially and 23% year-over-year. This revenue was distributed unevenly through AMD's divisions, though. "Computing and Graphics" segment revenue was $472 million, up 9% from Q2 2016, primarily due to increased GPU sales (where Polaris picked up the grunt of the work, being responsible for 50% of AMD's GPU revenue), offset by lower sales of client desktop processors and chipsets; whereas "Enterprise, Embedded and Semi-Custom" segment revenue was $835 million, up 41% sequentially, primarily due to record semi-custom SoC sales (such as those found in Microsoft's XBOX One and Sony's PS4 and upcoming PS4 Pro).





The company's "Computing and Graphics" division still posted an operating loss, though improved to $66 million, compared to an operating loss of $81 million in Q2 2016, primarily due to higher GPU revenue (with Lisa Su saying it registered the highest GPU growth since 2014). Though the "Enterprise, Embedded and Semi-Custom" division picked up the loss and then some, with an operating income of $136 million, up from $84 million in the prior quarter, primarily due to higher revenue.

That said, the thorn on AMD's side this quarter was the amendment for the Waffer Supply Agreement with GLOBALFOUNDRIES, the result of AMD's spin-off of their factory business. The amendment alone is responsible for a $340 million charge on an otherwise impeccable quarter (to which you should add an extra $61 million for debt redemption), which would, without the WSA, be reading green across the board. If you consider only the non-GAAP income (excluding those two special charges), AMD achieved a net income of $27 million, with earnings per share of $0.03, compared to non-GAAP net loss of $40 million, and loss per share of $0.05 in Q2 2016.

In its Q3 earnings conference call, Dr. Lisa Su, AMD president and CEO, referred to AMD's debt re-profiling and reduction as a major cornerstone of this quarter. And considering that AMD managed to liquidate $1.022 billion dollars in outstanding debt ($796 million in principal of outstanding term debt, and an additional pay for $226 million of outstanding ABL balance). Beginning in Q4 2016, AMD will pay $55 million less in interest annually. Non-GAAP operating expenses amounted to $353 million (27% of revenue), up $11 million from the prior quarter's non-GAAP operating expenses. Of these $353 million, non-GAAP R&D was $244 million (19% of revenue) and non-GAAP SG&A was $109 million (8% of revenue).

As a final note, compare AMD's R&D budget with Intel's $5.2 billion (divided between R&D and MG&A (Marketing, General and Administrative), and you can see how much of a colossal fight AMD has on its hands. Much is riding on the back of AMD's ZEN and VEGA, though according to AMD's Lisa Su, the company is poised for success, claiming AMD's 2017 portfolio is going to be the company's best in over a decade. According to her, the best is yet to come.

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[Xzibit]

Good for them given they aren't even competing in the High-end GPU segment and Zen is yet to launch.

 

[dorsetknob]

AMD's Q3 2016 Earnings Call - Revenue is Up, Debt is Down
Provisionally good news then

 

[Raevenlord]

AMD's Q3 2016 Earnings Call - Revenue is Up, Debt is Down
Provisionally good news then

Indeed. From what I understand, stock markets tend to be more volatile towards earnings per share than other metrics, hence the sudden 2% drop in share value - they are suddenly not as profitable as they could be, and so, must die.

But yeah, long term, this is good news (if short of great). But if VEGA (and especially ZEN) fail to deliver, investors will lose most of the confidence and goodwill... And that won't be pretty.

 

[chaosmassive]

comeback is real...
although if Zen cant live up expectation
AMD pretty much is doomed

 

[prtskg]

From what I understood, AMD reduced debt from 2B to 1.6. If so, I think this is good. I think Lisa is steering the company in good direction.

 

[Frick]

comeback is real...
although if Zen cant live up expectation
AMD pretty much is doomed

It can't. It'll be good, but not that good. It won't beat Intel in any way. That is nothing to be surprised about, but I honestly believe people will just default back to Intel.

 

[64K]

AMD today released their earnings call for 3Q 2016, giving us some interesting tidbits in regards to their financial robustness. The balance of AMD's economics seems to be pending towards better execution, and, coeteris paribus, a much better outlook for the coming quarters, after the monumental missteps in the past that almost threw AMD under the proverbial bus. Reception for the results seems to be a tangled mess, however, with some sides claiming that AMD beat expectations, while others prefer to draw attention to AMD's 2% stock decline since the report was outed.

AMD posted revenue of $1,307 million, up 27% sequentially and 23% year-over-year. This revenue was distributed unevenly through AMD's divisions, though. "Computing and Graphics" segment revenue was $472 million, up 9% from Q2 2016, primarily due to increased GPU sales (where Polaris picked up the grunt of the work, being responsible for 50% of AMD's GPU revenue), offset by lower sales of client desktop processors and chipsets; whereas "Enterprise, Embedded and Semi-Custom" segment revenue was $835 million, up 41% sequentially, primarily due to record semi-custom SoC sales (such as those found in Microsoft's XBOX One and Sony's PS4 and upcoming PS4 Pro).





The company's "Computing and Graphics" division still posted an operating loss, though improved to $66 million, compared to an operating loss of $81 million in Q2 2016, primarily due to higher GPU revenue (with Lisa Su saying it registered the highest GPU growth since 2014). Though the "Enterprise, Embedded and Semi-Custom" division picked up the loss and then some, with an operating income of $136 million, up from $84 million in the prior quarter, primarily due to higher revenue.

That said, the thorn on AMD's side this quarter was the amendment for the Waffer Supply Agreement with GLOBALFOUNDRIES, the result of AMD's spin-off of their factory business. The amendment alone is responsible for a $340 million charge on an otherwise impeccable quarter (to which you should add an extra $61 million for debt redemption), which would, without the WSA, be reading green across the board. If you consider only the non-GAAP income (excluding those two special charges), AMD achieved a net income of $27 million, with earnings per share of $0.03, compared to non-GAAP net loss of $40 million, and loss per share of $0.05 in Q2 2016.

In its Q3 earnings conference call, Dr. Lisa Su, AMD president and CEO, referred to AMD's debt re-profiling and reduction as a major cornerstone of this quarter. And considering that AMD managed to liquidate $1.022 billion dollars in outstanding debt ($796 million in principal of outstanding term debt, and an additional pay for $226 million of outstanding ABL balance). Beginning in Q4 2016, AMD will pay $55 million less in interest annually. Non-GAAP operating expenses amounted to $353 million (27% of revenue), up $11 million from the prior quarter's non-GAAP operating expenses. Of these $353 million, non-GAAP R&D was $244 million (19% of revenue) and non-GAAP SG&A was $109 million (8% of revenue).

As a final note, compare AMD's R&D budget with Intel's $5.2 billion, and you can see how much of a colossal fight AMD has on its hands. Much is riding on the back of AMD's ZEN and VEGA, though according to AMD's Lisa Su, the company is poised for success, claiming AMD's 2017 portfolio is going to be the company's best in over a decade. According to her, the best is yet to come.

Intel didn't have a quarterly R&D budget of 5.2 billion dollars. That figure includes MG&A (Marketing, General and Administrative). Only part of that 5.2 billion is for R&D. The last I read Intel does outspend AMD 10 to 1 on R&D though.

Something important to note is that AMD is paying down debt not due to profitability but due to selling 80 million new shares of stock.

http://www.investopedia.com/stock-a...-stock-and-convertible-debt-offering-amd.aspx

This will dilute the value of existing shares but it will do something critically important for AMD and that is paying down some of the crippling debt that has been plaguing AMD for years. I think this was a smart move by AMD. Their debt was over 2 billion dollars and the interest that they were paying was well over 100 million dollars annually. Some of that money being paid out as interest can now be used within the company to invest in their future.

 

[Frick]

This will dilute the value of existing shares but it will do something critically important for AMD and that is paying down some of the crippling debt that has been plaguing AMD for years. I think this was a smart move by AMD. Their debt was over 2 billion dollars and the interest that they were paying was well over 100 million dollars annually. Some of that money being paid out as interest can now be used within the company to invest in their future.

Aye, $55 million less interest/year is nothing to be sneezed at, nothing to be sneezed at at all.

 

[chaosmassive]

It can't. It'll be good, but not that good. It won't beat Intel in any way. That is nothing to be surprised about, but I honestly believe people will just default back to Intel.

What I meant is, "AMD FX 9590 fiasco that cant outperformed intel i5" history repeated once again
causing all hype built turn into huge disappointment

 

[RejZoR]

Either way, it's good to hear AMD is improving their business. It's great for consumers since they'll be able to make more of better competing products.

 

[Raevenlord]

Intel didn't have a quarterly R&D budget of 5.2 billion dollars. That figure includes MG&A (Marketing, General and Administrative). Only part of that 5.2 billion is for R&D. The last I read Intel does outspend AMD 10 to 1 on R&D though.

Thank you very much for pointing that out, 64K. Updated the story to reflect that. Still, even if Intel's R&D budget is only 1/10 of that value, it's double of AMD's. And we can almost take it for a fact that it's way more than a tenth of it.

Something important to note is that AMD is paying down debt not due to profitability but due to selling 80 million new shares of stock.

http://www.investopedia.com/stock-a...-stock-and-convertible-debt-offering-amd.aspx

This will dilute the value of existing shares but it will do something critically important for AMD and that is paying down some of the crippling debt that has been plaguing AMD for years. I think this was a smart move by AMD. Their debt was over 2 billion dollars and the interest that they were paying was well over 100 million dollars annually. Some of that money being paid out as interest can now be used within the company to invest in their future.

Indeed, that is part of the reason why the company's earnings per share were so low. That said, If I was an AMD investor, I'd be more than willing to take those losses in return for the company's financial stability. $1 billion less in debt is nothing to scoff at, and I'd say it's one of the best measurements of a company's financial health. The mantra "Debt isn't meant to be paid, it's meant to be managed" is true, but AMD needed to get some breathing room. This will make sure they can raise more funds, since investors will see confidence in AMD's ability to pay them back.

 

[$ReaPeR$]

good news!

 

[Basard]

Holy shit! Maybe I should go out and buy a lottery ticket!

 

[Jism]

What I meant is, "AMD FX 9590 fiasco that cant outperformed intel i5" history repeated once again
causing all hype built turn into huge disappointment

Come'on... That cpu particular is not where the money is. Consumers / Desktop is really small percentage to what is going on in enterprise market (Servers, computing, businesses).

They never sold that CPU as well for business market. It was rather a gimmick and a design error hoping that the future would become more and more multithreaded. AMD's bet was on the wrong side.

 

[Gin]

What I meant is, "AMD FX 9590 fiasco that cant outperformed intel i5" history repeated once again
causing all hype built turn into huge disappointment

The i5 outperforms the FX 8 core only with old CPU bound games.
In DX12 games or DX11 GPUs bound games, the FX 8 cores perfoms like an i7, single threaded games are the past.

 

[64K]

Overall I'm feeling positive about AMD for 2017. Zen doesn't have to beat Skylake/Kaby Lake to be successful. AMD's biggest hurdle is getting PC/Server manufacturers to use more of their chips. Obviously AMD needs to be able to sell Zen CPUs at a decent profit as well. Selling cheap raises revenue but it doesn't raise profit by much. If they can do that then AMD's future looks promising. It doesn't do any good to have great chips but they sit in a warehouse collecting dust until they have to be written off at a loss.

 

[Frick]

The i5 outperforms the FX 8 core only with old CPU bound games.
In DX12 games or DX11 GPUs bound games, the FX 8 cores perfoms like an i7, single threaded games are the past.

Yeah, but those games are several years newer than those CPU's.

 

[Jism]

And that was the problem with AMD and the bulldozer. They basicly aimed for multithreaded apps / games but the truth was alot of those applications hardly used CPU's with more then 2 to 4 cores.

That is why the bulldozer kind of failed. With Jim keller, they straight went to a better IPC per core and SMT, which improves and accelerates their CPU's drasticly.

Back in the days, AMD dominated intel with the Athlon starting from XP up to X64. There was no Pentium 4 able to compete with their CPU's. But Intel did very nasty tricks to prevent AMD from coming into the mainstream computer sellers by offering huge discounts when selling Intel platforms.

 

[chaosmassive]

they straight went to a better IPC per core and SMT, which improves and accelerates their CPU's drasticly.

This, if its turn out not to be able perform as intended ( as fast as Haswell at least)
then you know what its mean to AMD

 

[Jism]

The only thing that AMD cpu has todo is stick close or even be better then a intel counterpart for a better price. That's all.

 

[Fx]

Damn. I've been waiting for this news for a long time. I know the AMD execs busted out the good champagne to celebrate this achievement.

I can't wait for Zen; its going to be my next gaming rig. I'm not too stoked about Vega though, my 980Ti is doing just fine for now.

 

[dozenfury]

Haven't been too impressed by the RX line so far, but I'm 100% all for AMD being successful. We desperately need the competition for Intel and Nvidia.

 

[Basard]

Haven't been too impressed by the RX line so far, but I'm 100% all for AMD being successful. We desperately need the competition for Intel and Nvidia.

You've just gotta close one eye when looking at the benchmarks...