As financial week rolls along this week, today AMD announced their second quarter 2015 financial results. Earlier this month ahead of today’s announcement the company issued a warning for their Q2 earnings, significantly revising down their projections for revenue and gross margin. As a result of AMD’s earlier warning today’s announcement doesn’t have too many surprises in it, but it’s none the less an important and unfortunately painful quarter for AMD.

AMD Q2 2015 Financial Results (GAAP)
  Q2'2015 Q1'2015 Q2'2014
Revenue $942M $1.03B $1.44B
Gross Margin 25% 32% 35%
Operating Income -$137M -$137M $63M
Net Income -$181M -$180M -$36M
Earnings Per Share -$0.23 -$0.23 -$0.05

For the quarter AMD recorded $942 million in revenue. This marks the first time in quite a number of years that AMD’s quarterly revenue has dipped below $1 billion, indicating the challenges the company has faced as the PC market continues to be soft and AMD CPU/APU sales have declined. All told the company’s revenue has dropped 8% compared to Q1, and on a year-over-year basis it has dropped 35%

Unsurprisingly given AMD’s low revenue, operating and net income for the quarter were both losses. On a GAAP basis operating income was a $137 million loss while the net loss was $181 million, both of which are virtually unchanged from AMD’s Q1’15 performance. Meanwhile on a non-GAAP basis the operating income loss was $87 million and the net loss $131 million, both of which were accelerated versus the last quarter. On a year-over-year basis both GAAP and non-GAAP show a significant increase in losses versus Q2’14.

AMD Q1 2015 Financial Results (Non-GAAP)
  Q2'2015 Q1'2015 Q2'2014
Revenue $942M $1.03B $1.44B
Gross Margin 28% 32% 35%
Operating Income -$87M -$30M $88M
Net Income -$131M -$73M $38M
Earnings Per Share -$0.17 -$0.09 $0.05

Meanwhile AMD’s gross margin has taken a hit as well. The GAAP gross margin is just 25%, while the non-GAAP gross margin is slightly better at 28%, the difference being due to AMD's $33 million charge to move 20nm products to FinFET. Both metrics are well below the kind of 30-35% margins AMD wants to sustain in the long run.

In discussing their financial results for the quarter, AMD cited the soft PC market as the biggest factor pulling down the company’s performance. Historically in turn Q2 is typically the softest quarter for technology companies, however in AMD’s case it has been especially soft. With AMD’s single biggest product line being APU sales and with those sales weaker than expected, it has significantly impacted AMD’s bottom line.

Of particular note, AMD is stating that they believe the impending launch of Windows 10 was a significant factor in their weak sales for the quarter, as consumers held back on buying new systems until the new OS is out, and OEMs held back in releasing newer designs in order to align those releases with the new OS. This has particularly impacted Carrizo, AMD’s latest generation mobile APU, given that it was released only two months before the launch of Windows 10. AMD is expecting that mobile sales will rebound once Windows 10 launches, though as we’ve seen with the launch of Windows 8 in 2012, that isn’t necessarily a given.

AMD Q2 2015 Computing and Graphics
  Q2'2015 Q1'2015 Q2'2014
Revenue $379M $532M $828M
Operating Income -$147M -$75M -$6M

Breaking down AMD’s revenue by business, soft APU sales pulled down the Computing and Graphics business overall, and led to Enterprise, Embedded, and Semi-Custom carrying a larger share of the company. Computing and Graphics revenue was down 29% over Q1’15 and a staggering 54% over Q2’14, primarily due to weak sales of notebook APUs, while graphics revenue was also down. Despite this the ASPs for both CPUs/APUs and GPUs were up on both a sequential and year-over-year basis, as while overall sales are lower, the prices of what AMD has sold has increased thanks to a richer product mix and the launch of the R9 300/Fury series at the tail end of the quarter.

AMD Q2 2015 Enterprise, Embedded and Semi-Custom
  Q2'2015 Q1'2015 Q2'2014
Revenue $563M $498M $613M
Operating Income $27M $45M $97M

Enterprise, Embedded, and Semi-Custom on the other hand had a much stronger quarter, with revenue there increasing 13% sequentially, though year-over-year revenue was still down by 8%. As part of AMD’s long-term plans they are attempting shift more of their resources and revenue over to this business, so any kind of growth is welcome growth for the company. However for this quarter in particular AMD was not prepared for such a high ratio of revenue from this business group, with the lower margin of AMD’s semi-custom products dragging down the overall gross margin.

Finally, compounding AMD’s difficulties this quarter was the impact of their previously announced plan to move the rest of their in-development 20nm products to a newer FinFET node. This project resulted in a further $33 million hit to AMD’s books, driving up losses and decreasing gross margins. The good news for AMD is that this is a one-time charge, so they won’t have to pay for it again.

Looking forward, AMD’s projections for Q3 are that sales will pick up in both the Computing and Graphics business and the Enterprise, Embedded, and Semi-Custom business. AMD is expecting improved PC sales as a result of Windows 10 and Carrizo reaching the market – in particular shoring up the company’s poor notebook sales – while orders for semi-custom processors for the game consoles will pick up in order to build up inventory for Christmas. AMD expects overall revenue to be up 6% (+/- 3%) sequentially, though the non-GAAP gross margin is expected to come in at just 29%, which is below where AMD would like to be and means there’s a good chance AMD will be in the red again for Q3.

Longer term, the company is still working on bringing their expenses under control and better aligning them with revenue, a task that becomes harder after quarters like these, with AMD admitting that the profitability timeline for the company has been pushed out. As it stands AMD still has over $800 million in cash and equivalents on-hand, however the company has also mentioned that restructuring to further cut expenses is not off the table, and that the company is assessing the option.

Source: AMD Investor Relations

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  • Kjella - Thursday, July 16, 2015 - link

    "Profitability timeline has been pushed out", more like total collapse of their CPU/APU/GPU business. They spent $526M to get $379M in revenue for a $147M loss, that's a -27% profit margin and we know Zen isn't coming until 2016 while Intel is launching Skylake next month. On the GPU side Fury will do okay but it's hardly a Maxwell-killer and currently only covering the 980/Ti segment until the Nano is here.

    Sure they'll still have the console sales but they can't really influence them in any way as the specs are frozen, Sony/Microsoft/Nintendo control the volume by pricing and it will sell less as the console gets older. I guess they have some other semi-custom business too, but not enough to break even. And unlike last quarter, most of this is not any special charges they simply sell at a loss. Changing process node shouldn't really be separated out as a special cost at all, it's part of being in the chip business. They're just doing it to make their non-GAAP numbers look less terrible. Same with cash flow, they've cashed out all their marketable securities. Past the make-up it's pretty grim though.
  • johnpombrio - Thursday, July 16, 2015 - link

    I just love non-GAAP numbers from AMD. Rosanne says "There's always somthin' ". With AMD there is always somethin' even if it is normally just the cost of doing business. Ignore the non-GAAP this quarter as it is pretty much a fabricated number to lipstick over their bruised and bloody lips.
  • jjj - Friday, July 17, 2015 - link

    On the bright side during the call they said "we've actually just taped out the first couple of FinFET designs".
    Long way to go from tapeout to retail but it's a big milestone.
  • TristanSDX - Friday, July 17, 2015 - link

    They tape-out some test vehicles :)
  • TristanSDX - Friday, July 17, 2015 - link

    "They spent $526M to get $379M in revenue" - not really
    CPU / GPU itself are profitable, but they must spend lot of money for new designs Zen/R4xx, and this is booked to Computing and Graphics department financial balance. They may not spend these money, and make 526 * 25% = 131mln$ profits, but that mean EOL for them within a year.
  • Kjella - Friday, July 17, 2015 - link

    The gross margin is 25% total, we don't have it per segment and it doesn't include the cost of running the business which is another $134 million or interest of $40 million. But in total the net loss was $181M, R&D was $235M so even if they ended all R&D today they'd only turn a $54M profit before the restructuring costs of laying them off. Assuming >$54M of that R&D is in semi-custom they're already losing money before investing in new designs.
  • lyeoh - Sunday, July 19, 2015 - link

    Bottom line is AMD is dying faster and if AMD dies Intel might charge us even more or give us less.
    To keep AMD alive for longer we need more AMD customers and supporters to buy more AMD stuff, maybe even buy more than they actually need.
    So everyone please stop trying to convince random strangers on the Internet that Intel or Nvidia is better. You can convince your loved ones if you wish, but let the AMD customers and fans do what they must for the greater good.
  • PenguinJim - Tuesday, July 28, 2015 - link

    "So everyone please stop trying to convince random strangers on the Internet that Intel or Nvidia is better. You can convince your loved ones if you wish, but let the AMD customers and fans do what they must for the greater good."

    I won't be able to bring myself to lie, but if I see someone considering a Nvidia card, I will leap in to check that they have considered the AMD equivalent. (I don't think I could bring myself to do that for AMD CPUs, sorry - the gap is too wide! I'll just keep quiet! ;))
  • John3000 - Saturday, November 28, 2015 - link

    AMD CPU's are good for their price. Their killer price is the reason why intel bought skylake so early since haswell was not able to give enough competition in value oriented segment.
  • John3000 - Saturday, November 28, 2015 - link

    In field of Commercial CPU there are only two firms AMD and Intel and same goes with commerical GPU. Those business are worth billions or even trillions.

    THere is no chance that a firm in such low competition business will die. Just look at fx 8 core series, it was not selling well and AMD dropped prices of the chip to peanuts.

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