), which manufactures and markets microprocessors and graphics
processors used in PCs, servers and gaming systems, reported its Q4
2013 earnings on January 21. Having incurred losses for
several quarters, the company only returned to profitability and
positive cash flow last quarter. But the momentum continued into
year end as its net income increased by 85% sequentially in Q4
2014. At $1.6 billion for the year-end quarter, AMD's revenue
expanded by 8.8% quarter over quarter and 37.6% year over year,
mainly driven by the strong growth in its graphics and visual
solutions business which was offset by lower computing solutions
revenue. Computing Solutions revenues were down 9% sequentially and
13% year to year, as the company continued to lose market share to
Intel. Clearly, other markets (discussed below) are driving
growth. For full year 2013, AMD reported a 2.3% decline in
AMD announced a three-part restructuring plan in Q3 2012 in
an effort to strengthen its competitiveness in the
market, and better manage its expenses and cash. In 2013, the
company completed the restructuring phase which helped
generate strong revenue growth and a return to profitability in the
second half of the year (by successfully ramping strong and
diverse set of new products). AMD claims to have lowered its
operating expenses by more than 20% in the latter part of 2013,
compared to the Q1 2013 level, and exceeded its target of deriving
over 20% of its revenue from semi-custom and embedded products.
In 2014, AMD aims to further diversify its portfolio and derive
a larger share of its revenue from high growth
markets, including semi-custom and ultra-low power
processors, professional graphics processors, as well as processors
for dense server and embedded solutions. However, since AMD
continues to derive a significant portion of its revenue from the
PC market, it remains highly sensitive to any adverse development
in the industry.
price estimate of $3.55 for AMD
is at a discount of approximately 15% to the current market price.
We are in the process of updating our valuation.
See our complete analysis for AMD
Strong Game Consoles Sales Drove Growth In Q4
AMD's graphics solution group witnessed a 29% sequential and a
165% annual growth in Q4 2013, which was primarily driven by higher
demand for game console semi-custom SOCs, as well as new R7
and R9 series of GPU products.
AMD devised a unified gaming strategy in March 2013 that
addresses its plan to drive the gaming market across
consoles, cloud platforms, tablets and PCs. It believes that
it is effectively positioned to drive the next revolution in gaming
and now powers all major next generation consoles including
Sony's PlayStation 4, Nintendo's Wii U and Microsoft's (
) Xbox One. Sony and Microsoft together sold more than 7 million
units in less than two months, more than double the number of prior
generation consoles sold in their first quarter of
AMD believes that gaming is one of the key pillars of its
semi-custom chip business. It shipped millions of units to
support the next-generation Sony and Microsoft game consoles
in Q3 2013 and Q4 2013, which utilize AMD's system-on-chip
Jaguar core and Radeon HD graphics chips. It expects the
positive momentum to continue with the rise in game console
SOC shipments and new wins from its semi-custom design
2013 Was A Record Year For Professional Graphics
AMD currently accounts for 21% of the professional GPU
market, which is dominated by Nvidia. Strong performance in
professional graphics was an important factor that drove AMD's
growth in the last six months. It marked its sixth consecutive
quarter of revenue and share growth in the professional
graphics business segment, which accounts for approximately 7%
of its valuation (as per our estimate).
AMD believes that it can drive additional growth in the
professional graphics segment based on the incremental focus
and investments it is making to strengthen its product portfolio,
expand its work with key software developers and secure
more design wins.
) has used AMD's dual FirePro professional graphics
solutions in its recently launched Mac Pro desktop. Digitimes
reports the deal could increase AMD's professional GPU market share
to 30% by the end of 2014.
A Broad Embedded Products Portfolio To Target
In September 2013, AMD announced its future road-map
for the fast growing embedded computing market. In addition to
the new improved x86 processors, the company unveiled its first
ARM-technology based processor, extending its ambidextrous
strategy to embedded markets. It is now the first company to offer
its customers both ARM and x86 architecture based
solutions for low-power and high-performance embedded compute
As per a recent VDC Research report, the market
for traditional and intelligent embedded CPU systems will grow
36% in the next few years, from 330 million units in 2013 to
over 450 million units by 2016. The x86 and ARM architecture
together are estimated to account for 82% of the total addressable
AMD's embedded business grew sequentially throughout 2013. The
company has a broad range of embedded processors for different
segments in its portfolio, offering a number of price,
performance and power options to meet the needs of embedded
designers. Its strong embedded design pipeline will drive growth
for this business across 2014.
Collaboration With ARM To Help Tap Growth In
In October 2012, AMD announced its collaboration with ARM
Holdings to design server processors using the ARM technology
in addition to its x86 processors for multiple markets, starting
with cloud and data center servers. The collaboration with ARM
makes AMD the only processor provider to bridge the x86 and 64-bit
ARM ecosystems. AMD believes that ARM CPUs have the potential
to account for 20% of the server market by 2016 or 2017.
AMD remains on track on sampling the industry's first
64-bit ARM server SOCs in Q1 2014 and claims to be
seeing strong interest from both traditional server OEMs and
end customers like cloud providers. By offering manufacturers
and data-center operators cheaper and more power-efficient
processors,we believe that AMD will manage to re-gain some of its
market share from Intel.
Q1 2014 Outlook
- Revenue to decline by 16% sequentially, plus or minus
- Computing solutions segment revenue to be down in line
with seasonality. Graphics and visual solutions revenue to be
decline sequentially due to a strong Q4 for semicustom SOCs.
- Non-GAAP gross margin of 35% and non-GAAP operating expenses
of approximately $420 million.
- Revenue to rise year over year.
- Non-GAAP operating expenses to be in the range of $420-$450
- Taxes of approximately $3 million per quarter.
- Capex of approximately $120 million.
How a Company's Products Impact its Stock Price at