AMD Guides to Strong 2012

April 19, 2012

Executives were positive on AMD's prospects for the rest of 2012 at the first quarter analyst call today.

The numbers for Q1 were towards the top of AMD's previous guidance, and contrasted well with arch-rival Intel's report. Because of the acquisition of SeaMicro and a deal to exit ownership and certain contracts with GlobalFoundries, GAAP and non-GAAP net income and EPS results were vastly different.

Revenue was $1.59 billion, down 6% sequentially from $1.69 billion and down 2% from $1.61 billion in the year-earlier quarter. Prior guidance had been for Q1 revenue to be down sequentially from 5% to 11%. Graphics chips (GPUs) were the main reason for the better-than-normal seasonality.

GAAP net income was negative $590 million, down sequentially from negative $177 million, and well down from positive $510 million year-earlier. That is a big hole, but included a roughly $700 million charge related to GlobalFoundries. In addition the year-earlier number included a $492 million gain in an equity position, also in Global Foundries.

GAAP EPS (earnings per share) were negative $0.80, down sequentially from negative $0.24, and down from positive $0.71 year-earlier.

I prefer GAAP numbers as a baseline, but in this case non-GAAP numbers give a clearer picture of reality, and of what we are likely to see going forward. Non-GAAP net income was $92 million, down sequentially from $138 million but up from year-earlier $56 million. EPS was $0.12. Adjusted EBITDA was $215 million.

Those are not great profits, but 2012 is likely to be a year of ramping, despite ongoing intense competition from Intel and NVIDIA. Because of improved 32 nm and 28 nm yields (AMDs new process technology, but behind Intel's 22 nm), supply constraints are unlikely.

The key take away is that computer makers, especially notebook computer makers, have signed up for a record number of designs using next generation AMD APUs. These have the combination manufacturers are looking for: great graphics, strong CPU performance, and low energy use, at a great price point. OEMs will be able to sell thin and light "ultrathin" computers at mainstream prices, whereas the Intel design (ultrabooks) will be in a higher price category. Trinity AMD APUs will be the upgrade for Llano for mainstream notebooks, and Brazos 2.0 will upgrade Brazos for economy notebooks.

In servers AMD is less competitive, but the technology acquired with SeaMicro should help in gaining share late in 2013. Gaining market share with Opteron chips will be a gradual process.

Both AMD and Intel, and in fact the entire Windows computer ecosystem, are highly likely to be helped by the introduction of Windows 8 later this year, exact date not yet announced.

Guidance for Q2 is for sequential growth from zero to 6%. Even at the low end of the range that is considerably better than the typical Q2 seasonal decline of 4%. The real proof of whether AMD has become a tech tiger again will be in Q3. If Trinity based notebooks are a hit for back to school sales, then 2012 will be a very good year for AMD and its investors.

Disclaimer: I am long AMD. I won't make any changes for at least a week after this article is published.

See also my AMD Q1 2012 analyst call summary;

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Copyright 2012 William P. Meyers