AMD's 1Q Loss Narrower than Expected
Advanced Micro Devices (AMD) reported a loss of 13 cents per share for the first quarter of 2013, better than the Zacks Consensus Estimate 17 cents loss per share owing to solid execution and cost control management.
Revenues
AMD generated revenues of $1.09 billion in the quarter, down 5.8% sequentially and 31.4% year over year. The quarter’s revenues were slightly better than its guidance of a 9% sequential decline (at the mid-point). The sequential decline was due to a 9% decrease in the Computing Solutions segment, partially offset by a 3% increase in Graphics segment’s revenues.
Revenues by Segment
Computing Solutions comprised 69% of AMD’s sales in the last quarter, down 9.0% sequentially and 38.0% from the year-ago quarter. The first quarter marked a continuation of the softening trends noticed in 2012, owing to macro conditions that impacted consumer spending.
AMD’s Graphics business generated the remaining 31% of its sales, up 3.0% sequentially but down 12.0% from the year-ago quarter. The sequential increase was due to accelerating desktop GPU channel sales, game console royalty sales and workstation graphic sales.
Management remains optimistic about the design wins in the notebook discreet market, which will drive its mobile share growth in the second half of 2013.
Operating Results
Reported gross margin for the quarter was 40.9%, up significantly from 15.4% in the prior quarter and 1.7% in the year-ago quarter. The sequential increase was due to a $20 million benefit from sales of certain previously reserved Llano products.
Operating expenses of $491.0 million decreased 17.9% from $598.0 in the year-ago quarter. However, the reported operating margin was (9.0%), better than the year-ago quarter of (36.6%) driven by higher gross margins. However, both research and development (R&D) expenses and marketing, general and administrative expenses (as a percentage of sales) increased.
The quarter’s GAAP net income was ($146.0) million or loss per share of 19 cents, down from ($590.0) million or 80 cents earned in the comparable quarter last year. Excluding restructuring charges and intangible amortization charges but including stock-based compensation expenses, non-GAAP net loss was $94.0 million or loss per share of 13 cents compared to a net income of $92 million or earnings of 12 cents a share in the year-ago quarter.
Balance Sheet
AMD exited the first quarter with cash, cash equivalents and marketable securities of approximately $1.0 billion, flat sequentially. Trade receivables were $645.0 million, up from $630.0 million in the prior quarter.
During the quarter, AMD used $155.0 million of cash for operations, spending $20.0 million on capex.
Guidance
Management expects second quarter 2013 revenues to increase 2.0% (+/- 3.0%) sequentially. Gross margin is expected to be 39%. Operating expenses are expected to be approximately $480.0 million.
Our Take
AMD’s top-line numbers for the quarter were slightly better than its guidance, supported by new products, as promised. The company’s bottom line also beat the Zacks Consensus Estimate. A more conducive market, increased game console wins, adoption of new products, position in graphics and good execution are expected to pull the company out of the weak PC market.
For this purpose, AMD had announced a massive restructuring plan to align the cost structure with current demand trends. Management expects the initiative to reduce the cost base by 25% by the third quarter of 2013.
Additionally, the company is providing chips for game consoles to lessen the company’s dependence on the declining personal computer market. The recent announcement that Sony’s (SNE) PlayStation 4 and Microsoft’s (MSFT) new Xbox video game console will feature AMD’s processor is a big win for AMD. According to management, the game console industry is expected to ship more than 40 million game consoles in 2013 and AMD can be one of its biggest beneficiaries.
We believe AMD is on the right track. It is trying to position itself strongly in the gaming market, which holds potential for growth in the next few quarters.
Also, the company plans to diversify its business into new embedded markets, including communication, industrial and gaming among others. It expects to increase revenue contribution from its embedded business and increase market share.
Currently, AMD has a Zacks Rank #3 (Hold).
Investors should look out for some other stocks that are slated to report this earnings season with positive Zacks Rank and Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method).
Sandisk Corp. (SNDK), with an ESP of +2.41% and a Zacks Rank #1 (Strong Buy)
Applied Materials Inc. (AMAT), Earnings ESP of +7.69% and Zacks Rank #1 (Strong Buy)
Amazon.com (AMZN), Earnings ESP of +100.0% and Zacks Rank #3 (Hold)
Read the Full Research Report on AMD
Read the Full Research Report on SNE
Read the Full Research Report on SNDK
Read the Full Research Report on AMZN
Read the Full Research Report on MSFT
Read the Full Research Report on AMAT
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