HiGame

AMD announced its quarterly results for Q3 2015 yesterday, and the short-term news wasn’t good. While company revenue rose by 12% compared to Q2 2015, total Q3 sales were down 25% year-on-year. AMD reported that demand for both its semi-custom and PC hardware increased in Q3 thanks to Carrizo’s ramp and the approaching Christmas holiday. AMD announced several new projects to hopefully boost its revenue in 2016 and beyond, including the sale of its assembly, test, mark, and pack facilities to a new joint venture with Nantong Fujitsu Microelectronics (NFME).

As part of this deal, AMD will transfer 1700 employees to the new company, contribute its facilities in Penang, Malaysia, and Suzhou, and sell 85% of its share in these facilities and operations to NFME. AMD will receive $371 million, including $320M in cash. Earlier this year, we heard rumors that AMD had attracted a new source of capital that would help offset its cash burn-through rate, and this announcement confirms it.



AMD reported some modest ASP improvements in GPUs, but CPU/APU prices were down sequentially and year-over-year. The enterprise, embedded, and semicustom segment (EESC) grew 13% sequentially, thanks to seasonally higher sales of Xbox One / PS4 chips.

Analyzing AMD’s market position

Last quarter, we noted that AMD’s APU sales had tanked year-on-year, and while Q3 improved those results, the gap is still critical. For the past 15 years (save for a brief period in 2004 – 2006), AMD has had one critical weakness compared to Intel — it lacked a low-volume, high-margin business that could shield it from the vagaries of the consumer space. One critical reason Intel is still clocking in margins north of 60% and recording solid revenue quarter after quarter is because Intel’s share of the still-growing enterprise market is propping up its financials. AMD has no such shield.

Even in the consumer space, AMD has very little presence in the high-end boutique systems that are driving mobile gaming or high-end consumer sales. Its Radeon Fury family, including the R9 Nano, will sell into these segments (Fury sales are credited with improving GPU ASPs), but it can’t offer a high-end AMD solution that’s competitive with in both CPU performance and power efficiency. The lower-end systems that anchored AMD’s APU sales are falling to tablet SKUs.

AMD bears full responsibility for its own mistakes and missteps, but the company would be in a vastly different position if the PC market was still growing at 2-3 percent a year, or even holding flat. The steep quarterly declines that we’re seeing are killing the company’s profits — AMD has been unable to trim its costs faster than the market is trimming its income. The company isn’t just trying to reinvent itself — it’s trying to reinvent itself in the worst, most prolonged slump in PC sales, ever.

Subtle shifts in strategy

One thing Lisa Su noted yesterday is that the company is exploring shifting from an “opportunistic” licensing strategy to a strategic one. Put simply, AMD wants to see if its patent portfolio can be shopped around for licensing opportunities. Su didn’t use any of the language patent trolls tend to prefer, like “Aggressively pursuing infringement cases” or “We have a new method of sucking the blood out of grandmothers and war orphans,” but I suspect there’s two motives behind the move. First, AMD needs the revenue patent licensing could bring. Second, AMD wants to show investors that it’s serious about leveraging all available assets.

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