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AMD takes a beating in Q1, abandons SeaMicro, dense server business

AMD's quarterly results for Q1 are in, and it's an ugly situation overall. The company's revenue has taken a hammering over the past 12 months, and its core GPU and CPU markets are the worst affected.
By Joel Hruska
AMD_Logo10

AMD reported its Q1 2015 results last night, and they're not pretty. The company's Q1 2015 revenue was $1.03 billion, a decline of 17% sequentially and 26% year-on-year. Gross margins fell slightly year on year, to 32%, though that improved on Q4 2014's 29%. AMD reported a net loss of $180 million, compared to Q1 2014, where it recorded a $20 million loss.

As part of its ongoing plan to "simplify and sharpen the company’s investment focus," AMD has announced that it is exiting the dense server business, effective immediately. AMD stepped into this business segment in late 2012, when it acquired the company for $334 million, but did virtually nothing with the company thereafter.

When AMD bought SeaMicro, the general expectation was that the company must have seen something about that company's Freedom Fabric interconnect that made it worth purchasing. It didn't take long for AMD to go dark on that front, however. In June 2013, AMD's ARM CPU slides looked like this:

AMD Seattle - June 2013AMD Seattle -

In January 2014, when it attended the Open Compute Summit, AMD's Seattle slide looked like this:

amd-seattle-2AMD Seattle - The sharp-eyed will notice that while the data appears mostly identical, any mention of 16-core SOCs or AMD's Freedom Fabric have both been removed. AMD has also declined to discuss Sea Micro or how the company's technology fit into AMD's future server plans. Killing SeaMicro doesn't mean that AMD has given up altogether on server products, but it does throw a wrench into the mix; dense servers were one of the high-growth areas that Rory Read (repeatedly) identified in various discussions about the future of the company during his tenure as CEO. There's also no word on whether this will impact Project Skybridge. 

Other results

There's no way around this -- the bottom has fallen out of AMD's traditional business. PC desktop and client sales for APUs and graphics (AMD combines the segments) has fallen by nearly 40%, to $532 million, from $861 million just a year ago. It's hard to understate how much of a shift this is -- while AMD always competed as an underdog, is a fraction of the size it was a few years ago.

AMD earnings

We've written in the past about how AMD's long-term plan involves strategic repositioning and additional revenue from other, non-traditional sources, but this is a bloodbath. We've heard rumors that Intel may have taken the gloves off this past quarter, sacrificing its own margins to maintain market share, but haven't seen concrete evidence to that effect.

The hard truth is, there's not a lot of good here. AMD reportedly has a new GPU part coming in the near future, but GPUs have never been where AMD banked a lot of net profit, and there's no reason to expect that this has changed. Fighting with Nvidia over the high-end GPU space wins AMD mind share and fans, but it doesn't generate billions of sales in a year-on-year basis. The console business continues to be a decent source of revenue for the company, but its royalty structures and earnings are front-loaded. As time passes, AMD earns smaller profits on that front.

2015 was always going to be a transition year for AMD, but the next 12 months are looking extremely rocky. During the conference call, Lisa Su noted that she believed the second half of the year would be an improvement over the first year, but we'll have to wait for the May 6 analyst day to know more. AMD does have two new semicustom wins on-track (it hasn't announced its customers yet), but doesn't expect to ship those products for revenue until H2 2016.

AMD does expect to see some stronger results thanks to the launch of Carrizo and the launch of Windows 10 in July, but the company is facing a very difficult operating environment.

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