Intellectual Property, Value Add Shine to Graphics Pioneer AMD

(Continued from Prior Part)

Impact of AMD’s restructuring efforts

In the past few series, we have noted that Advanced Micro Devices (AMD) has been restructuring its business by offloading assets to cut its expenses. All these efforts come as the company is looking to recover the past four years of losses.

AMD has been able to reduce its SG&A (selling, general, and administrative) expenses by 28% year-over-year to $108 million in fiscal 3Q15. Let’s look at AMD’s first three quarters of 2015.

Revenue

After reporting declining revenues in the first half of 2015, AMD reported growth in the third quarter. The company’s revenue rose 12.6% quarter-over-quarter to $1.06 billion in fiscal 3Q15, as the revenue was driven by a seasonal increase in the sales of semi-custom chips, desktop processors, and GPUs (graphics processing units).

If we take out the seasonal effect and compare apples with apples, the company’s revenues fell 25.8% YoY (year-over-year) during the quarter. Nvidia reported a 16% YoY increase and Intel reported a 0.6% YoY decline in revenue in fiscal 3Q15.

AMD’s fiscal 3Q15 revenues were pulled down by a 46% YoY decline reported by the Computing and Graphics segment. The Enterprise, Embedded, and Semi-Custom segment reported a 2% YoY decline. However, this segment is expected to see improvement driven by strong demand from gaming consoles.

Profitability

Although AMD managed to reduce its SG&A expense significantly, it failed to increase its gross margin. The company’s gross profit margin has been declining steadily from 32% to 25% to 23% in fiscal 1Q15, 2Q15, and 3Q15, respectively. The decline was due to the impact of the inventory write-down of older generation APUs (application processing units).

On the other hand, Intel’s gross margin has been hovering above 60% and Nvidia’s around 55% during the same period. AMD has managed to significantly reduce its operating loss from $330 million in fiscal 4Q14 to $137 million in fiscal 1Q15 through restructuring.

AMD is now transitioning to Samsung (SSNLF) and Global Foundries’ 14nm FinFET (Fin-Shaped Field Effect Transistor) technology to compete with rivals in terms of advanced technology. The PowerShares QQQ ETF (QQQ) has more than 8.0% exposure in the semiconductor market, with a 3.19% holding in INTC and 0.34% in NVDA.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - Tough Sledding for AMD Stock since 2012

• Part 2 - AMD’s Growth Strategy Focused on Gaming, Data Center Platforms

• Part 3 - Zen Core Processor Gives AMD Investors Hope for Future Growth