Advanced Micro Devices (AMD, Financial) has struggled to grow and be profitable, but both goals have remained out of reach for the last two years because of fierce competition from Intel (INTC, Financial) and Nvidia (NVDA, Financial). A new product line that will make cheap notebooks faster without making them more expensive is the firm’s last saving grace, but will it help shareholders?
Advanced Micro Devices hopes to get its groove back with a new external GPU solution that will make ultrathin notebooks handle 4K video. Tech marketing lead Robert Hallock posted a picture of the product on Facebook (FB, Financial): An external GPU that plugs into a laptop and makes it as fast and powerful as a desktop gaming rig.
The idea isn’t terribly elegant, but there is a market for “gaming on the go,” as Hallock put it, and the feedback on Facebook was largely excitement from gamers.
New products don’t mean new profits
While gamers can be excited about the new product, investors should be cautious.
Advanced Micro Devices has massively underperformed its biggest rivals in the GPU and CPU markets and has fallen 75% in the last five years.
Those losses have more or less moderated in the last three years, when the company has remained largely range bound.
This is actually a good performance relative to Advanced Micro Devices’ financial results, which just goes to show how poorly Advanced Micro Devices has been doing.
After a brief reprieve in 2014, revenues fell dramatically in 2015, and there is no expectation of revenues getting back to previous levels any time soon.
Additionally, the fall in revenues hasn’t been matched by a simultaneous and equitable fall in revenue costs, meaning gross profits have collapsed by nearly half in just two years. After going negative two years ago, the company’s operating loss continues to expand, yet the company’s stock price has remained where it was at the beginning of 2013.
Underperforming the competition
Chipmakers have struggled in recent years due to intense competition and falling margins, but this hasn’t meant everyone suffers equally. In fact, Intel has seen revenues rise over the last three years, as have gross profits.
While it’s true operating income has fallen, this is mostly due to rising research and development costs –Â a good sign since it shows Intel is still innovating and looking for future growth.
The story at Nvidia is even better.
With revenues strongly up last year and gross profits and operating income on the rise, Nvidia shareholders are clearly benefiting from the company’s GPU products as well as its self-driving car initiatives and media streaming products.
AMD: More advances needed
While an external GPU is an exciting niche product, Advanced Micro Devices needs more to compete. Nvidia and Intel have continued to provide strong financial performances even in a challenging macroeconomic environment. Advanced Micro Devices has not. Until it does so, investors need to think twice about buying the stock on a hot new product announcement.
Disclaimer: I have no positions in any of the stocks mentioned in this article and no intention to initiate a position within the next week.
