AMD: Headwinds expected to continue

Yesterday AMD (NYSE:AMD) released second quarter results, announcing revenue decline of 11 percent sequential decrease and a 10 percent decrease year-over-year of $1.41 billion.
Written by Gery Menegaz, Contributor

Yesterday AMD (NYSE:AMD) released second quarter results, announcing revenue decline of 11 percent sequential decrease and a 10 percent decrease year-over-year of $1.41 billion, net income of $37 million, or $0.05 per share, and operating income of $77 million.

The company reported non-GAAP net income of $46 million, or $0.06 per share, and non-GAAP operating income of $86 million. And gross margins of 45 percent, non-GAAP gross margin 46 percent.

These numbers are in line with lowered expectations and also projected third-quarter revenue and gross margin below expectations due to chip shipments which were lower than originally anticipated.

Rory Read, AMD president and CEO, attributes the soft returns with weakness in the global economy, softer consumer spending, and lower channel demand in China and Europe, with the Computing Solution segment down 13%.

We are taking definitive steps to improve our performance and correct the issues within our control as we expect headwinds will continue in the third quarter as the industry sets a new baseline. We remain optimistic about our core businesses as well as future opportunities with our competitively differentiated next-generation Accelerated Processor Units (APUs). Our recently launched Trinity APU continues to gain traction with customers. We are committed to driving profitable growth,” he added.

GAAP Financial Results
Non-GAAP Financial Results

In the above quote, Read is referring to AMD’s expanded notebook offerings, having recently refreshed its mobile APUs, which may be found in systems from leading manufacturers including HP, Lenovo, Samsung, Toshiba, ASUS, and Acer.

They are also looking to leverage recent strategic partnerships with ARM, Imagination Technologies, MediaTek and Texas Instruments, as announced at the AMD held the second annual AMD Fusion Developer Summit (AFDS), these partnerships are designed to accelerate software innovation. Something needed in the face of declines.

Though AMD is hoping to recapture some of the Graphics segment with the launch of the AMD Radeon™ HD 7970 GHz Edition, revenue was down and remained flat year-over-year. ADM sited, GPU revenue down 5 percent in a seasonally down quarter, due to lower unit shipments in the channel.

In general AMD has scary things to say about the PC market, "For the first time since 2001, client PC shipments have declined sequentially for three consecutive quarters-and have been below historical averages for the last seven quarters," AMD CEO Rory Read said during the chip supplier's second quarter earnings conference call.

"We also believe the PC industry may be resetting to a new baseline," he said.

AMD was not alone though, as Microsoft posted first quarterly loss as a public company, with revenues falling 13% in the first quarter. Windows 7 is now on more than half global enterprise desktops. 

It appears that consumers are using their purchasing power to deprioritize spending on PCs, opting to purchase the latest in smartphones or tablets. Also, the BYOD movement may be contributing to fewer PCs being purchased by employers. 

What do you think is happening in the PC market? Let me know.

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