AMD Q3 misses expectations: New CEO orders restructuring, global job losses; outlook bleak

The chipmaker announced on Thursday at its fiscal third-quarter earnings its restructuring plan, which will lead to a 7 percent drop in global headcount.
Written by Zack Whittaker, Contributor

Just over a week after AMD saw its executive board shuffle, with former chief executive Rory Read out and Lisa Su taking the top spot, all eyes were on the new chipmaker's boss for a new direction.

AMD's fiscal third quarter results saw worse-than-expected results, after its main moneymaker saw difficulties amid "challenging market conditions."

The company reported third quarter revenue of $1.43 billion, a 2 percent year-over-year decrease, and net income of $17 million, or 2 cents a share (statement).

On a non-GAAP basis, AMD reported net income of $20 million, or 3 cents a share

Wall Street was expecting AMD to report third quarter earnings of 4 cents a share on revenue of $1.47 billion.

So it was a miss on both estimates. Not a great result for the company, whose ongoing recovery a year ago looked like it could continue.

In prepared remarks ahead of the earnings release, Su said the company's Enterprise, Embedded, and Semi-Custom division was "strong," but the remaining Computing and Graphics division suffered during the quarter. 

She said:

"AMD's third quarter financial performance reflects progess [sic] in diversifying our business. Our Enterprise, Embedded and Semi-Custom segment results were strong; however, performance in our Computing and Graphics segment was mixed based on challenging market conditions that require us to take further steps to evolve and strengthen the financial performance of this business. Our top priority is to deliver leadership technologies and products as we continue to transform AMD." 

(Yes, that's a typo you spotted in the new chief executive's prepared remarks.)

Gross margin was 35 percent in the third quarter, down from 36 percent in the year-ago quarter

Meanwhile, AMD's cash and equivalents took a tumble, down to just $938 million at the end of the quarter, which is down from $1.2 billion last year.

Because of this, Su has ordered a company reorganization, which will leave 7 percent of its global workforce without a job. That's going to leave a $57 million hole in the company's pocket in the current fourth-quarter, which AMD attributes to severance.

Another $13 million charge will land in the first-half of 2015 relating to real estate actions.

The restructuring is slated to occur in the current fourth-quarter.

Breaking down the numbers further:

Its Computing and Graphics unit, which develops graphics chips for desktops and laptops, saw a 6 percent quarter-over-quarter and 16 percent year-over-year decline, which AMD attributed to weaker chipset and graphics processor sales. That was because laptops were in lower demand, the company said. The unit's operating loss was $17 million, compared to $6 million in its fiscal second-quarter earnings.

But on the brighter side, although the Enterprise, Embedded and Semi-Custom unit's revenue was down 6 percent quarter-over-quarter and 21 percent year-over-year, its operating income grew from $97 million in the second quarter to $108 million.

But it's not exactly what Su wanted going into this job, which she took earlier this month.

AMD continues to trundle along quarter-over-quarter, without much fanfare or surprise. Despite a few hiccups it faced thanks in part to Intel's anticompetitive behavior, the chipmaker continues to remain much at the mercy of the computer and games console market.

It's also had to take a serious look at its own business as continues to restructure its internal IT strategy and in-house operations, with an aim to streamline its processes and cut down on operating costs. 

In the past two years alone, AMD has reduced its 18 global datacenters down to just two, by condensing its hardware down to smaller chips and server racks. That datacenter consolidation alone saved the company $8.5 million in 2013 alone, while making it more responsive to the ever-changing market it works in.

AMD also remains in good status within its non-PC market, particularly the Mac business. Apple's desktop line-up continues to feature AMD chips for graphics processing. It gives the chipmaker a bit more time to develop its outward strategy into different markets, notably into the burgeoning mobile and wearable market.

It's little-by-little for AMD. Very little has changed for the company in the last two years. Although there's new leadership, AMD faces the same old challenges. And to make matters worse, AMD's stock price has tumbled by nearly half of what it was in the same fiscal quarter year ago. 

But now with Su at the company's helm, all eyes are on her to push the company's direction forward and into a new era. That's one of the reasons why Read was said to have been nudged out of the executive suit.

Looking ahead to its fourth-quarter outlook, AMD said it expects a 13 percent decline in revenue, plus or minus 3 percent.

The company ($AMD) closed up 1.1 percent to $2.64 per share on the New York Stock Exchange. In after-hours trading, AMD was down about 5 percent.

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