AMD back on track – but for how long?
AMD reported better than expected first-quarter revenue as PC and server spending rebounded.
The company – which had posted 12 consecutive quarters of losses until the previous quarter – said its second-quarter sales would be seasonally weaker, striking a muted tone in contrast with Intel’s bullish comments on corporate spending bouncing back in 2010.
Shares of AMD, which this week hit levels not seen since November 2007, slid 5% on the earnings report. The stock had added 8% since the announcement of Intel’s strong results earlier this week.
“The stock was a little ahead of itself,” said Broadpoint Amtech analyst Doug Freedman. He said the company’s real earnings growth will come in the back half of the year. In the meantime, “the company’s in a show-me mode,” he said. “Investors want to see the earnings power.”
The company’s financials have been confusing since it spun off its chip manufacturing arm last year, creating a private contract chip manufacturing company for which AMD currently has a 30% stake. Now called GlobalFoundries, the private contract manufacturer has since expanded to create chips based on designs by UK-based ARM, while AMD has continued to focus on chip design.
Debt-laden GlobalFoundries was a burden on AMD’s financial statements for many quarters while the separation was finalised.
HP and Dell business
AMD said its computer-chip design business’s revenue grew 23% from the previous year as manufacturers such as HP and Dell broadened the number of computers they sold containing an AMD processor.
Its graphics chip business also grew substantially, increasing revenue 88% over the previous year, as the company shipped more products to customers.
“Customer interest in our platforms is very promising,” said AMD’s chief executive Dirk Meyer. “The cash generation potential of the business is beginning to be realised and we are improving our balance sheet.”
Revenue rose to $1.57 billion, while net income also increased to $257 million. The company’s results also included a one-time non-cash gain of $325 million from AMD’s stake in GlobalFoundries.
The chip maker said it expects revenue to be roughly flat to down 5% in the current second quarter.
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