Advanced Micro Devices (AMD) reported fourth
quarter loss of 10 cents a share, widely missing the Zacks
Consensus Estimate of earnings of 16 cents. Investors clearly
expected the company to be impacted by the conditions in the PC
market, so shares lost just 2.91% in after-hours trading.
Revenue
AMD’s revenues in the last quarter came in at $1.69 billion,
flat sequentially and up 2.5% from the year-ago quarter. HDD
shortage at Seagate (STX) and Western
Digital (WDC) threw the PC market put of gear and
prevented the company from meeting its guidance of a 3% sequential
increase (at the mid-point).
Revenues also missed consensus expectations of $1.72 billion by
1.7%. AMD clearly benefited from strength in its new products
Brazos, Bulldozer and Llano. However, the company appears to have
fared worse than Intel Corp (INTC), which reported
last week.
Revenue by Segment
Computing Solutions was 77% of AMD’s sales in the last quarter,
up 1.8% sequentially and 7.4% from the year-ago quarter. Similar to
the September quarter, segment was performance was helped by an
increase in processors and chipsets for servers, as well as
increased shipments of the Llano APU. AMD obviously lost ground in
traditional computing systems, which may not be such a big concern,
given the current trends.
AMD’s graphics business generated the remaining 23% of its
sales, down 5.2% sequentially and 9.9% from a year ago. Despite the
seasonal increase in revenue from game consoles, AMD was impacted
by the decline in mobile GPU chipsets. Overall volumes declined,
with a slight positive impact from mix.
Margins
AMD reported a pro forma gross margin of 45.7%, up 98 basis
points (bps) from the previous quarter and 65 bps from the year-ago
quarter. The gross margin benefited from higher ASPs, as AMD saw
positive mix in both segments. While the Globalfoundries issue
continues, AMD stated that it was in the process of working out a
satisfactory arrangement.
Operating expenses of $601 million increased by around 1.5%
sequentially although they were flat with last year. The operating
margin expanded 153 bps sequentially and 162 bps year over year to
10.2%. While all expenses declined as a percentage of sales from
both the previous and year-ago quarters, cost of sales declined the
most.
Both the segments—Computing Solutions and Graphics—did well.
Computing Solutions generated an operating margin of 12.6%, up 102
bps sequentially and 514 bps year over year. Graphics generated an
operating margin of 7.1%, which although up 409 bps sequentially
was down 897 bps from a year ago. Mix and pricing were positives
for both segments.
Net Profit
On a pro forma basis, AMD generated a net loss of $72 million,
or a -4.3% net margin, compared to a profit of $95 million, or 5.6%
in the previous quarter and $105 million, or 6.4% in the prior-year
quarter.
Including restructuring and intangibles amortization charges,
the fully diluted GAAP net loss was $177 million, or 24 cents per
share compared to income of $87 million, or 12 cents a share in the
previous quarter and a income of $375 million, or 49 cents a share
in the year-ago quarter.
Balance Sheet
AMD has done a really good job reshaping the balance sheet.
Despite the slight decline in cash flow in the last quarter, the
company continued its opportunistic repurchases of debt. As a
result, the long term debt dropped to $1.53 billion in the last
quarter from 1.57 billion at the end of the September quarter.
The net debt at quarter-end was $251 million, compared to $253
million at the end of the September quarter and $403 million at the
end of the December 2010 quarter. AMD ended with a debt to total
capitalization ratio of 56.7%. The cash and short term investments
balance at quarter-end was $1.8 billion, down 42 million during the
quarter.
Working capital metrics remained strong in the last quarter,
with inventories dropping 11.9% sequentially to $476 million and
inventory turns increasing from 6.9X to 7.7X. Days sales
outstanding (DSOs) increased from 49 to 50.
During the quarter, AMD generated $187 million of cash from
operations, spending $87 million on capex and $51 million on
repayments of debt and capital lease obligations. Management
expects debt repayments to continue.
Guidance
AMD guided to first quarter sequential revenue decrease of 8%
(+/- 3%), below street expectations of around $1.6 billion. The
gross margin is expected to be around 45% and operating expenses
around $590 million.
To Conclude
AMD started off the year reasonably well, if not in flamboyant
style. We believe there are several things that should interest
investors at this point. The first of these is execution.
We feel really good about a company that has been consistently
delivering on its promises over the past few quarters, whether with
respect to building its product portfolio, or with respect to
cleaning up its balance sheet. The separation of Globalfoundries
freed AMD from manufacturing pressures, enabling it to focus on
R&D instead.
However, while AMD’s products are being launched on schedule and
it does look as if it will take some share from Intel, we need to
bear in mind that Intel also has some new products lined up, which
along with its growing capacity and lead at 22nm, should keep it
ahead of AMD.
Cost efficiencies can only do so much; real expansion of margins
is dependent on superior technology. AMD is on the right track and
its new products are already helping. But there seems to still be a
ways to go.
Given the continued weakness in near-term results related to
issues in the PC market, we remain cautious about investment in the
shares. AMD shares therefore carry a Zacks Rank of #4, implying a
Sell recommendation in the short term (1-3 months). We are Neutral
on a long-term (3-6 month) basis.
ADV MICRO DEV (AMD): Free Stock Analysis Report
INTEL CORP (INTC): Free Stock Analysis Report
SEAGATE TECH (STX): Free Stock Analysis Report
WESTERN DIGITAL (WDC): Free Stock Analysis Report
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