Advanced Micro Devices (AMD) Claims Video Game Consoles Will Revive its Top Line Growth
Advanced Micro Devices (AMD) recently plunged, after the maker of x86 processor and Radeon graphics cards reported bleak second quarter earnings. For its second quarter, AMD reported a net loss of $74 million, or $0.09 per share down from the profit of $0.06 per share in the prior year quarter. Revenue declined 18% year-on-year to $1.16 billion. Despite AMD's continuing decline in top and bottom line growth, as well as an 18% decline in share price over the past twelve months, CEO Rory Read remains upbeat regarding the company's growth prospects. Daily Chart
Read claims that "restructuring and transforming AMD resulted in improved financial results," and that he "expects significant revenue growth and a return to profitability in the third quarter." That's a bold claim from a company that trails a distant second to Intel (INTC
) in the CPU market and Nvidia (NVDA
) in the graphics cards business. AMD currently only has a CPU market share of 26.3% compared to Intel's 73.7%. Both AMD and Intel produce processors built on the x86 architecture, which rival ARM Holdings (ARMH
) calls an outdated, power-hungry architecture ill-suited for modern mobile devices. Both Intel and AMD have been working on low-powered mobile processors to debunk ARM's claim and that market perception. In addition, AMD has been fighting a costly pricing war against Nvidia. Over the past year, AMD has been bundling "triple A" games such as Tomb Raider and Crysis 3 with its Radeon graphics cards in an effort to win back market share from Nvidia's GTX series. As a result, AMD's profit margin is at an abysmal negative 15.9%. Nvidia, on the other hand, has been offering online game credits for popular free-to-play games such as League of Legends with its graphics cards - a much more cost effective and margin friendly approach. As a result, Nvidia's profit margin is at a relatively robust 13.5%. It's clear that AMD's costly battle to claim market share from Nvidia could end up offsetting gains it makes it other areas. Looking ahead, AMD is banking heavily on the success of Sony's (SNE
) Playstation 4 and Microsoft's (MSFT
) Xbox One, which are both powered by AMD chips. AMD's chips also partially power Nintendo's Wii U, making its chips the most widely used in the eighth generation of console gaming devices. However, the Wii U has already bombed on sales, leaving the market wide open for the Playstation 4 and Xbox One to take center stage. However, investors should remember that video game sales are currently at all-time lows, recently logging a 25% year-on-year decline in May. Video game industry bulls claim that investors are merely waiting for a new generation of consoles to arrive, while the bears believe that the saturated video game market is doomed to face diminishing returns over the next few years. For its third quarter, AMD expects its revenue rise between 19% to 25% sequentially - a lofty claim for a company that is currently fighting losing battles on two fronts against Intel and Nvidia. Other News About AMD AMD Continues Move Toward Profitability
Can AMD finally squeeze out a profit? AMD Sees Higher Revenue in Move Into Game Market
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Published on Jul 26, 2013
By Leo Sun