AMD: Why a Turnaround Cannot Be Ruled Out

Chip maker Advanced Micro Devices (AMD) has had a troubling time in 2015. The stock has lost a third of its value this year, and its recent results weren't great either as AMD's revenue was down 35% year-over-year. Additionally, the company's net loss had widened in the second quarter to $131 million from $73 million in the prior-year period.

The significant decline in the company's top and bottom lines can be attributed to weaker than estimated consumer PC demand, which negatively affects AMD's original equipment manufacturer (OEM) APU sales.

But, will AMD be able to make a comeback going forward despite the weakness in the company's performance? Let's find out.

Focusing on the positives

Though AMD has lost ground as of late, investors should not ignore that its average selling price improved last quarter due to a superior product mix. As a result, the company's semi-Custom, embedded, and enterprise segment revenue grew 13% on sequential basis, mainly due to improved sales of semi-custom SoCs.

Looking ahead, it is likely that an improvement in AMD's product line will continue driving its average selling price higher and costs lower. For example, AMD has launched its first graphics chip that integrates die-stacked high-bandwidth memory with its flagship AMD Radeon R9 Fury X GPU. This particular product offers four times the performance-per-watt and 60% greater memory bandwidth of GDDR5 memory.

In addition, AMD recently introduced the AMD 6th Generation A-Series mobile processors. These processors offer a 2.4 times increment in energy efficiency as compared to earlier generation processors, apart from providing three to two times the gaming performance of contending platforms. In addition, AMD has launched the newest feature of its line of desktop A-Series processors with the introduction of the AMD A10-7870K APU, which is compatible with Microsoft Windows 10.

Moreover, AMD recently introduced the AMD Catalyst 15.7 driver, which allows notable feature updates to improve the end user experience. This particular driver includes several features such as the AMD FreeSync Technology, Virtual Super Resolution (VSR), and Frame Rate Target Control (FRTC).

As a result, by launching new gaming products and more efficient chips for both mobiles and computers, AMD will be able to continue improving its product mix. This will help the company increase its average selling price, which will lead to an improvement in its revenue and margin performance.

Focus on revenue diversification

Apart from PCs and mobiles, AMD is also targeting the data center and server market. To target this market, AMD has launched the new AMD FirePro S9170 server GPU. This is believed to be the world's first and fastest 32GB single-GPU server card. This card is capable of delivering approximately 5.24 TFLOPS of peak single precision compute performance and over 2.62 TFLOPS of peak double precision performance for DGEMM heavy double-precision workloads.

Another area where the company seems to be making progress is in virtual reality. Using its AMD LiquidVRâ„¢ technology, the company is gaining traction in several industries such as medical research, gaming, entertainment, and education where virtual reality is gaining steam. As a result of its focus on these new segments, AMD has been able to diversify its revenue base in the past couple of years.

In fact, the company now gets 40% of its revenue from the enterprise, embedded, and semi-custom segment as compared to just 10% in 2012. Looking ahead, as its new products gain steam, AMD's revenue diversification will improve further and its reliance on the PC market will come down.

Conclusion

Though AMD shares have taken a beating this year, it cannot be denied that the company is making smart moves to improve its business. As a result, investors should keep AMD in their watch list as the company could turn out to be a good long-term investment once its transition is complete.

Published on Aug 26, 2015
By Harsh Singh Chauhan

Copyrighted 2016. Content published with author's permission.

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