AMD analyst day sketches big picture, leaves critical details unanswered

May 9, 2015 7:34 am0 commentsViews: 4

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Now that AMD’s first analyst day in three years has wrapped and we’ve covered the major highlights, it’s time to turn to the elephant in the room: Can AMD break into new markets and compete more effectively in established ones, given that it’s often at a severe financial and technological disadvantage compared with its rivals? AMD claims that it can, but some of the evidence it offered yesterday was less conclusive than we might have liked.

The critical, collapsed PC business

First, let’s talk about AMD’s PC and mobile businesses. Mark Papermaster and Lisa Su spoke at length on how AMD has chosen to invest in these areas because they represent a core opportunity for products and services, and remain crucial to AMD’s efforts in new markets. She also talked about investing in gaming, in high-performance compute, and in pushing the envelope for both x86 and ARM design. Many of these markets were highlighted as near-term growth opportunities, as shown below:

AMD-NearTerm

The problem with this narrative is that it ignores the near-collapse of AMD’s business in many of these market segments. We assembled the following chart to illustrate just how hard the company has been hit. AMD changed how it reports revenue after the Xbox One and PS4 began shipping, so these results only show revenue for the computing solutions and graphics industries from 2011 – 2014.

AMD-Compute

AMD has lost more than half its sales in CPUs and GPUs since 2011. Results like this partially explain why ex-CEO Rory Read and now Lisa Su have focused on creating new markets for AMD hardware, including its console design wins and a few more as-yet-unnamed semi-custom designs that will ship in the back half of 2016 and 2017 respectively.

Since we’re talking about AMD’s core markets, specifically, it’s important to chart the course of that business segment to date. One thing AMD made clear yesterday is that Zen is at the heart of its planned revival. There will be no future “cat” cores — Zen’s 14/16nm FinFEFT deployment will handle AMD’s entire x86 product stack. With its 40% improved IPC and a new generation of APUs arriving in 2016, the stage seems set for an AMD resurgence in desktops and mobile — or, at least, it did until AMD’s interim Chief Financial Officer, Devinder Kumar dumped cold water on such expectations:

AMD-Projections

AMD isn’t projecting any additional revenue in PCs or any significant increase in operating margin for PCs and GPUs.

Everything AMD said yesterday about its return to profitability and future revenue drivers has to be evaluated through the lens of this slide. That “Flat to down” long-term growth model for the traditional PC business puts the kibosh on any argument that AMD expects to see significant revenue gain in core businesses. Kumar and Su both made it clear that the company’s 2015 goal is to stabilize its losses while divesting itself from some unprofitable low-end SKUs and markets. The GPU segment offers only slightly better performance. With an operating margin in the mid-single digits, it means AMD expects to continue making just 4-6% profit on its GPU, APU, and PC sales. While it’s true that these are projections meant for financial types, AMD simply isn’t forecasting that traditional markets will play a significant role in its return to profitability. 

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