As usual, AMD's financial results follow two days after the announcement of Intel's latest financials. The chip designer reports its third-quarter sales rose to $1.3 billion, up 27 percent sequentially and up 23 percent year-over-year thanks to record semi-custom SoC sales and higher sales of GPUs and mobile APUs. Looking at the net income, there's a huge difference between the GAAP and non-GAAP figures.
On a GAAP basis, AMD lost $406 million, or $0.50 per share, but this is primarily the result of two big one-time items. First the company made yet another amendment to the wafer supply agreement with GlobalFoundries, which results in a $340 million charge, and next the company also books a $61 million loss on debt redemption. The non-GAAP net income is adjusted for these "one-time charges" (and some other items) and amounts to a profit of $27 million, or 3 cents per share, compared to a loss of $136 million, or 17 cents per share, a year ago.
The company reports sales of enterprise, embedded and semi-custom chips jumped 41 percent sequentially and 31 percent year-over-year to $835 million. Computing and Graphics segment revenue on the other hand increased 9 percent sequentially and 11 percent year-over-year to $472 million. AMD provides no further granularity but notes the sequential improvement was driven primarily by higher GPU revenue. Based on the language in the earnings release, Polaris helped boost sales but it doesn't seem to be a smashing success.
Also worth mentioning is that debt came down $606 million from the previous quarter to a level of $1.63 billion. Through a series of deals over the last couple of quarters, AMD managed to bring down its debt quite significantly. It's starting to compare favorably versus the $1.26 billion in cash it has on hand, but it came at the expense of becoming more asset-lite and the dilution of shareholders.
For the current quarter, AMD expects revenue to decline 18 percent sequentially, plus or minus 3 percent. The company points out that the midpoint of guidance would result in fourth quarter income that's about 12 percent higher than the year before.
Despite beating analyst estimates on both revenue ($90 million higher than projected) and earnings per share ($0.03 vs -$0.01), investors aren't impressed and pushed AMD 4.45 percent lower in after-hours trading to $6.65. AMD's share price has had a huge run-up since the start of the year so perhaps investors are taking a step back to watch if the company can complete its turn-around with the upcoming Zen processor series.
Here are some snippets from the AMD Q3 2016 earnings report:
"Our third quarter financial results highlight the progress we are making across our business," said Lisa Su, AMD president and CEO. "We now expect to deliver higher 2016 annual revenue based on stronger demand for AMD semi-custom solutions and Polaris GPUs. This positions us well to accelerate our growth in 2017 as we introduce new high-performance computing and graphics products."
Q3 2016 Results
Q3 2016, Q2 2016, and Q3 2015 were 13-week fiscal quarters.
Revenue of $1,307 million, up 27 percent sequentially and up 23 percent year-over-year primarily due to record semi-custom SoC and higher GPU and mobile APU sales, partially offset by client desktop processor and chipset sales.
Gross margin was 5 percent, down from 31 percent from the previous quarter due to a $340 million charge related to the 6th amendment to the Wafer Supply Agreement (WSA) with GLOBALFOUNDRIES (GF).
Non-GAAP gross margin of 31 percent was flat quarter-over-quarter.
Operating expenses of $376 million, compared to $353 million for the prior quarter. Non-GAAP operating expenses of $353 million, compared to non-GAAP operating expenses of $342 million in Q2 2016, driven by increased investments in research and development.
Operating loss of $293 million, compared to an operating loss of $8 million in Q2 2016 due to a $340 million WSA charge. Non-GAAP(1) operating income of $70 million, compared to non-GAAP(1) operating income of $3 million in Q2 2016, primarily due to higher revenue.
Net loss of $406 million, net loss per share of $0.50, compared to net income of $69 million, net earnings per share of $0.08 in Q2 2016. The decline was driven by a $340 million WSA charge and a $61 million loss on debt redemption offset by increased revenue. Q2 2016 net income included a $150 million pre-tax gain on the sale of 85 percent of assembly, test, mark, and pack (ATMP) facilities to Nantong Fujitsu Microelectronics (NFME).
Non-GAAP(1) net income of $27 million, non-GAAP(1) earnings per share of $0.03. This compares to non-GAAP(1) net loss of $40 million and non-GAAP(1) loss per share of $0.05 in Q2 2016, primarily due to increased revenue in Q3 2016.
Cash and cash equivalents were $1,258 million at the end of the quarter, up $301 million from the end of the prior quarter. The quarter-end cash balance includes approximately $274 million of net proceeds from recent capital markets transactions.
Total debt at the end of the quarter was $1,632 million, down $606 million from the prior quarter as a result of the timing and execution of Q3 2016 debt reduction actions and due to bifurcation of the newly issued 2.125 percent Convertible Notes due 2026 into equity and liability components based on GAAP accounting regulations. We plan to further reduce debt by deploying a significant portion of the remaining cash from our capital markets transactions.
Financial Segment Summary
Computing and Graphics segment revenue of $472 million increased 9 percent sequentially and 11 percent from Q3 2015. The sequential and year-over-year increases were driven primarily by increased sales of GPUs, offset by decreased sales of client desktop processors and chipsets. The year-over-year increase was also driven by increased sales of client mobile processors.
* Operating loss was $66 million, compared with an operating loss of $81 million in Q2 2016 and an operating loss of $181 million in Q3 2015. The sequential improvement was driven primarily by higher GPU revenue, and the year-over-year improvement was primarily due to higher GPU revenue and the absence of an inventory write-down charge.
* Client average selling price (ASP) decreased sequentially driven by lower mobile and desktop processor ASPs and was flat year-over-year.
* GPU ASP increased sequentially and year-over-year driven by higher channel and professional graphics ASPs.
Enterprise, Embedded and Semi-Custom segment revenue of $835 million increased 41 percent sequentially and 31 percent year-over-year due to higher sales of semi-custom SoCs.
* Operating income was $136 million compared with $84 million in Q2 2016 and $84 million in Q3 2015. The sequential improvement was primarily due to higher revenue and the year-over-year improvement was primarily due to higher revenue and a $24 million IP licensing gain.
* All Other category operating loss was $363 million in Q3 2016 compared with $11 million in Q2 2016 and $61 million in Q3 2015. The sequential increase was primarily driven by a $340 million WSA charge.