Advanced Micro Devices, Inc. (NASDAQ: AMD), the struggling global semiconductor company, impressed and surprised investors after reporting a net profit of $69.0 million, or $0.08 in earnings per share, for the second quarter. AMD stock holders were also pleased by a nine percent increase in revenue to $1.2 billion year-over-year. (Source: “AMD Reports 2016 Second Quarter Results,”Advanced Micro Devices, Inc., July 21, 2016.)
AMD Stock Sees Light at the End of the Tunnel
AMD had been delivering losses (except in 3Q14) and declining revenue since 2014. The company struggled to generate profits and boost its revenues due to a declining market for personal computers and strong competition in microprocessor chips.
Advanced Micro Devices (AMD) Earnings and Revenue
Loss Per Share
|June 21, 2016||2Q16||$0.08||$1.027 billion|
|April 21, 2016||1Q16||-$0.14||$832 million|
|January 19, 2016||4Q15||-$012||$958 million|
|October 15, 2015||3Q15||-$0.25||$1.61 billion|
|July16, 2015||2Q15||-$0.23||$942 million|
|April 16, 2015||1Q15||-$0.23||$1.03 billion|
|January 20, 2015||4Q14||-$0.48||$1.239 billion|
|October 16, 2014||3Q14||$0.02||$1.429 billion|
|July 17, 2014||2Q14||-$0.05||$1.441 billion|
|April 17, 2014||1Q14||-$0.03||$1.397 billion|
The company’s recent quarterly financial performance is a big deal for investors because it appears that the company has already reached the end of the tunnel and there is a bright spot for it to turn around.
Over the past 52 weeks, AMD stock traded to as low as $1.65 per share but went up to as much as $7.16 per share after reporting its second-quarter results. AMD closed at $6.68 per share, up by more than one percent on Monday, August 8.
AMD stock gained more than 81% in value over the past month, or 219% over the past year. Investors are wondering if the company is now moving in the right direction toward achieving continued growth and profitability, and whether it is the right time to buy AMD stock.
Dr. Lisa Su, president and CEO of AMD, said the company returned to non-generally accepted accounting principles (GAAP) operating profitability due to the strong demand for its semi-custom and graphics products including its “Radeon RX” graphics cards based on its “Polaris” architecture, 14 nm fin field effect transistor (FinFET) technology, and seventh generation A-Series accelerated processing units (APUs).
Dr. Su expressed confidence that AMD is, “well-positioned to drive growth and market share gains in the second half of the year.” AMD generated $592 million of revenue from its “Enterprise, Embedded, and Semi-Custom” segment, an increase of 59% quarter-over-quarter, or five percent year-over-year. The company estimated that it will obtain 18% revenue growth (plus or minus three percent) in the third quarter. (Source: Ibid.)
AMD Re-Establishes Itself as a High-Performance Design Leader
This year, AMD re-established itself as a high-performance design leader by introducing its first batch of revolutionary products, including its “Polaris” graphics processing unit (GPU) architecture and “Zen,” its first x86 central processing unit (CPU) core in more than five years, which is designed for high-end desktop PCs.
The company also introduced high-performance embedded offerings across its target markets, including medical imaging devices, digital signage, thin clients, networking and communications, and storage to drive margin-accretive revenue growth. It is leveraging its strong IP and system integration capabilities through new semi-custom designs.
AMD believed that the emergence of billions of connected devices and immersive computing experiences increased the demand for its high-performance computing and graphics technologies. The current trends in the industry represent a $60.0-billion market for the company.
Last year, the company leveraged its technology assets in developing high-performance products for gaming, immersive platforms, and data centers, which serve as a solid foundation to improve its financial results and achieve sustainable growth. (Source: “2015 Annual Report,” Advanced Micro Devices, Inc., last accessed August 10, 2016.)
AMD Stock Boosters
AMD expanded its position in the profitable commercial PC market, within which the company believed that it could still gain a profitable share. During a recent interview with CNBC, Dr. Su pointed out that the PC market still has 1.4 billion users, and that the company is still selling 275 million units annually.
The company inked some significant deals in the PC market, including with HP, which selected the “AMD PRO A-Series” commercial APUs as the exclusive launch processor for its latest “EliteBook 705” series for commercial client systems. AMD also gained professional graphic design deals with Dell for its “Precision” workstations and a deal with Apple to become its exclusive supplier of GPUs for its “iMacs” and “MacBook Pros.” (Source: Ibid.)
AMD is also gaining momentum in the global games and virtual reality (VR) systems markets, which could boost AMD stock over the long term. The global games market is expected to generate a total of $99.6 billion in revenue this year and expand to $118.6 billion by 2019. Mobile gaming will account for 34%, or $52.5 billion, and PC gaming will account for 25%, or $29.65 billion, by 2019, according to New Zoo. (Source: “The Global Games Market Report,” New Zoo, last accessed August 8, 2016.)
AMD clinched major deals with Sony Corp (ADR) (NYSE:SNE) and Microsoft Corporation (NASDAQ:MSFT) in 2013. The company’s semi-custom APUs are powering the “PS4” and “Xbox One” game consoles. It is also powering Nintendo Co., Ltd’s (TYO:7974) “Wii U” game console.
Microsoft is expected to start selling its “Xbox One S” this month, and “Project Scorpio” during the holiday shopping season next year.
When it comes to the global VR systems market, AMD recently reported that its estimated market share is 83%. The company expanded its leadership in VR with its “Polaris 10” GPU “Radeon VR Ready Premium” and “Radeon VR Ready Creator” tiers that simplify the adoption of VR for consumers and content creators.
AMD partnered with Oculus and HTC to ensure that its Radeon ecosystem is ready to take advantage of the anticipated launching of their VR headset this year. Additionally, AMD is working with Sulon Technologies on the “Sulon Q” headset for virtual reality, augmented reality, and spatial computing. (Source: “AMD Takes 83% Share of Global VR System Market, Driving Leading VR Experiences for Consumers and Developers,” Advanced Micro Devices, Inc., March 14, 2016.)
The VR market is expected to generate revenue of approximately $30.0 billion by 2020, according to the study released by Digi Capital in April last year.
The Bottom Line for AMD Stock
Advanced Micro Devices is indeed well positioned for a successful turnaround and to generate sustainable growth and profitable in the future, given its leadership in the rapidly expanding games and VR systems market.
As long as management continues to maneuver the company into the right direction and overcome its challenges, AMD stock could slowly, if not abruptly, increase in value. Its stock price of $6.68 per share is attractively low and presents not just reward, but also risk, to investors.