Advanced Micro Devices executives for more than two years have been working to expand the reach of the company's products into new growth areas and reduce its reliance on a global PC market that is still struggling after three years of sales declines.
AMD has seen success in the effort. According to company figures, in 2010, these new growth markets—from embedded systems and low-power servers to professional graphics and semi-custom chips—accounted for 10 percent of AMD's revenues. By 2014, that figure was up to 40 percent, and officials say that by the end of this year, they will account for 50 percent of revenues.
Despite the ongoing shift toward these growth markets, AMD's fourth-quarter and full-year 2014 financial numbers, announced Jan. 20, show that the world's second-largest chip maker is still impacted by what happens in the PC market. Executives expect a new processor due out in the second quarter will help strengthen the company's position in the space.
In the fourth quarter, AMD generated $1.24 billion in revenue, a decline from the $1.59 billion from the same period in 2013, while it lost $364 million. For the entire Computing and Graphics business, which includes chips for both desktops and notebooks, revenue dropped from $888 million in the fourth quarter in 2013 to $662 million last quarter.
According to CEO Lisa Su, the company was hurt by ongoing weakness in the PC chip business, due in large part by high inventory levels—including in the channel—and the company's over-reliance on a weak consumer PC market. Sue said during a conference call with analysts and journalists that the company has taken "key actions in the fourth quarter" to reduce inventories.
"While these corrective actions are resulting in short-term pressure, they are integral to building a stronger and more profitable business going forward," she said.
The CEO said AMD expects to turn around its fortunes in a stabilizing PC market that she expects will see low single-digit declines this year. Along with clearing out the inventory issues, AMD also has "right-sized" the investments being made in its PC business. “We will continue those corrective actions into the first quarter to aim for a return to growth starting in the second quarter," Su said.
A key will be the launch in the second quarter of "Carrizo," the next-generation chip that is based on the new "Excavator" core and is aimed at systems from traditional PCs to new form factors like two-in-one systems. In November, the company introduced the 28-nanometer chip family—which will replace AMD's "Kaveri" chips. Su said the response from customers has been good.
Consumer and commercial design wins for Carrizo continue to "gain momentum because it will deliver the largest ever generational leap in performance-per-watt for our mainstream APUs [accelerated processing units]," she said.
The PC market, after a couple of years of sharp declines, saw some stabilization during 2014, due in part to a slowdown in tablet shipments, new PC form factors, businesses refreshing aging systems and Microsoft ending support of Windows XP. Rival Intel also has been looking to expand the reach of its technology beyond PCs and servers, into such areas as cloud and the Internet of things. Intel's PC business got a 3 percent bump in revenues in the fourth quarter and 4 percent increase over the entire year.
During the recent AMD conference call, Su said the company will continue work on other areas as well. AMD's embrace of the ARM architecture for servers complements what it already does with x86 chips. This is an advantage as the demand for smaller, power efficient systems continues to grow, Su noted.
"AMD is the only company in the industry that can offer a full continuum of high-performance standard and custom solutions spanning both the ARM and x86 ecosystems, and we must leverage this position to drive differentiated and innovative solutions for our customers," she said. "Our server partners have increasingly told us they want to see AMD playing a much larger part in their business. Although the server design cycle is longer, this is an important vector for long-term revenue and margin expansion and we are designing new x86 and ARM-based leadership products for this space powered by our next-generation ARM and x86 cores."
The new growth areas also will help drive AMD's future, Su said. For example, revenues for both embedded chips and professional graphics saw growth of more than 20 percent, and the company has a "robust pipeline" in these businesses as well as its semi-custom chip unit, which has been important to AMD after capturing the business for both Microsoft's Xbox and Sony's PlayStation 4 game consoles.