AMD Helped by Game Consoles, Graphics in Q1

The chip maker saw revenues grow, but it slid back into a loss due in part to a weak PC market.

Advanced Micro Devices' run of consecutive profitable quarters stopped at two as the company continued to be hurt by the contraction in the worldwide PC market, but revenues in the first quarter were buoyed by continued strong sales of game consoles powered by AMD chips.

The chip maker on April 17 reported revenues of $1.4 billion, a 28 percent jump over the same period in 2013. However, after two straight quarters of profits, AMD officials said the company lost $20 million in the first three months.

In a conference call with analysts and journalists, CEO Rory Read said that despite the loss, the company's financial numbers were strong—due in large part to the semi-custom chips AMD is making for Microsoft's Xbox One and Sony's PlayStation 4 consoles and new Radeon GPUs the company has released—and were further proof points supporting the changes AMD is undergoing.

"Our first quarter performance demonstrates the success that we are having transforming the AMD business," Read said. "We are consistently executing and delivering on our commitments. Our strategy is working and we are building a foundation for continued profitability and growth as we transform AMD."

AMD, like other tech vendors such as Intel and Dell, is extending its reach into a range of growth areas to increase sales and reduce its reliance on the fading PC market. Under Read's direction, the company is focusing on such markets as ultraportable clients, very dense servers, GPUs, embedded devices and semi-custom chips.

Less than two years ago, PCs accounted for more than 80 percent of AMD's revenues. The chip maker is on track to have the new growth areas make up more than half of the revenues. Fueling that growth is the semi-custom business, which was bolstered last year when Microsoft and Sony announced they would use AMD's systems-on-a-chip (SoCs) in their next-generation gaming consoles, which continue to see strong sales.

"The success of these two products is an excellent example of the power of our strategy," the CEO said. "When our unique IP and design expertise is married with the ingenuity and product ideas from our customers, we jointly deliver tailored, market-changing solutions that win."

The company's Graphics and Visual Solutions unit—which includes semi-custom chips—saw revenues increase 118 percent over the first quarter of 2013. Read said the company also expected to see one to two more design wins for its semi-custom business this year. In addition, AMD also saw strong demand for its new Radeon R7 and R9 GPUs, he said.

The Computing Solutions segment saw revenues fall 12 percent, as the number of PCs sold continued to fall. Like their counterparts at Intel two nights earlier, AMD officials said they saw the decline in PC chip shipments slow in the first quarter, due in large part to Microsoft ending support for its aged Windows XP operating system. Earlier this month, analysts with both IDC and Gartner attributed the relative improvement in worldwide PC sales to corporations refreshing their clients in anticipation of the end of Windows XP support.

Still, sales of consumer PCs continue to fall as buyers turn more to tablets and smartphones. AMD officials said they expect to see a boost in the number notebooks chip sales with the launch of "Kaveri" and upcoming release of "Beema" accelerated processing units (APUs). In addition, the problems on the consumer side will be somewhat offset by stronger sales in commercial PCs.

Given that, Read said he expects PC sales will decline this year by 7 to 10 percent, rather than the 10 percent he expected earlier this year.