AMD Hit Hard by Weakening PC Market

The company sees its second-quarter revenue fall 35 percent and losses mount to $181 million after consumer PC demand declines.

AMD logo

Advanced Micro Devices executives were in New York in May to talk to financial analysts and journalists about their strategy for making the troubled chip maker consistently profitable. A key part of that plan calls for reducing AMD's reliance on low-cost PCs and focusing its efforts in such markets as the data center, semicustom chips and high-end PCs.

However, stark evidence of AMD's dependence on PCs came to the forefront in the second quarter. Weaker-than-expected demand for consumer PCs hit the company hard, causing AMD's quarterly revenue to fall by 35 percent over the same period last year, its losses to jump to $181 million and its hopes of a profitable second half of the year to fall by the wayside.

A strong showing by AMD's Enterprise, Embedded and Semi-Custom business unit—which saw revenue grow 13 percent over the first quarter but decline 8 percent year-over-year—couldn't offset the problems with the Computing and Graphics group, which generated $379 million in sales in the second quarter, compared with $532 million a year earlier.

AMD President and CEO Lisa Su, in a conference call July 16 with analysts and journalists to discuss the second quarter earnings, said the numbers were disappointing, but that the company would continue to execute on its strategy. Su said she expects new products and wins will help boost the company's fortunes in the near future. These include its Carrizo processors and graphics cards with the new high-bandwidth memory technology, the Zen high-end PC chip architecture scheduled to arrive next year, and the growth in the semicustom chip business that has put AMD silicon into the latest game consoles from Microsoft, Sony and Nintendo.

Company executives a week ago warned that slowing consumer PC sales were going to hit the company's financial numbers hard. Analysts with IDC and Gartner earlier in July both said they expected global PC shipments to slow this year, even as the industry gears up for Microsoft's release of the Windows 10 operating system later this month.

The Windows 10 launch won't help the PC market in the short term, the analysts said. Microsoft is offering a free upgrade for Windows 7 and 8.1 users for the first three months, and OEMs are waiting to align new chips from Intel (Skylake) and AMD (Carrizo) with new systems later this year. PC makers also are continuing to work through their inventory of Windows 8 systems, Su said.

All this conspired to "significantly impact our second-quarter PC notebook sales," she said.

Other vendors also are feeling the impact of the PC slowdown. Intel earlier this year reduced revenue forecasts because of slowing PC sales, and executives during their earnings call July 15 said they expected the weak PC market to continue through the year.

The weak market and poor financial numbers are also leading AMD executives to look for ways to cut operating costs to bring them more in line with the company's current financial situation, according to Su and Devinder Kumar, senior vice president, CFO and treasurer. Su said that options are being reviewed and that no decisions had been made yet, but added that "the goal is to return to profitability … and we'll take action at both the top end and the bottom end to accomplish that."

Kumar said he expects AMD's revenue to grow 6 percent in the third quarter from second-quarter revenue.

Throughout the conference call, Su, while acknowledging the difficult situation AMD is in, said she was encouraged by what AMD has coming on the horizon. The Carrizo accelerated processing unit (APU) will help boost AMD's mobile business, helped by the more than 35 design wins that will hit the market later this year with Windows 10, the CEO said. The Zen architecture, which will include the company's first FinFET (field-effect) 3D transistor technology, will offer performance gains of up to 40 percent over current chips.

The semicustom chip business is gaining momentum beyond the game consoles, Su said, and new design is in the works. The GPUs with the new high-bandwidth memory are gaining traction in the market, and the company is planning to launch its "Seattle" ARM-based server chip later this year.

But for right now, AMD is showing that as the PC market goes, it goes.