AMD Still Battered by PC Biz, But Confident in Turnaround Plan

The chip maker lost $473 million in the fourth quarter, but CEO Rory Read said the company should return to profitability in the second half of 2013.

Advanced Micro Devices officials reported another difficult financial quarter for the chip maker, which again was battered by slowing sales of PCs worldwide.

AMD officials reported Jan. 22 that in the fourth quarter of 2012, the company lost $473 million on $1.16 billion in revenue, while the chip maker’s Computing Solutions Division—which makes processors for everything from PCs to tablets to servers—saw revenues of $829 million, a 37 percent decline over the same period in 2011.

The company’s graphics unit revenues also declined, falling 15 percent from the fourth quarter in 2011.

For the year, revenue came in at $5.42 billion, a 17 percent decline from 2011, while the company lost $1.18 billion.

In a conference call with analysts and journalists, CEO Rory Read said he was not satisfied with the numbers for the fourth quarter or the entire 2012, saying they “fell short of our expectations.” However, Read noted that the company was still in the process of restructuring and reforming its business, with the goal of growing into growth areas and reducing its dependence on the struggling PC business.

“We made progress” in the turnaround plan, he said.

AMD and other tech giants have been hit hard over the past couple of years by the decline in PC sales worldwide as buyers spend more of their electronics dollars on mobile computing devices like tablets and smartphones.

Intel officials on Jan. 17 said sales of their chips continued to slow, declining 3 percent in the fourth quarter in comparison with the same period in 2011. PC OEMs like Dell and Hewlett-Packard continue to see their financial numbers get battered by the global PC numbers even as they work to grow their enterprise IT solutions offerings.

Gartner analysts said in a report Jan. 14 that PC unit shipments in the fourth quarter fell 4.9 percent, and that the declining numbers represent a fundamental shift in the industry away from PCs and more toward tablets.

“Whereas once we imagined a world in which individual users would have both a PC and a tablet as personal devices, we increasingly suspect that most individuals will shift consumption activity to a personal tablet, and perform creative and administrative tasks on a shared PC,” Mikako Kitagawa, principal analyst at Gartner, said in a statement at the time. “There will be some individuals who retain both, but we believe they will be exception and not the norm.”

Read during a conference call in October noted that he and other AMD officials knew there were changes underway in the PC space, but that those changes happened faster than they had anticipated. It was during that call that Read announced AMD was cutting 15 percent of its workforce—about 1,770 jobs—and refocusing efforts in such areas as ultramobile computing devices, including ultrathin notebooks and tablets, dense servers for such environments as high-performance computing, and embedded devices.

During his conference call Jan. 22, Read said the company was hitting on its transformation efforts, but that a turnaround will take several quarters. He noted that AMD was set to launch several new products, including “Kabini” and “Temesh,” systems-on-a-chip (SoCs) for tablets and ultrathins that will launch in the first half of this year. New designs with those and other AMD chips will come from the likes of Asus, Lenovo, Samsung and Vizio, Read said.

In addition, the company is making gains with its SeaMicro ultradense server efforts, unveiling late last year systems that run on both AMD and Intel chips, and that AMD is still on target to begin rolling out server processors based on ARM Holdings designs in 2014.

“The ’13 roadmap looks good,” Read said.

Still, the challenges are daunting. AMD is working hard to reduce its dependence on the PC business. Last year, the PC business accounted for 85 percent of AMD’s revenues; Read and other executives are hoping to reduce that to 40 to 50 percent. The chip maker must move into new areas and lessen its exposure to PCs, he said.

“This is an unprecedented period of change in the industry,” Read said.

The restructuring AMD is undergoing is significant, from the job cuts to selling assets to cutting chip orders to manufacturing partner Globalfoundries, and those efforts are hitting the financial numbers in the short-term, officials said. In the fourth quarter, the restructuring efforts led to a $90 million charge, while reducing what it bought from Globalfoundries cost another $209 million.

However, it will begin to pay off, according to CFO Devinder Kumar, who said that AMD should return to profitability and a free cash flow in the second half of 2013.

“We have made significant steps to restructure our business,” Kumar said in the conference call.