AMD hits Q3 targets despite 32-nm challenges

SANTA CLARA, Calif.--Advanced Micro Devices Inc. (AMD) posted third quarter revenue of $1.69 billion on Thursday (Oct. 27), showing a 7 percent sequential increase and 4 percent increase year-over-year, exceeding revised guidance figures by a percentage point.

AMD’s original guidance for the third quarter was for revenue to increase 10 percent sequentially, plus or minus 2 percent, but back in September the processor maker scaled its guidance back to 4 percent to 6 percent sequential growth after a series of manufacturing issues limited chip supply and damaged margins.

AMD said it had net income of $97 million in the third quarter, with operating income at $138 million and earnings per share of $0.13. Gross margins were down one percentage point quarter-over-quarter to 45 percent, significantly lower than rival Intel’s 61 percent margins in the same quarter, mainly due to a lower than expected supply of higher-ASP and higher-margin 32-nm products.

AMD’s cash, cash equivalents and marketable securities balance, including long-term marketable securities, stood at $1.86 billion at the end of the third quarter, the firm said.

Despite coming in significantly behind its much larger competitor, AMD reported a 60 percent sequential increase in mobile accelerated processor unit (APU) shipments in the last quarter, showing strong demand. Indeed, AMD said APUs now made up around 90 percent of all its mobile processors shipped and approximately 60 percent of total client processors.

"Strong adoption of AMD APUs drove a 35 percent sequential revenue increase in our mobile business," said Rory Read, AMD’s new president and CEO. "Despite supply constraints, we saw double digit revenue and unit shipment growth in emerging markets like China and India as well as overall notebook share gains in retail at mainstream price points."

Setbacks with Globalfoundries Inc.'s 32-nm yield, ramp and manufacturing were blamed for limiting AMD’s supply of "Llano" APUs set for the mainstream notebook and desktop PC market, while the chip firm also experienced difficulties with its 45-nm supply "due to complexities related to the use of common tools across both technology nodes."

AMD’s graphics segment posted seasonally higher revenue than usual, up 10 percent sequentially and 4 percent year-over-year, with the firm noting that this came down to increased strength in the add-in board (AIB) market, strong demand for mobile discrete graphics at OEMs and an improved product mix.

The company’s computing solutions segment revenue increased 6 percent sequentially and 5 percent year-over-year, with AMD noting that higher mobile and server microprocessor revenues were partially offset by lower desktop revenue and that the year-over-year increase was primarily driven by higher mobile processor and chipset revenue.

On an earnings call with press and analysts to discuss the results, Read said his first 60 days at the helm of AMD had filled him with excitement about the company’s "energy and resources," saying he felt it was clear the firm continued to play "an important leadership role in the industry."

He noted, however, that while the mobile processor space "clearly outpaced" the market and that solid customer demand in the server space was encouraging, his first priority was improving AMD’s execution going forward.

"Improving our execution and improving our supply position has to be one of our top priorities, and we’re not out of the woods yet, but we’re making steady progress, day after day, week after week. We’re working to improve our yields. It’s about building trust, building trust in execution. If we execute better, we’ll increase that trust. I don’t think we’ve irreversibly lost our customers’ trust, but we have to build it back. We have to, as a company, deliver on our commitments," Read said.

Reed added that demand for AMD’s products remained strong, that interest in them was still significant and that the firm was "already seeing improvement in 32-nm, day by day."

For its part, Globalfoundries said it was continuing to work with AMD on Llano and other products based on its 32/28-nm high-k metal gate (HKMG) technology.

"There is always a natural maturity rate for every new process technology, and our yield learning on Llano has not been as fast as we would like it to be," a Globalfoundries spokesman said, adding the firm was seeing "continued yield improvement." 

That Globalfoundries had managed to bring HKMG to market "well ahead of any other foundry" was something of an achievement in itself, said the spokesman adding, "We are expected to ship far more HKMG volume in 2011 than all other foundries combined."

Looking forward into Q4, AMD said it expected to see revenues increase 3 percent, plus or minus 2 percent, sequentially, with Reed noting the firm would be looking to accelerate its growth, refine its focus on low power, emerging markets and the cloud.

At the time of this posting, AMD's shares had risen 5.05 percent to $5.54.