AMD Reports 2016 Second Quarter Results

AMD (NASDAQ: AMD) today announced revenue for the second quarter of 2016 of $1,027 million, operating loss of $8 million, and net income of $69 million, or $0.08 per diluted share. Non-GAAP operating income was $3 million and non-GAAP net loss was $40 million, or $0.05 per share.

"In the second quarter we accomplished a significant milestone as we returned to non-GAAP operating profitability based on solid execution and strong demand for our semi-custom and graphics products," said Lisa Su, AMD president and CEO. "Based on the strength of our semi-custom products and demand for our latest Radeon RX GPUs and 7th Generation A-Series APUs, we are well positioned to drive growth and market share gains in the second half of the year."Q2 2016 Results

• Q2 2016, Q1 2016 and Q2 2015 were 13-week fiscal quarters.
• Revenue of $1,027 million, up 23 percent sequentially and up 9 percent year-over-year primarily due to higher sales of semi-custom SoCs.
• Gross margin of 31 percent, down 1 percentage point sequentially, due primarily to a higher mix of semi-custom SoC sales.
• Operating expenses of $353 million, compared to $344 million for the prior quarter. Non-GAAP operating expenses of $342 million, compared to non-GAAP operating expenses of $332 million in Q1 2016, primarily due to increased marketing investments.
• Operating loss of $8 million, compared to an operating loss of $68 million in Q1 2016. Non-GAAP(1) operating income of $3 million, compared to non-GAAP(1) operating loss of $55 million in Q1 2016, primarily due to higher sales.
• Net income of $69 million, earnings per share of $0.08, and non-GAAP(1) net loss of $40 million, non-GAAP(1) loss per share of $0.05. This is compared to a net loss of $109 million, loss per share of $0.14 and non-GAAP(1) net loss of $96 million, non-GAAP(1) loss per share of $0.12 in Q1 2016. The GAAP sequential and year-over-year improvements were primarily due to a gain of $150 million related to the formation of our assembly, test, mark and pack (ATMP) joint venture (JV) with Nantong Fujitsu Microelectronics Co., Ltd. (NFME), partially offset by related taxes of $27 million. The non-GAAP sequential and year-over-year improvements were primarily due to higher sales and an IP licensing gain.
• Cash and cash equivalents were $957 million at the end of the quarter, up $241 million from the end of the prior quarter, primarily due to net cash proceeds received from the ATMP JV transaction with NFME which closed in Q2 2016.
• Total debt at the end of the quarter was $2.24 billion, flat from the prior quarter.

Financial Segment Summary

• Computing and Graphics segment revenue of $435 million decreased 5 percent sequentially and increased 15 percent from Q2 2015. The sequential decrease was primarily due to decreased sales of client desktop processors and chipsets and the year-over-year increase was driven primarily by increased notebook processor and GPU sales.
  o Operating loss was $81 million, compared with an operating loss of $70 million in Q1 2016 and an operating loss of $147 million in Q2 2015. The sequential increase was primarily due to lower revenue. The year-over-year improvement was primarily due to higher revenue and lower operating expenses.
  o Client average selling price (ASP) increased sequentially driven by a higher desktop processor ASP and decreased year-over-year primarily due to lower notebook processor ASP.
  o GPU ASP remained flat sequentially and decreased year-over-year. The year-over-year decrease was primarily driven by lower desktop GPU ASP.
• Enterprise, Embedded and Semi-Custom segment revenue of $592 million increased 59 percent sequentially and increased 5 percent year-over-year due to higher sales of semi-custom SoCs.
  o Operating income was $84 million compared with $16 million in Q1 2016 and $27 million in Q2 2015 primarily due to higher revenue from the sale of semi-custom SoC products and a $26 million IP licensing gain in Q2 2016 compared to $7 million in Q1 2016.
• All Other category operating loss was $11 million compared with $14 million in Q1 2016 and $17 million in Q2 2015.

Recent Highlights

• AMD and NFME created a joint venture offering differentiated ATMP capabilities to both AMD and a broader range of customers.
• The AMD Board of Directors appointed Board member John Caldwell as Chairman.
• AMD unveiled the Radeon RX GPU product lineup based on its new Polaris architecture based on 14nm FinFET technology, enabling generational leaps in energy efficiency and advancing the company's work to bring virtual reality to mainstream consumers.
• AMD announced availability of the Radeon RX 480 graphics card, which is designed to deliver premium VR experiences to the largest segment of GPU buyers.
• AMD also announced the acquisition of software company HiAlgo Inc., a developer of unique PC gaming technologies, which will help drive future gaming innovation in Radeon Software that will benefit owners of Radeon RX Series GPUs and beyond.
• AMD launched its 7th Generation A-Series APU mobile processors ("Bristol Ridge" and "Stoney Ridge"), designed for powerful productivity and entertainment performance.
• AMD 7th Generation APUs can be found today in the HP ENVY x360, with new notebook designs from Acer, Asus, Dell, HP, Lenovo, and others expected to become available throughout 2016.
• AMD conducted the world's first live public demonstration of its upcoming x86 "Zen" processor core architecture in the next-generation AM4 desktop processor (codenamed "Summit Ridge").
• AMD extended its leadership in gaming as Microsoft announced two new AMD-powered game consoles to its Xbox family that enable the next generation of immersive gaming experiences through support for new technologies like HDR, 4K and high fidelity VR. The Xbox One S will go on sale in early August 2016, while the company's next-generation Project Scorpio is scheduled to arrive for holiday 2017.
• AMD continued to drive innovation in the professional graphics market with the introduction of the industry's only hardware-virtualized GPU for blade servers (AMD FirePro S7100X) and the world's first workstation graphics card with industry-leading 32GB memory support (AMD FirePro W9100 32GB).
• AMD joined with ARM, Huawei, IBM, Mellanox, Qualcomm Technologies and Xilinx to establish a new, open specification for high-performance, coherent interconnect technology designed to significantly improve compute efficiency for servers running datacenter workloads.
• AMD released its 21st annual corporate responsibility (CR) report detailing the company's progress toward its social and environmental goals.

Current Outlook
AMD's outlook statements are based on current expectations. The following statements are forward-looking, and actual results could differ materially depending on market conditions and the factors set forth under "Cautionary Statement" below.

For Q3 2016, AMD expects revenue to increase 18 percent sequentially, plus or minus 3 percent.

For additional details regarding AMD's results and outlook please see the CFO commentary posted at quarterlyearnings.amd.com.