Advanced Micro Devices' (NYSE:AMD) latest second-quarter earnings report has wiped out the gains that the stock had delivered this year. In fact, AMD dropped a massive 16% after its results came out. The company reported mixed results, as it missed earnings estimates despite delivering solid year-over-year growth. In addition, AMD's weak outlook further dampened investors' spirits. The company expects revenue between $1.43 billion and $1.51 billion, below the $1.57 billion estimate.
However, I think AMD's drop looks more like an opportunity. Investors now have the opportunity of buying a company whose bottom line is expected to grow at a terrific pace for the next five years. The company is already reporting solid growth, posting a year over year jump of 24% in revenue in the previous quarter.
Also, it posted non-GAAP net income of $17 million in the quarter, dramatically improving its net loss of $65 million posted in the year-ago quarter. Hence, given AMD's solid growth and impressive prospects, it would be wise for investors to use its drop as a buying opportunity.
AMD's second-quarter results illustrate its significant progress in transforming the company. Management is strongly executing on its strategy to build a robust business model by enhancing its ability to deliver consistent performances. AMD has specifically managed expenses, optimized its cost structure, significantly reduced operating expenses, and is investing strategically in innovations that are believed to fuel future growth.
Gaining more traction in the end-market
AMD is introducing its processing and graphics technology into new markets. It plans to generate approximately 40% of its revenue from these high growth markets in 2014. Further, it also expects to deliver 50% of its revenue from these high growth markets by next year.
Additionally, AMD is seeing strong traction in semi-custom SoC shipments, which are increasing due to robust demand for AMD-powered game consoles. There were record semi-custom unit shipments during the second quarter, and the momentum is expected to continue going forward.
Additionally, AMD's embedded business is also on a roll. Revenue from this segment jumped in the double-digits in the previous quarter due to an increased number of new design wins. AMD launched a number of new products during the quarter, and signed deals with HP's (NYSE:HPQ) thin clients and Boeing's (NYSE:BA) next-generation advanced cockpit display systems.
AMD will also benefit from improvement in the PC market, which is stabilizing due to the commercial refresh cycle. The overall microprocessor unit shipments of AMD were up sequentially during the second quarter, driven by the introduction of new notebooks from Acer, Dell, HP, Lenovo, and others, powered by AMD's latest Beema and Kaveri APUs.
AMD's OEM partners are leading to strong demand for its desktop APUs. Looking ahead, this business is expected to strengthen over the coming quarters with the expansion of AMD's A-series APU portfolio and the continued production ramp of its first low-powered socketed desktop APU. The PC strategy of AMD is focused on developing profitability by diversifying into the commercial segment.
AMD's GPU shipments are expected to multiply at a good pace owing to the attractive market pricing for its R7 and R9 offerings. The current priority for AMD is to regain graphics market share, and it believes that its go-to-market programs and design wins will drive gains during the coming quarters.
AMD is also focused on delivering non-GAAP profitability in 2014. According to management:
"The ongoing ramp of our semi-custom SOCs to meet the strong game console demand, driving sales for the expanded number of design wins we have secured in the commercial space, which is the clearly the strongest performing part of the PC market."
Products to drive growth
AMD is also on track to secure one to two additional semi-custom design wins that are expected to accelerate its transformation throughout the coming years. AMD's differentiated x86 and ARM strategy is crafted to deliver unmatched computing and graphics performance using a shared, flexible infrastructure to drive new innovations.
AMD recently launched its 64-bit ARM-based AMD Opteron A-series processor, codenamed as Seattle to expand the footprint of ultra-efficient 64-bit ARM solutions for cloud computing and the Internet of Things. AMD also expanded its mobile APU offerings in the quarter with the introduction of the newest 3rd generation mainstream mobile APUs, which brings together category-leading compute performance with unique features and rich user interactions.
AMD also expanded its 2nd-generation Graphics Core Next-based professional graphics solutions with the introduction of the AMD FirePro W8100 professional graphics card, which is believed to deliver 38 times more performance than the closest competitive offerings based on double-precision testing. Dell, HP and more than 10 workstation system integrators are using this new card.
Clearly, AMD is making solid product development moves. The company might have suffered weakness in the previous quarter, but its bottom line is expected to grow at a terrific rate in the long run as mentioned earlier. So, investors should take advantage of the company's recent drop to buy more AMD shares.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.