Advanced Micro Devices is the second largest manufacturer of x86 instruction set microprocessors after Intel (INTC), and relies on Windows and Linux PC market. There was a lot of fear for investors when AMD warned, in addition to lots of rumors regarding market share, as well as, headcount reduction. In the last few days, the rumors forced us to reduce our exposure to AMD. The conference call Thursday cancelled most of this fear. It reaffirmed that the board has not gone crazy. AMD will not be firing 20%-30% of GPU R&D, most based in Canada. Based on these rumors, SemiAccurate predicted the terminal death of AMD. They feared, "AMD is imploding because management doesn't understand semiconductors". However, it seems not to be the case. Let's look at the main points in the third quarter report and earning call:
First, the expected head count reduction was declared at 15%, not 30%. AMD has got the message that the market is changing.
"....we must implement our transformation on a more aggressive time line." Rory Read, AMD CEO
Second, GPU research is not being cut, as can be interpreted from his subsequent statement:
"Our graphics business performed in line with our expectations. Despite market softness, we continue to see improvement in our desktop discrete channel business, and game console revenue increased. Our industry-leading graphics technologies remain a cornerstone of our end-end product strategy, and we plan to further invest in our graphics business to drive differentiation and future growth across the entire product portfolio. "
My translation is that R&D, and Canada R&D will not be cut as deeply as feared. He then identified three strong areas which the company plans to focus on:
1- Micro Servers, especially micro-servers and cloud servers using SeaMicro technology.
2- Semi Custom APUs - Useful for applications like games consoles
3- Ultraportables and tablets - Gaining share
"... we believe we gained share in the $600 to $799 retail notebook price band globally in the third quarter." Rory Reed, AMD CEO
The most important confirmation was about the next generation consoles:
"Our semi-custom APUs already have a number of confidential high-volume design wins in place."
Now this might be Sony (SNE), Microsoft (MSFT) or both. However it is a lot better than the unconfirmed rumors for investors. In other words, AMD is not going to burn cash that fast, they have already won custom APU clients.
Desktop fans, like myself, can expect AMD to never make another FX processor after 2013. Rory did not say this explicitly, but it can be clearly implied. AMD is leaving the high end desktop/server market altogether to Intel . This is good for shareholders, bad for fans. Margins on 1-2 billion transistor FX processors were being compressed to keep the price performance proposition of AMD relative to Intel . Last, but not least, we should mention TomsHardware's, the online magazine, recently reviewed the AMD range, after the large price drops. They show AMD is now a favorite for affordable desktop gaming. This means revenue should be steady for the next few quarters.
In summary, AMD is not dropping the best parts of its technology IP. Our worst fears were unfounded. Our bullish long term hypothesis remains. Thus, we will be holding the rest of our stock.