AMD Q1’12 Earnings Report: $1.59B Revenue, $590M Net Loss

It’s the middle of April and that means it’s once again earnings season for the prior quarter.

Late yesterday AMD released their earnings report for Q1 2012, and it turned out to be a bit of a doozy. For the quarter AMD brought in $1.59 billion in revenue, with a net loss of $590 million. This is compared to $1.61B in revenue and a $510M net profit in Q1 of 2011, meaning AMD’s revenue is slightly down on a year-over-year basis, while their net income went well into the red.

Overall, while things have been going modestly well for AMD lately thanks to the strength of their product lineup, their stake in Global Foundries has continued to drag down the company’s profits. In Q4’11 AMD had to take $209M charge that drove them into the red then, and Q1’12 has not fared any better.

As you may recall, last month AMD fully divested themselves of Global Foundries, eliminating their 8.8% share of the company. This divestment was part of a larger revision of AMD’s wafer agreement with GloFo, which saw AMD giving up their share in the foundry as part of a larger payment to GloFo in order to get out of a previous exclusivity agreement with GloFo that had entitled them to production rights on some 28nm APUs. Altogether AMD has taken a $703M charge, composed of cash and and their GloFo stake, in order to get out of using GloFo's 28nm process; and that's every bit as bad as it sounds.

The good news of course is that AMD’s GloFo-related financial troubles are almost at and end now that they no longer hold a stake in GloFo, with the bad news being that there are still a few more payments to go until they’re fully freed. On top of the $703M charge for Q1, AMD owes a further $275M to GloFo over the next year, with AMD choosing to write all of this off in their $703M charge for Q1. However once they’re paid off next year, that’s it – AMD will have no further financial ties to GloFo, with the only remaining ties being the contract fab work GloFo does for AMD.

In any case, not counting their problems with GloFo, AMD’s non-GAAP net income for Q1’12 would have been $92M, which is a small but notable increase over their non-GAAP net income of $56M in Q1’11. Even though revenues were down, AMD’s operating income from both GPUs and CPUs is up versus 2011, reflecting the higher gross margin attached to AMD’s latest generation of products.

In particular, on the CPU side of things the average sale price for AMD CPUs has held steady, but overall costs have come down slightly, making it a net win for AMD. CPU revenue for Q1’12 was $1.203B with an operating income of $124M, versus $1.2B and $100M for Q1’11. All things considered Bulldozer doesn’t seem to have lit a fire under AMD, and the lack of new APUs to replace Brazos isn’t helping, but at the very least AMD is holding their ground.

Meanwhile on the GPU side of things this was the first quarter where AMD’s new Southern Islands GPUs were shipping, which is both good news and bad news for AMD. Traditionally quarters where major new GPU architectures are introduced see lower revenue as customers hold off on purchases, and with the launch of Southern Islands early in the year this was no exception. However new GPUs also launch at higher prices, which pushes margins up. The net result is that while revenue takes a step back profits increase, which is exactly what AMD needs at the moment.

Altogether AMD booked $382M of GPU revenue in Q1’12 with an operating income of $34M, versus 413M in revenue with an operating income of only $19M in Q1’11. The increase in operating income over Q1’11 is thanks in large part to AMD’s nearly quarter-long 28nm product lead, combined with AMD’s conservative pricing. Q2’12 should see revenue improvements as AMD will have been shipping desktop SI GPUs for the entire quarter along with introducing mobile SI GPUs, however as we saw earlier this week AMD’s conservative pricing has already eroded due to a need for price cuts, meaning that AMD’s margins will likely be going down.

Moving forward, Q2’12 is widely expected to see the launch of AMD’s Trinity APU, which should give their CPU business a shot in the arm. At the same time we’re expecting AMD to finally launch Southern Islands products for the mobile market, which will be important for AMD as their mobile GPUs are high volume products.