Update: AMD's profitability streak ends at two quarters

The company reported a net loss of $20 million in Q1

Advanced Micro Devices' bottom line changed from black to red on Thursday when the company posted a loss after two straight quarters of profit.

The company reported a loss of $20 million, or $0.03 per share, for the first quarter of 2014, an improvement from its loss of $146 million in the same quarter last year.

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AMD had reported a profit for its two previous quarters, as a restructuring program led by CEO Rory Read showed positive results.

AMD's revenue for the quarter, ended March 29, was $1.40 billion, up 28 percent year over year. Analysts polled by Thomson Reuters had expected revenue of $1.34 billion.

As part of the restructuring over the past two years, Read appointed a new management team, reshaped the product road map, laid off staff and established a new division to make custom chips.

The transformation has helped AMD generate more revenue from products other than PC chips, Read said on an earnings call.

AMD is on track to generate about half its revenue by the end of 2015 from "high-growth markets," which includes chips for dense servers, professional graphics and embedded use, as well as semi-custom chips, Read said.

Revenue growth last quarter was driven mainly by the Graphics and Visual Solutions unit, which makes graphics chips like the R7 and R9 and "semi-custom" chips. Revenue from that group totaled US$734 million, up 118 percent. AMD's semi-custom chips include processors sold to Microsoft for the Xbox One and to Sony for the PlayStation 4.

"There was strong demand in the first quarter for the AMD-powered Microsoft and Sony game consoles," Read said.

Shipments of console chips will be higher in the second half of this year than in the first half, said Lisa Su, general manager of AMD's global business units.

PC chip shipments and revenue declined during the quarter, however. Revenue from AMD's Computing Solutions division -- which deals in PC, tablet and server chips -- was $663 million, down 12 percent.

PC shipments will decline by 7 percent to 10 percent this year, which is not as bad as previously expected, Read said.

"The commercial market has been a bit stronger," he said.

The decline in PC shipments was softened partly by Microsoft ending its support for Windows XP, Read said. The end of support triggered some PC upgrades.

AMD introduced new Sempron and Athlon chips during the quarter in the U.S. and Asia. It also shipped new Kabini processors for PCs.

PC makers are preparing laptops based on AMD's Kaveri and Beema chips, Read said. Beema will also appear in tablets in the second quarter, along with AMD's Mullins chip, Su said.

Intel has talked about going after the low-end tablet market, where devices are priced between $125 and $250. AMD doesn't want to sacrifice profit for market share and will focus on higher-value products, Su said. AMD's tablet chips are differentiated by strong graphics capabilities originating from its Radeon graphics cores.

"If we miss out on some units in the low end, so be it," Su said.

Intel has a very different business model from AMD when it comes to tablets, Read said. Intel has been subsidizing tablet makers to use its chips through its "contra revenue" program.

"This idea of contra revenue is foreign to us," Read said.

Still, Intel reported significantly higher profits for the quarter than AMD.

Agam Shah covers PCs, tablets, servers, chips and semiconductors for IDG News Service. Follow Agam on Twitter at @agamsh. Agam's e-mail address is agam_shah@idg.com

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