AMD reports Q3 profit after reducing reliance on PCs

AMD's revenue was driven by custom chips for products like Xbox One and PlayStation 4

Reduced reliance on the PC market helped Advanced Micro Devices turn a profit in the third quarter, with the company looking for faster growth in the quarters ahead.

AMD reported net income of US$48 million for the quarter ended Sept. 28, better than its loss of $157 million in the same quarter last year.

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Revenue was $1.46 billion, an improvement from $1.27 billion a year earlier. Analysts polled by Thomson Reuters had forecast sales of $1.42 billion for the quarter.

The revenue growth was driven by AMD's semi-custom chip business, which was established this year to make chips for gaming consoles and other non-PC products. AMD's chips will be used in Microsoft's Xbox One and Sony's PlayStation 4, for example, which will ship later this year.

AMD shipped millions of processors to Sony and Microsoft for their consoles, CEO Rory Read said during a call to discuss the earnings.

"We have several strong semi-custom designs moving through the pipeline," Read said.

Semi-custom-chip business revenue grew by more than 26 percent compared to the second quarter of 2013. That business will account for about 50 percent of revenue "from high-growth markets over the next two years," Read said in a statement.

As semi-custom revenue flourished, PC revenue declined. Revenue for the Computing Solutions unit, which deals in PC chips, was $790 million, declining 15 percent year over year. The company also recorded growth in revenue from graphics chips.

AMD earlier this year projected it would record a profit in the third quarter. The company "continued to successfully execute the strategic transformation plan we outlined a year ago," Read said.

AMD has been going through years of restructuring under a new management team led by Read. The company laid off 15 percent of its workforce last October and cut costs by trimming its chip offerings and selling assets. It also forged relationships with more chip manufacturers to cut production overhead.

The company is now expecting a larger chunk of its future revenue to be from its custom chip business as the PC market fades away. AMD has a negligible presence in the tablet market and does not make products for smartphones.

Diversification into new areas will help the company grow through 2016, Read said. Besides custom chips, revenue will also be driven by low-power laptops, tablets, graphics products and dense servers, Read said.

"Two years ago, 90 to 95 percent of our business centered around PCs," Read said. "We see it as an important business, but times are changing."

Read estimated PC shipments will fall by 10 percent both this year and next. The company will keep its PC chip plans modest and manage the product line to match market trends.

AMD expects its revenue to grow 5 percent sequentially in the current quarter and for the company to be "profitable at the net income level," CFO Devinder Kumar said on the call.

AMD has been trying to shed its image as an Intel clone. The company licensed the ARM architecture, which it will use in server chips due for shipment to server makers early next year. The company will make processors based on ARM designs for embedded devices as well.

However, the company has not lost sight of the PC market, which remains its bread-and-butter business. Around midyear, AMD started shipping the latest PC chips, code-named Kabini, which are selling well, said Dean McCarron, principal analyst at Mercury Research.

Its next PC chip, code-named Kaveri, will ship to motherboard and PC makers by the end of the year, Read said. PCs with the chip will likely appear next year.

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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