AMD's Stock Price Falls More Than 18% On Weak Forecast, Despite Modest Sales Improvement

AMD reported its second quarter results today, and the stock market is anything but happy with the numbers -- in the past hour, the stock has shed more than 18% of its value, plunging from $4.57 to $3.86 as of this writing. Given the size of the plunge, you'd think the company had just announced its own imminent collapse. In reality, the company had a reasonably good second quarter -- total revenue rose 24% year-on-year, to $1.4B (up from $1.16B).

Shifting Revenues

Part of what the market seems to be reacting to is the continued decline of AMD's APU business. Sunnyvale's Computing Solutions revenue improved 1% compared to Q1, but that's down 20% year-on-year, to just $670M. Graphics did $772M, up 5% this quarter, driven by sales of Xbox One and PS4 consoles. AMD does note that they saw a slowdown in the GPU market thanks to declining cryptocurrency sales, but that it partially offset with professional graphics solutions  (like the FirePro W9100 we just reviewed.

The company reported a net loss of $36M, which isn't unusual or unexpected -- but the Street's response has been brutal. Why savage the company's stock price? Probably two reasons:

First, unlike Intel, AMD is forecasting a tiny Q3 gain of 2%, as compared to Intel's expectations of at least 4%. Granted, Intel builds itself some leeway on those figures, but Santa Clara just delivered a hefty set of gains in both consumer and server. AMD's stock rose after Intel reported earnings, and the current plummet could be seen as a course correction.

Second, its increasingly clear that AMD's APUs simply aren't capturing any of the growth space in the PC industry. When AMD's PC segment sales fall 20% year-on-year and Intel's PC segment revenue picks up 9% over the same period, it's not hard to see that Intel is aggressively capturing the profit in the industry. AMD is ramping its own replacement products and working on new designs, but that's enough to reassure Wall Street.

The Good News:

On its conference call, AMD talked up new commercial wins, better dense server shipments, and the fact that it's already sampling its first Cortex-A57 processor. The new FirePro revenue is important, and I think the impact of these results on the company's stock price reflects more on Wall Street's erroneous expectations than anything else. AMD's recent debt refinancing has also left it in a position with less debt due in the near-term.

AMD doesn't expect game consoles to surge dramatically in Q3 and Q4 -- it believes that strong demand in the early part of the year will offset some of the typical seasonal trend. The company expects to announce 1-2 additional semicustom design wins and says it's looking at opportunities in mobile and communications, but didn't offer any further color.

AMD also declined to give any specfiic comments on next-generation GPU architectures or CPU parts, and would not specify when it intended to move to nodes below 20nm. Rory Read stated that "There's a lot of leg in 28nm" implying that AMD may not be an early adopter of sub-20nm nodes either.

One tidbit: AMD did confirm that GlobalFoundries is now sampling both GPUs and console APUs. Both of these parts have traditionally been built at TSMC, so moving production to GF is a significant achievement for these parts.