AMD’s third-quarter results beat analyst expectations, but its PC business continues to shrink leading to a dip in share price.
AMD is no longer a money losing enterprise, thanks to its reduced reliance on the PC sector and sales of intellectual property to Sony and Microsoft their upcoming game consoles, the company reported on Thursday.
This quarter the company posted a net income of $48 million on $1.42 billion of revenue. In this quarter last year, AMD posted a loss of $157 million on $1.27 billion of revenue. AMD’s Graphics and Visual Solutions division, which is the unit producing custom IP for game consoles, saw its revenue shoot up 96 percent to $671 million. In contrast, AMD’s Computing Solutions group saw revenue drop 15 percent to $790 million compared to the same quarter last year.
A return to profitability met projections laid out by chief executive Rory Read in July, as he promised then the company would return to profitability in the third quarter.
“AMD returned to profitability and generated free cash flow in the third quarter as we continued to successfully execute the strategic transformation plan we outlined a year ago,” Read said in a statement. “We achieved 26 percent sequential revenue growth driven by our semi-custom business and remain committed to generating approximately 50 percent of revenue from high-growth markets over the next two years. Developing industry-leading technology remains at our core, and we are in the middle of a multi-year journey to redefine AMD as a leader across a more diverse set of growth markets.”
While AMD is now a profitable company, its problem is that this growth might not be sustainable. It’s only profitable now because of a bump in revenue from the inventory buildup by console manufacturers need to do before release. AMD admitted this in last quarter’s earnings call, when Read said the revenue model from consoles would shift from intellectual property licensing and development to per-chip royalties.
For AMD to maintain profitability, it needs to focus on its core business: the PC market. The company has some promising hardware and innovative software, despite the PR snafu with Mantle, which should allow it to stay competitive against Nvidia — which has struggled recently with aging cards on the market and a failed mobile campaign.
AMD’s shares are currently trading for $4.09 on the NYSE.