A closer look at AMD earnings

I've said for a while that AMD will be earning some easy money in the future as it enjoys royalties from every new console sold, and that has been borne out in the latest earnings. The only thing I'm left to wonder is why there isn't more money.

It might be because the Xbox One is said to be stumbling. Sony's PlayStation 4 is outselling Xbox One by a healthy margin. There's also the problem of no major launch titles. Yes, Xbox One has "Titanfall" but it's no "Halo," and PS4 doesn't have much to crow about, either. But new consoles tend to be slow starters as developers ramp up the learning curve, so for now, we can be patient.

For the first quarter, AMD took in $1.40 billion in revenue, a 36% jump over Q1 of 2013 but down from Q4's $1.59 billion. Again, that's entirely in line with expectations because chipmakers always go through a sales drop in Q1.

AMD reported operating income of $49 million, which is far better than the $98 billion it lost in Q1 of 2013, and net loss of $20 million, or $0.03 per share. This is far better than the $146 million it lost the prior year. The company's non-GAAP operating income, which excludes one-time charges and is far more significant to Wall Street types, was $66 million and non-GAAP net income was $12 million, or $0.02 per share. It made a one-time payment of $200 million to Globalfoundaries, the chip manufacturing company it spun out several years ago.

So AMD is looking far more healthy and profitable and the answer can be found in the Graphics and Visual Solutions segment. Revenue increased 118 percent year-over-year thanks to the AMD SoCs sold in Xbox One and PS4, plus AMD has a pretty good GPU product in its Radeon R7 and R9 family of products.

And the GPU/SoC group is pretty much keeping AMD afloat. It accounted for half of AMD's revenue, about $734 million and operating income of $91 million. The Computing Solutions segment, its x86 processor business, saw revenue decline 12 percent year-over-year thanks to PC sales softness.

Compare that to Intel's 1% decline in desktop and mobile CPUs, and that's not a pretty picture, but there might be some Osbourne Effect here. Everyone knew AMD had new CPUs coming out in Q1 and might have held off on purchases.

CEO Rory Read said on a conference call he expects console sales of about 5 million units per month, which means 5 million AMD chips sold every month, and that's easy income. The ATI acquisition eight years ago was extremely costly and took way too long to pay off, but now it's basically what is keeping the company going.

I've watched and waited for years, hoping this company would get its act together. Intel and Nvidia should not sit alone atop their respective mountains. Hopefully this is finally the start of AMD given both of them a good fight.

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