AMD Reports Improved Profitability in 2Q 2011

AMD [NASDAQ: AMD] today reported their earnings for the 2Q 2011. AMD showed $1.574B in revenue which was actually down from the previous quarter which showed $1.613B - a decrease of 2%. Even so, AMD managed to post a profit of $61M which yielded an EPS of $0.08. If we disregard the payment that AMD received last quarter, we can see that AMD?s non-GAAP net income was up to $70M ($0.09 EPS) from $56M ($0.08 EPS) last quarter. They also improved their operating income from $54M in first to $105M in second quarter 2011, nearly doubling operating income. Although, these numbers are good we must note that AMD still had higher operating income in 2Q 2010 when they posted a $125 Million loss. Through all this, AMD managed to improve their gross margin to 46% up from 1Q 2011 at 43% and 2Q 2010 at 45%.

Looking at AMD?s different divisions we can see that their computing solutions division is still their biggest revenue driving division. They posted $1.2B in revenue generating $142M in operating income thanks heavily to the market adoption of their Brazos and Llano platforms. The shipment of nine million Brazos platforms alone is really what drove revenue in the APUs and Llano is expected to increase the ASP of their APUs further. Even compared to 1Q 2011 and 2Q 2010, AMD still posted better operating income in division which has been one of their toughest divisions. Considering that AMD had better revenue in 2Q 2010 and lower operating income, this is a reflection of AMD?s improvement of their margins.

Their disappointing division, though, was actually their graphics division which has in recent history been a generally successful division of the company. Even though AMD has been showing that they have been producing high-performance competitive graphics, they still saw a decrease in revenue compared to 1Q 2011 and 2Q 2010.

This is further made worse by the fact that AMD actually posted a loss in this division, even though they did state that they increased their expenses in that division due in part to increased investment in their future architectures. This would generally be somewhat of an accepted reason, except for the fact that this isn?t the first time that they?ve had to increase their investment in their graphics division. Such investments haven?t necessarily made the graphics division post a loss in the past. Although, the likely reason is that AMD?s margins in their graphics division aren?t as good as they need to be unless they have a red hot new product. This could be due in part to the fact that they still have a lacking professional graphics market share which would obviously drive up ASP and margins if they were able to capture more market share. If AMD can improve their placement in professional graphics they can help hold up their graphics division. Furthermore, if AMD starts to make GPUs for the next-generation consoles there is a likelihood that this could help their revenue get back to where it needs to be. Considering AMD?s graphics past, though, there is good reason that they can regain profitability in this division?

AMD states desktop Bulldozer processors will ship for revenue in August 2011, after missing the June target

With AMD expecting to see stronger mobile processor ramp in laptops with their Llano processors, next quarter along with the introduction of Interlagos (server) and Zambezi (consumer) Bulldozer based processors. With AMD shipping Bulldozer based processors in August, there is a strong belief at AMD that they will be able to improve their gross margins and profitability. The belief that they expect revenue to increase 10% plus or minus 2% means that they are likely to get close to hitting a revenue record and further improving profitability.

At the current moment we believe that AMD has improved their strategy and posted true profitability. We believe that the markets have accepted AMD?s APU strategy and AMD?s marketing and placement of APU products have been done in a way that has proven successful. Furthermore, if AMD?s Bulldozer based offerings can prove competitive in performance and price they are likely to see an increase of revenue and profitability. The one oddly weak spot in AMD?s earnings for this quarter has been graphics and we are hoping that AMD can muster some more revenue in the following quarter and improve profitability since there isn?t much expectation of any new products in the coming quarter.

AMD in current trading has closed at $6.50, down $0.10 or 1.52%. In after hours trading (after seeing AMD?s earnings), AMD is up $0.40 or 6.15% at $6.90. So it appears that the markets are indeed in agreement that AMD?s earnings were a good sign.