Like its rival Intel, Advanced Micro Devices (NYSE: AMD) looks to be riding a wave of returning growth in PC sales, today posting a surprise first-quarter profit.
Thanks to robust sales of everything from its Turion II laptop processor to the 12-core Opteron, AMD reported GAAP earnings of $257 million, or $0.35 per share, on revenue of $1.57 billion for the quarter ended March 31. One year prior, when the industry hit a free-fall, AMD sales plunged to $1.18 billion and it lost $416 million, or $0.66 per share.
This quarter, AMD took a one-time, non-cash gain of $325 million for finally ridding itself of all connections to Globalfoundries, its former fabrication plants that have been spun off as an independent company. On a non-GAAP basis and excluding the gain, AMD reported net income of $63 million, or $0.09 per share.
That's still worlds better than the $0.07 per-share loss analysts had been expecting on sales of $1.54 billion, according to Thomson Reuters.
"As I said at our analyst event back in November, our priorities this year are to deliver compelling platforms, grow access to customer demand, and transform our business model," AMD Chairman and CEO Dirk Meyer said during a conference call with analysts. "In the first quarter of 2010, we made good progress on each of these priorities. And, in an improving global economic environment, we delivered record first-quarter revenue coupled with good operating performance."
The results continue the sector's good news, showing that Intel's talk on Tuesday of a strengthening PC market wasn't just exclusive to the No. 1 chipmaker.
The returning PC market benefitted AMD in a number of ways, with its non-GAAP gross margin growing to 47 percent, up two points while excluding a benefit of $69 million for the deconsolidation of Globalfoundries. The company said it was sitting on $1.93 billion in cash and equivalents at the end of the quarter, up from $1.77 billion last quarter.
AMD's Computing Solutions segment revenue -- its processor business -- decreased by 5 percent sequentially from Q4, a decline typical for the season, though it increased 23 percent year-over-year. The sequential decrease was partially offset by an increase in microprocessor average selling price (ASP) as the company rolled out expensive new processors.
Revenue in AMD's graphics segment declined by 3 percent sequentially but likewise recorded a steep jump when compared to the same quarter last year, increasing 88 percent.
During the quarter, ATI, the company's graphics processor group, expanded its line of DirectX 11 cards, including its first mobile part. The company said that it has shipped more than six million DirectX 11 cards, giving it quite a lead over rival Nvidia, which is just coming to market with its own.
But getting enough parts remains a problem. AMD once again faced supply constraints for 40nm GPUs since its manufacturing partner, TSMC, still could not meet demand -- a situation that won't change this year. "We saw improvements in supply and forward-looking commitment to provide supply, but we're also getting increased demand," Meyer said. "We still see a gap between demand and supply. We expect it to narrow but we still think we will be hand-to-mouth through much of this year."
Notebook, enterprise server sales on the rise
Meyer said that AMD's VISION program -- an effort promoting mobile systems built only with all-AMD chips that downplays tech talk and focuses on customer use cases -- is doing well at retail, with more than 50 percent of AMD-based notebook systems on the market now VISION-branded.
"AMD momentum in notebooks is growing as we expand our platform footprint and our list of top-tier customers," Meyer said. "We were pleased to add Lenovo to the list of customers attracted to our unique value proposition in notebooks. To that end, customer interest in our Danube and Nile platforms is very promising."
AMD's new eight- and 12-core server processors, the Opteron 6000 series, are also doing well, accounting for two-thirds of server processor sales, and the Opteron 4000 series is on track for launch in this quarter, Meyer added. "I think the best thing we can say is that enterprise server business really started to pick up in the third quarter of last year and has remained healthy," he said.
CFO Thomas Siefert, also present on the call, declined to give any predictions on the second quarter. Currently, a consensus of analysts expects the company to report a second-quarter EPS loss of $0.08 on sales of $1.52 billion. Siefert would only say that the second quarter would be seasonally down.