AMD projects revenue gains with limited margin expansion

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(Bloomberg) -- Advanced Micro Devices Inc., trying to make a dent in Intel Corp.’s dominance of computer processors, projected revenue will grow more quickly than some analysts had estimated, but gave a disappointing forecast for profitability.

First-quarter revenue will be about $1.55 billion, the Sunnyvale, California-based company said Tuesday in a statement. That indicates growth of about 31 percent from an adjusted total of $1.18 billion for the same period a year earlier and compares with an average analyst estimate for a 27 percent increase, according to data compiled by Bloomberg.

Last year, AMD released new designs for desktop, server and laptop processors, saying that some outperform products from Intel, the world’s largest semiconductor maker. Chief Executive Officer Lisa Su touted the chips as the best AMD has produced in years and promised to win back share lost to Intel over the last decade. Investors, who pushed up the stock 295 percent in 2016 in anticipation of those gains, have become concerned that progress will be slower than hoped. Su said AMD’s accelerating growth is evidence that those new offerings are gaining sales.

“The new product strength is the most important factor,” she said on a conference call with analysts. Su maintained her commitment to forging ahead with updating AMD’s offerings, in response to questions on the company’s profitability. “We are investing in key new products and new software and that’s the right thing to do,” she said.

The company said gross margin, or the percentage of sales remaining after deducting the cost of production, will be greater than 36 percent for 2018. That sparked concerns that AMD has increased the pace of its spending to keep up with larger rivals Intel and Nvidia Corp. Intel reported a gross margin of 63 percent in the fourth quarter.

“That’s what I was afraid of, that it’s spending too much to compete with Intel and Nvidia,” said Stifel Nicolaus analyst Kevin Cassidy.

AMD’s shares were little changed in extended trading, recovering from a decline of as much as 7.7 percent after the results were announced. The stock closed at $12.87 in New York and has gained 25 percent this year.

Fourth-quarter net income was $61 million, or 6 cents a share, compared with a loss a year earlier. Sales rose 34 percent to $1.48 billion. Profit minus certain items was 8 cents a share. Analysts had projected profit on that basis of 5 cents a share on revenue of $1.41 billion.

AMD is also the second-largest maker of graphics processors for add-in cards for PCs used by gamers, behind Nvidia. That market has been boosted sporadically by sales related to cryptocurrency mining. Graphics chips are good at the kind of processing needed for such activity.

Su is trying to restore AMD’s fortunes after years when its products either came too late or fell short of promises. She has repaired its balance sheet and revamped the entire product lineup. A new design for laptops, the biggest area of PCs by volume, was released in the fourth quarter.

AMD’s earnings may also provide a window into how the computer industry is reacting to news earlier this month that a feature of all modern processors makes them vulnerable to the theft of information previously thought to be secure. Intel, AMD and software makers have been rushing to deliver software patches to close off that potential avenue of attack from hackers. Some of those patches have slowed computers or caused older ones to have issues such as unscheduled restarts.

Bloomberg News