AMD Q2 '13 results above expectations.

[sontin]

There's no contradiction here, the SOC for the consoles are quite large so even if the gross margins are relatively low they're still going to charge in the high range of their much smaller APU.

No, that is not true. Gross Margins on these consoles SoC are lower than for their other products.

Yes they are charging more but in the end they have less money to spend.

 

[Genx87]

Well, I guess a loss of less than predicted is some sort of positive news. Really though, how long can a company continue without making a profit?

In theory forever if they had a positive cash flow.

 

[sontin]

Nice try Sontin but I nailed those two. 😀

ASP is down from Q1 and yet they sold more high end GPUs and had another record quarter for workstations cards.

So no i don't believe that the ASP is up from the last year.

 

[Gikaseixas]

Sontin is right here. This kind of margins is nowhere near what Intel and Nvidia are accustomed to work. AMD won the consoles by going very, very, very low with their margins.

Links please. You either work for AMD or got access to some secret docs. Nobody knows what margins they'll get from the console deals.

 

[Idontcare]

Could someone with sound financial knowledge please explain to me how it is possible that AMD still lives and gets fresh cash influx from their investors?

Maybe I'm thinking in too simple terms, but if I don't make profit and if I cannot pay back (all) of my debts, banks certainly will decline any new credits and my business will fail. Why does this not happen to AMD? Who in their right mind would give them money again and again and again and get nothing back in return? Well, now the situation looks better, but what about say 5 years ago?

Its the American dream. Load up on debt and sell your investors on the hope that you'll make it big someday and it will all pay off.

Isn't that what student loans accomplish? Same for business I guess.

 

[LegSWAT]

Margins on the beginning are bigger than in the end of the contract.

Not with decreasing dice cost!

AMD was always a very high debt company, and the only reason we didn't see a default is because they offloaded a lot of debt to Globalfoundries once they spun off the fabs.

Like that 400mio$ penalty payments paid directly to GF?

 

[Arachnotronic]

Links please. You either work for AMD or got access to some secret docs. Nobody knows what margins they'll get from the console deals.

You can guess...revenues guided up 22% Q/Q, margin guide down 400bps. It doesn't take a genius to figure out that the bulk of the revenue increase is from the console ramp, and that with gross margins taking a hit, the console wins are low margin.

 

[sontin]

It's not only the console wins. The whole business modell is based on low margins. It looks to me that they are stopping to invest into their stand alone x86 market...

 

[SiliconWars]

Well the stock is taking a hammering today so clearly the market isn't impressed by the margins.

 

[AnandThenMan]

Well the stock is taking a hammering today so clearly the market isn't impressed by the margins.

I've learned (sometimes the hard way) that stock prices often don't correlate to what you think they should. I've seen a stock rise after an iffy financial quarter, more than once.

 

[sontin]

It was the first time that AMD spoke about gross margins of the semi custom design business. So i think it was a surprise for a lot of people that margins will be much lower than 40%.

 

[lefty2]

The gross margin doesn't matter, as long as profits are going up. Console APU sales have no marketing cost and the development cost is shared by the customer, so you can't treat the gross margin for that product the same as you would for the other stuff.

 

[mrmt]

Links please. You either work for AMD or got access to some secret docs. Nobody knows what margins they'll get from the console deals.

There are no links, and I have no access to secret documents of any kind. All what I'm saying here can be verified in AMD financial statements in this quarter. I've already described both the assumptions and the numbers you get in the scenarios.

As I understand that business isn't the main focus on this forum, if you are interested, PM me and I'll write you a detailed explanation on how I reached these numbers.

 

[mrmt]

The gross margin doesn't matter, as long as profits are going up. Console APU sales have no marketing cost and the development cost is shared by the customer, so you can't treat the gross margin for that product the same as you would for the other stuff.

But that's SOP in the industry, no? Intel isn't spending today any significant amount of money in Haswell development. Haswell development was funded by Nehalen, Clarckdale, Sandy Bridge and Ivy Bridge. Intel is spending development money in Haswell-EX, Broadwell, Sky Lake, Knights Landing, Skymont and whatever comes after them. So you you must treat the gross margins of both products as the same.

What makes the embedded silicon different is that the development of those SoCs didn't stress AMD past cash flows as much as an independent product would, so when you factor this in a ROI analysis the smaller revenue stream will be mitigated by the smaller initial investment and you might end up with a descent ROI.

What is telling is the amount of cash this projects are going to generate. Factor a 24% gross margin, and I think this is an already exceptionaly higher estimate and even if they sell 1 billion per year they won't be making any exceptional amount of money. In fact, they will be generating less cash flows than they were generating with their big core line. To put things in perspective, despite 200 million extra revenues expected in Q3, AMD will be earning only 9 million more in gross profits.

In the end, everything points out for a different AMD, or at least one that won't be able to fund the kind of development they used to fund.

 

[mrmt]

Not with decreasing dice cost!

Yes, even with decreasing die cost.

Like that 400mio$ penalty payments paid directly to GF?

What does this have to do with the debt offloaded to Globalfoundries? Even if it did, the amounts are not even comparable. AMD got a 700MM cash infusion and 1.1 billion in debt relief.

 

[Genx87]

It was the first time that AMD spoke about gross margins of the semi custom design business. So i think it was a surprise for a lot of people that margins will be much lower than 40%.

Im not sure why it would be a surprise. We had an entire thread about Nvidia stating so much a few months ago. But many dismissed it as sour grapes.

 

[pablo87]

Only because of a Surface write off. Otherwise they were flat against last quarter.

According to Microsoft CFO Amy Hood, total industry shipments to the Consumer fell 20% in Q2. Nothing to do with Surface.

If we include Console in Consumer, AMD might actually be up in upcoming quarters. Console is saving their existence, were they prescient or lucky?

 

[USER8000]

There are no links, and I have no access to secret documents of any kind.

So basically you are just guessing??

What about the fact that R and D costs have been footed by MS and Sony for development of the chips(which has been noted by analysts)??

As usual more doom and gloom before even the business has even properly started.

The fact is most of the financial risk is with Sony and MS not AMD.

The gross margin doesn't matter, as long as profits are going up. Console APU sales have no marketing cost and the development cost is shared by the customer, so you can't treat the gross margin for that product the same as you would for the other stuff.

Exactly and the other aspect,there is far less risk for them financially compared to having to spend their own money(or take on more debt) to fund development themselves.

Moreover the CPU section of the APUs is more or less the same as the ones used in Jaguar SOCs and the GPU appears to be use a more advanced version of GCN.

If anything Sony and MS have probably indirectly helped AMD with its products in other markets,regarding R and D.

 

[thilanliyan]

Its the American dream. Load up on debt and sell your investors on the hope that you'll make it big someday and it will all pay off.

Isn't that what student loans accomplish? Same for business I guess.

Lol so true, I remember to get a certain credit card while I was finishing up Uni they estimated what I would make as an engineer when I finished and based on that they approved me.

And oh dear...student loans...don't even get me started...I'm still hurting from them. 😉

 

[mrmt]

So basically you are just guessing??

Yes, as every other analyst out there. But it's not a baseless guessing:

http://forums.anandtech.com/showthread.php?t=2331591&page=2

Just to put things in perspective, the consoles that will save AMD, assuming a linear 10% decrease in sales and flat gross margin for all other AMD business units, will give the company some 1 billion in revenues per year but only 24%* gross margins. And this is year 0, when the price of the silicon will be higher. It doesn't get any better from here.

Sure, it isn't bad when you think that there will be practically 0 expenses from now on, but you can't fund a x86 business with this punny cash flow. This is less than AMD got with Brazos.


(If you assume that everything else will be flat and add the projected revenue increase and apply the forecast gross margin, the custom silicon will have a whopping 7% gross margins. As Haswell arrived in Q2 and Q3 it's not far fetched to project a 10% drop in everything else and take the 24% gross margin.

Alternatively, if you want to day dream with AMD custom silicon above 40% gross margin, other business units will have to take a drop of 20% in their gross profits)

Something between 20% and 24% is what I would call a baseline scenario. I think the below 10% scenario too far fetched, so I discarded this one. I don't think other AMD business will fall more than 10%, which would improve embedded margins above 25% and I think the 10%-20% range plausible but unlikely, as the projected ROI would be very low.

What about the fact that R and D costs have been footed by MS and Sony for development of the chips(which has been noted by analysts).

As usual more doom and gloom before even the business has even properly started.

It doesn't matter that Sony and MSFT will foot the R&D bill, what matters *now* for AMD is the future cash flows that these contracts will bring, and by the look of AMD forecasts, it won't be as much as AMD current line up.

 

[sontin]

Exactly and the other aspect,there is far less risk for them financially compared to having to spend their own money(or take on more debt) to fund development themselves.

And how is their new business modell working if there are no new customers? Who will fund all the money for future products and IP?

They cut their R&D down to $300 million per quarter. This is the same like nVidia spends on R&D. And nVidia has no $840 million x86 market.

 

[USER8000]

Yes, as every other analyst out there.

The problem is though the analysts and others have done enough poor maths and predictions in the last 10 years. Its why most of the industralised countries in the world have totally frakked economies ATM,and had to use trillions of dollars to keep the financial sector afloat.

 

[mrmt]

The problem is though the analysts and others have done enough poor maths and predictions in the last 10 years. Its why most of the industralised countries in the world have totally frakked economies ATM,and had to use trillions of dollars to keep the financial sector afloat.

Instead of empty rhetoric, why don't you bring something here? Run the numbers yourself, try to come with a better estimate than mine. It will be a lot more constructive than just disqualify my numbers because you don't like them.

 

[USER8000]

And how is their new business modell working if there are no new customers? Who will fund all the money for future products and IP?

They cut their R&D down to $300 million per quarter. This is the same like nVidia spends on R&D. And nVidia has no $840 million x86 market.

So,AMD will never get any new customers ever. Cool,I was not aware of that.

BTW,didn't you say Nvidia sold 90 million Kepler cards here:

http://forums.anandtech.com/showpost.php?p=35265966&postcount=101

I have a GTX660,so I was interested to see you were you read that.

Unfortunately you could not back up that claim even after a mod asked you!! 🙁

Instead of empty rhetoric, why don't you bring something here? Run the numbers yourself, try to come with a better estimate than mine. It will be a lot more constructive than just disqualify my numbers because you don't like them.

Yawn. The problem is you are also full of empty rhetoric too. The issue is the starting point and this is why you can ask a question to a 1000 different people and get a 1000 different answers. Logic can be used to do anything you want.

But again,people ran the numbers in the last 10 years and got them massively wrong leading to the near collapse of the financial system. That is the problem with speculation,you can be right or wrong. Its when people get too full of themselves and thing they are never wrong it is when the problems start. It is the whole problem with the financial industry,people who are too self assured of themselves,even if history shows that they have often screwed up a huge amount of times.

 

[mrmt]

Yawn. The problem is you are also full of empty rhetoric too. The issue is the starting point and this is why you can ask a question to a 1000 different people and get a 1000 different answers.

But again,people ran the numbers in the last 10 years and got them massively wrong leading to the collapse of the financial system. That is the problem with speculation.

So you can't run the numbers and get an estimate?