AMD CEO aims to be profitable in 2014 despite an up to 10% drop in PC market

Advanced Micro Devices chief executive Rory Read said the chip maker expects to be profitable in 2014 as the company expands its non-PC microprocessor businesses.

Speaking in a conference call with analysts today, Read said that the first quarter saw better-than-expected demand for semi-custom game chips and PC graphics products during the first quarter. Those categories are expected to be strong during the year thanks to the strength of PC gaming and game consoles. AMD makes semi-custom chips for Microsoft’s Xbox One, Sony’s PlayStation 4, and Nintendo’s Wii U game consoles.

Revenue was $1.4 billion, up 28 percent from a year ago. The company is on track to do 50 percent of its revenues in semi-custom and low-power chips by the end of 2015, Read said. Revenues were down 12 percent from the previous quarter — the first quarter is usually slower than the fourth.

“We returned to a more seasonable business,” Read said. “That a contrast to the last two years.”

AMD’s strategy is to focus on businesses where its bigger rival, Intel, doesn’t dominate. AMD has focused on chips for game consoles and other semi-custom chips. It is also making low-power microprocessors for dense servers via its Sea Micro “microserver” business. And it is making new ARM-based 64-bit server chips that offer lower power than x86 (Intel-compatible) server chips.

On the down side, Read expects the PC market will shrink in units by 7 percent to 10 percent compared to 2013.

During the quarter, AMD started sampling its ARM-based chips, code-named Seattle, for servers. Read said that the company is on track to capture one or two more major semi-custom orders.

“Our strategy is working, and we are building a foundation to transform our business,” Read said.

In graphics, AMD is focused on making FirePro chips for professional graphics markets such as video, design, and engineering work. In PCs, the bright spot is the commercial client market, Read said. He thinks that the post-Windows XP purchasing cycle will drive commercial forward in 2014.

“The diversification strategy is really taking hold,” Read said. “We want to be spread across growth markets. We used to be in one market.”

AMD reported financial results that met earnings estimates and slightly beat Wall Street’s expectations for revenues for the fourth quarter ended Dec. 31.

The company said today that its non-GAAP earnings were 6 cents a share and revenues were $1.59 billion. Analysts had expected earnings of 6 cents a share on revenue of $1.54 billion. In the quarter, AMD shipped large volumes of chips for video game consoles that sold big numbers during the holidays: the Sony PlayStation 4 and the Microsoft Xbox One. Revenues were up 38 percent from a year ago. Sony has sold more than 7 million PS4s, and Microsoft had a strong debut of its Titanfall exclusive game for the Xbox One in March.

“Everything we see shows the consoles are selling through nicely,” said Lisa Su, senior vice president of AMD.

AMD shares fell 8 percent to $3.80 a share in after-hours trading.

AMD’s console monopoly could provide it with more steady revenues as it tries to compete against Intel in a variety of areas. AMD has also put a lot more focus into microservers and is creating chips based on the ARM low-power design architecture.

Still, AMD is dependent on PCs, which have struggled, as it gets about 80 percent of its revenue from the PC industry. Read joined the company in 2011. He was formerly the No. 2 executive at Lenovo, which has since taken on HP for the title of the world’s biggest maker of PCs.