AMD reports $1.3 billion in Q3 revenue on higher console chip sales

Advanced Micro Devices said its financial performance for the third quarter beat Wall Street’s expectations for the maker of PC and server processors.

AMD reported revenue of $1.3 billion (on a non-GAAP basis) in the third quarter ended September 30, compared with $1.06 billion a year earlier. Net profit on a non-GAAP basis was 3 cents a share, compared with a loss of 17 cents a share a year ago. Analysts had expected a non-GAAP loss of 1 cent a share on revenue of $1.21 billion.

“Our third quarter financial results highlight the progress we are making across our business,” said Lisa Su, AMD president and CEO, in a statement. “We now expect to deliver higher 2016 annual revenue based on stronger demand for AMD semi-custom solutions and Polaris graphics processing units (GPUs). This positions us well to accelerate our growth in 2017 as we introduce new high-performance computing and graphics products.”

AMD’s console chip business (reported as semi-custom chips) has gotten a refresh this fall with sales of the Xbox One S slimmer console. Microsoft’s new game console, code-named Scorpio, will debut in 2017. Sony is also launching a 4K version of its Sony PlayStation 4 console in November. We learned today that Nvidia snatched away Nintendo as a customer for the Nintendo NX, which will now be known as the Nintendo Switch, arriving in March 2017.

In the quarters ahead, AMD has high hopes for its Zen cores, which enable 40 percent faster performance at the same size chip.

AMD says the “breakthrough performance” of Zen can challenge Intel’s fastest processor to date, the 10-core Broadwell-E processor. The company says the chip will go into new kinds of thin laptops, high-end game computers, and data center servers.

“This is one of those once-in-a-lifetime projects,” Su said in August.

AMD’s first two chips based on the Zen cores are the eight-core (16-thread) Summit Ridge desktop processor and a 32-core (64-thread) Naples processor for servers. The Summit Ridge chips are expected to debut in the fourth quarter, while Naples is expected to debut in the first half of 2017, followed by laptop chips in the second half of 2017.

The record semi-custom chip revenue and higher GPU revenue in the third quarter was partially offset by lower client desktop processor and chipset sales. Gross profit margin was 5 percent, down from 31 percent in the previous quarter due to a $340 million charge related to buying chips from contract manufacturer Globalfoundries. Expenses were higher in part due to more investment in research and development.

AMD’s debt now stands at $1.6 billion, down $606 million from the previous quarter. AMD had previously said full-year revenue would increase in low single digits. Based on the midpoint of our Q4 guidance, 2016 revenue guidance has been increased to 6 percent. AMD’s stock is down 1.8 percent to $6.83 a share in after-hours trading.

“AMD crushed Q3 revenue guidance by 9 percent on the back of gaming consoles,” said Patrick Moorhead, analyst at Moor Insights & Strategy. “Polaris-based notebook graphics and notebook processors. Microsoft and Sony very aggressively updated their gaming consoles, hence the positive AMD impact. Recently announced Bristol Ridge and Stony Ridge drove AMD to their third straight improvement in mobile APUs, a good sign if they can keep momentum into Zen. OEM customers I have talked to are very interested in Zen and now it’s up to AMD to flawlessly execute a successful launch to set themselves up for a good 2017.”