AMD to ‘Double Down’ on Gaming Segment, Says PC ‘Far From Dead’
"The PC is far from dead,” said AMD CEO Rory Read on the company’s Q1 earnings call Thursday. But the PC market is “a little bit more difficult than what people had thought,” Read said, and while second half 2013 will be better than the first, it’s likely to end up down “low-to mid-single digits” for the year.
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PCs will remain “an important business for AMD for years to come,” with more than 300 million PCs -- in various form factors -- expected to ship per year for the “foreseeable future,” Read said. But AMD is shifting more of its revenue mix to higher-margin semi-custom and embedded products to feed new categories, including game consoles, that will grow from 20 percent of total company revenue in Q4 this year to 40-50 percent over the next 2-3 years, Read said.
AMD is looking to its graphics business for growth, part of its “strategic decision to double down on being the gaming industry leader,” Read said. He said AMD’s desktop graphics processor channel sales “are accelerating” as a result of bundling programs with “industry leading” games. The plan “cements tighter connections” with leading game developers, he said, and combined with recent game console wins such as the PS4 and Nintendo Wii U, AMD is looking to leverage its position in PCs to make AMD chipsets the “de facto standard for games developers across the globe."
More than 40 million game consoles are expected to ship this year, Read said, and the number will grow as gaming capability expands to other home entertainment devices including media hubs and cloud distribution systems. He said PS3 is “one of the most popular platforms for streaming online video” and that Microsoft said last year that Xbox owners use their consoles more for watching videos and listening to music than for playing games.
The PS4 will run on a semi-custom AMD APU (accelerated processing unit) incorporating low-power Jaguar cores and Radeon graphics that allow AMD to deliver semi-custom chips with higher average selling prices, Read said. APUs, combining microprocessors and graphics capability on a single SoC, “are the future,” Read said, citing recent gaming console design wins as validation.
AMD’s Kaveri APU, due out later in the year, will allow the company to do natural user interface processing “much more efficiently, especially in low-power environments,” according to Lisa Su, senior vice president-general manager, AMD Global Business Units. She listed “graphics-intensive” applications such as facial and speech recognition as ones that will benefit from AMD’s low-power, high performance SoCs and enable the company to differentiate from the competition.
While the gaming console market is “exciting” for AMD, the traditional five-to-seven-year life cycle of the gaming platform market is in question, according to Su. She sees the category as “an opportunity of growth over the medium term,” but added, “there is a lot of conversation about where cloud gaming goes” and “that will have to play out over the next generation."
On the disparity between AMD’s projections for Q1 PC sales and more optimistic results from Intel, Read said, he expected the market to be “choppier” than competitors have believed, saying the choppiness is now “playing out.” Read expects sales to pick up in the second half of 2013 and on improvement in Windows 8 adoption and the availability of different PC form factors.
AMD is looking to its Temash low-power mobility processor for Windows 8 tablets, hybrids and convertibles to boost sales with “a lot more of those form factors coming out from the OEMs in the second half of the year,” according to Su. The company demonstrated the Temash and Kabini, SoC APUs at CES, calling them the industry’s first quad-core x86 SoCs. Kabini and the Richland APU will be “larger volume plays,” she said.
FBR Capital Markets rated AMD a “market perform” following the earnings report, applauding the company’s decision to diversify from the traditional PC market. “We were encouraged by management’s statement that its custom APUs for the Sony PS4 will carry ASPs in the high end of the company’s client microprocessor range,” said analyst Christopher Rolland.
For Q1, AMD reported revenue of $1.09 billion, a 6 percent sequential drop from Q4 2012 and a 31 percent drop year over year. Net loss was $146 million, with an operating loss of $98 million, it said. AMD shares closed 2.4 percent lower Friday at $2.45.