AMD continues move toward profitability

Advanced Micro Devices hopes for financial stability after years of struggles, but analysts said that a volatile PC market could derail the chip designer's progress.

Keeping with its projection earlier this year, AMD's CEO Rory Read said Thursday that the company would deliver a profit in the third fiscal quarter, which will be reported in September. The company is making progress as part of a "three-step strategy to restructure, accelerate and ultimately transform AMD for growth," Read said in a conference call about earnings.

The return to profitability involves a mix of cost-cutting measures, shipments of new chips and less reliance on PCs, a market that has been slowing. As in past quarters, a majority of third-quarter revenue will be from PC chips, but the company is expecting a larger mix of revenue from chips for non-PC products such as gaming consoles. AMD's chips will be used in Microsoft's Xbox One and Sony's PlayStation 4, which will ship later this year.

AMD is projecting revenue to increase on a sequential basis by 22 percent, plus or minus 3 percent, in the third quarter. AMD this week reported revenue of US$1.16 billion for the second quarter, falling from $1.41 billion recorded during the same quarter last year. The company reported a net loss of $65 million for the quarter.

The company has already taken steps to cut costs, including laying off 15 percent of its workforce in October last year, and selling off a campus in Austin, Texas. It also broke off a relationship with GlobalFoundries as its sole chip manufacturers, though AMD paid a penalty for not meeting inventory requirements and breaching the contract.

AMD last quarter formed a new custom-chip business unit to make processors for gaming consoles, embedded devices and other non-PC products. The company expects its custom chip business to account for 20 percent of revenue by the fourth fiscal quarter and Read said the company is on its way to achieving that goal.

Compared to the past, AMD is now not trying to be an Intel clone, and aims to create a unique identity by working directly with companies to create custom and embedded chips, analysts said. AMD has also acquired a license for ARM processors and plans to release server chips with ARM processors next year.
"They've made a lot of progress. In particular, they are not trying to play a game against Intel, which is 10 times their size. That's a pretty good sign," said Nathan Brookwood, principal analyst at Insight 64.

AMD still competes with Intel on PC and tablet chips. But rather than depending on PCs, AMD wants to diversify their business into new areas and the initial foray into game consoles is a good start, Brookwood said.
The company could ultimately make an impact in tablets, which is a fast-growing market. AMD has announced a tablet chip called Temash, which is for Windows 8. The company has said it will ultimately build chips for Android and Chrome OS devices. AMD has no plans to develop chips for smartphones.

Game consoles will be key in driving AMD's return to profitability in the third quarter, said Dean McCarron, principal analyst at Mercury Research.

"The game console business is something they can predict as it's a contract," McCarron said.
Microsoft and Sony have signed a contract to buy a specific number of chips from AMD, which guarantees a minimum revenue for the chip designer. The revenue will increase if the console makers buy more chips.
AMD will also realize revenue from the new Kabini PC chips it launched during the second quarter, McCarron said. Laptop and desktop shipments with the new chips will pick up in the back-to-school and the holiday seasons, McCarron said.

But AMD's business still relies on PCs and that market is volatile, McCarron said. Despite AMD's confidence that the third quarter will be profitable, the fourth quarter is still up in the air, McCarron said.
AMD could stumble if the PC and tablet chips fail, analysts said.

Kabini chips will be driving low-end PC shipments and while initial response to the processors has been excellent, a lot depends on the demand for laptops and desktops, Insight 64's Brookwood said.
"There's no guarantee the buyers are going to go for those products," Brookwood said.

AMD's turnaround started when Read was appointed the CEO in August 2011, after which he assembled a new management team. The company tore up the old chip road map and established a new product lineup. AMD also introduced a new chip development methodology that made it easier to bring third-party intellectual property to chip designs, and the concept is now at the center of custom chip development.


"The team now is very different than before. The company is now focused on getting it right than in the past," Brookwood said.

Analysis: AMD continues move toward profitability

Advanced Micro Devices hopes for financial stability after years of struggles, but analysts said that a volatile PC market could derail the chip designer’s progress.

Keeping with its projection earlier this year, AMD’s CEO Rory Read said Thursday that the company would deliver a profit in the third fiscal quarter, which will be reported in September. The company is making progress as part of a “three-step strategy to restructure, accelerate and ultimately transform AMD for growth,” Read said in a conference call about earnings.

The return to profitability involves a mix of cost-cutting measures, shipments of new chips and less reliance on PCs, a market that has been slowing. As in past quarters, a majority of third-quarter revenue will be from PC chips, but the company is expecting a larger mix of revenue from chips for non-PC products such as gaming consoles. AMD’s chips will be used in Microsoft’s Xbox One and Sony’s PlayStation 4, which will ship later this year.

AMD is projecting revenue to increase on a sequential basis by 22 percent, plus or minus 3 percent, in the third quarter. AMD this week reported revenue of $1.16 billion for the second quarter, falling from $1.41 billion recorded during the same quarter last year. The company reported a net loss of $65 million for the quarter.

The company has already taken steps to cut costs, including laying off 15 percent of its workforce in October last year, and selling off a campus in Austin, Texas. It also broke off a relationship with GlobalFoundries as its sole chip manufacturers, though AMD paid a penalty for not meeting inventory requirements and breaching the contract.

AMD last quarter formed a new custom-chip business unit to make processors for gaming consoles, embedded devices and other non-PC products. The company expects its custom chip business to account for 20 percent of revenue by the fourth fiscal quarter and Read said the company is on its way to achieving that goal.

Compared to the past, AMD is now not trying to be an Intel clone, and aims to create a unique identity by working directly with companies to create custom and embedded chips, analysts said. AMD has also acquired a license for ARM processors and plans to release server chips with ARM processors next year.
“They’ve made a lot of progress. In particular, they are not trying to play a game against Intel, which is 10 times their size. That’s a pretty good sign,” said Nathan Brookwood, principal analyst at Insight 64.
AMD still competes with Intel on PC and tablet chips. But rather than depending on PCs, AMD wants to diversify their business into new areas and the initial foray into game consoles is a good start, Brookwood said.

The company could ultimately make an impact in tablets, which is a fast-growing market. AMD has announced a tablet chip called Temash, which is for Windows 8. The company has said it will ultimately build chips for Android and Chrome OS devices. AMD has no plans to develop chips for smartphones.
Game consoles will be key in driving AMD’s return to profitability in the third quarter, said Dean McCarron, principal analyst at Mercury Research.

“The game console business is something they can predict as it’s a contract,” McCarron said.
Microsoft and Sony have signed a contract to buy a specific number of chips from AMD, which guarantees a minimum revenue for the chip designer. The revenue will increase if the console makers buy more chips.
AMD will also realize revenue from the new Kabini PC chips it launched during the second quarter, McCarron said. Laptop and desktop shipments with the new chips will pick up in the back-to-school and the holiday seasons, McCarron said.

But AMD’s business still relies on PCs and that market is volatile, McCarron said. Despite AMD’s confidence that the third quarter will be profitable, the fourth quarter is still up in the air, McCarron said.
AMD could stumble if the PC and tablet chips fail, analysts said.

Kabini chips will be driving low-end PC shipments and while initial response to the processors has been excellent, a lot depends on the demand for laptops and desktops, Insight 64’s Brookwood said.
“There’s no guarantee the buyers are going to go for those products,” Brookwood said.

AMD’s turnaround started when Read was appointed the CEO in August 2011, after which he assembled a new management team. The company tore up the old chip road map and established a new product lineup. AMD also introduced a new chip development methodology that made it easier to bring third-party intellectual property to chip designs, and the concept is now at the center of custom chip development.
“The team now is very different than before. The company is now focused on getting it right than in the past,” Brookwood said. 

Intel misses estimates as it shifts toward ultra-mobiles

Intel missed analyst estimates for the second fiscal quarter, reporting slightly lower profits, plus revenue that climbed just 2 percent versus a year ago.

Intel reported profits of $2.0 billion, down 2 percent from a year ago, on second-quarter revenue of $12.8 billion, up 2 percent from the same period.

Intel’s Brian Krzanich
Newly-appointed chief executive Brian Krzanich said that the company would continue to develop microprocessors and other products for all segments of the market, with a special emphasis on low-power, ultra-mobile computers. But the company has suffered as customers increasingly turn to mobile phones and tablets for their computing needs, and away from the personal computers that Intel has long powered.
Intel’s revenue in the PC Client Group fell 7.5 percent year over year, a victim of the continuing slide in the PC market. The division’s revenue climbed 1.4 percent sequentially, however. Even revenue within the Data Center Group, which includes Intel’s high-margin Xeon processors, was flat versus last year, although it grew sequentially by 8.1 percent.

Analysts polled by Yahoo Finance expected Intel to report earnings of 40 cents per share, down from 54 cents a year ago, on revenue of $12.9 billion.

“In the second quarter, we delivered on our quarterly outlook and made several key product announcements,” said Krzanich said in a statement. “In my first two months as CEO, I have listened to a wide variety of views about Intel and our industry from customers, employees and my leadership team and I am more confident than ever about our opportunity as a company.”

“Looking ahead, the market will continue buying a wide range of computing products,” Krzanich added. “Intel Atom and Core processors and increased SOC integration will be Intel’s future. We will leave no computing opportunity untapped. To embrace these opportunities, I’ve made it Intel’s highest priority to create the best products for the fast growing ultra-mobile market segment.”

As proof, Krzanich cited its design win into the Samsung Galaxy Tab 3, where Intel will ship both an Intel Atom processor and Intel LTE solution to connect it to the Internet.

Intel’s outlook was strong, however, as the company predicted that third-quarter revenues would come in at $13.5 billion, plus or minus $500 million. The company will hold a conference call with analysts later on Wednesday. 

NIH Takes Another Step Toward Retirement Of Research Chimps

Chimpanzees play at Chimp Haven, a retirement home for former research animals, in Keithville, La.

The National Institutes of Health says it will retire hundreds of chimpanzees that the agency had been using for research. Animal rights activists see the move as a big step towards ending the use of chimps in research, but it will be awhile before any of the research chimps find their way into retirement homes.

Right now, the NIH has some 360 chimps available to researchers. The vast majority of the animals are used in studies of things like genetics and behavior. But in recent years, the scientific community has begun to feel even these studies are unnecessary.

In 2011, the Institute of Medicine issued a report recommending that the vast majority of government chimps be retired. In January, an NIH working group agreed and issued specific recommendations on what to do with NIH's chimpanzees.

And earlier this month the Fish and Wildlife Service proposed designating all chimps, including lab chimps, as endangered. That would raise still another barrier to using them in research.

"Chimpanzees are very special animals," says Francis Collins, director of the NIH. "We believe they deserve special consideration as special creatures."

Collins says that the NIH will largely follow the plan issued by its internal working group. It will retire some 310 chimps to designated sanctuaries, leaving as many as 50 in labs and available for new research proposals.

The 50 or so will not necessarily stay in research forever. "We will revisit the decision about the need for those 50 in a small colony five years from now," Collins says.

The retired chimps will live out their lives in an environment similar to those in the wild. They will be in social groups of at least seven, and live inside enclosures where they can climb and forage for food. But the NIH won't follow a recommendation that each chimp be given 1,000 square feet of living space. Collins says: "We did not feel that there was adequate scientific evidence at present" to support that requirement. The cost involved with providing so much space was also an issue, he says.

Retirement won't come right away, however. Many chimps are still in research projects that will be allowed to run to completion in the next year or two. And the NIH has to work with Congress to change legislation regulating chimp retirement.

At present, the law caps the money the agency can spend on retirement at $30 million. NIH is expected to hit that limit soon, says Kathy Hudson deputy director for outreach and policy. The agency must also find additional space in sanctuaries for the chimps. That could involve expanding existing sanctuaries. But it could also mean recategorizing some laboratories as sanctuaries. "The [research] facilities are quite nice," Hudson says.

All of this is expected to take a few years, according to Collins.

Kathleen Conlee, the Humane Society's vice president for animal research, says that today's announcement is a big step in the right direction. "This is a moment we've all been waiting for," she says.

But, she says, more needs to be done. Conlee would like the NIH to reconsider the space requirements of its chimpanzees, and she bristles at the idea of turning labs into sanctuaries. "It's the culture of care," she says.

Above all, she says, she'd like to see the last 50 or so chimps designated to join their brethren. "I think we're moving in absolutely the right direction and we're going to keep pressing until the day when every government-owned chimpanzee is in a sanctuary," she says.