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AMD announced its quarterly results for Q3 2015 yesterday, and the short-term news wasn't good. While company revenue rose past 12% compared to Q2 2015, total Q3 sales were down 25% twelvemonth-on-year. AMD reported that demand for both its semi-custom and PC hardware increased in Q3 thank you to Carrizo's ramp and the budgeted Christmas holiday. AMD announced several new projects to hopefully boost its revenue in 2016 and beyond, including the sale of its assembly, test, marking, and pack facilities to a new joint venture with Nantong Fujitsu Microsystem electronics (NFME).

As office of this deal, AMD will transfer 1700 employees to the new company, contribute its facilities in Penang, Malaysia, and Suzhou, and sell 85% of its share in these facilities and operations to NFME. AMD will receive $371 million, including $320M in cash. Earlier this yr, we heard rumors that AMD had attracted a new source of capital that would assistance offset its cash fire-through rate, and this announcement confirms information technology.

AMD-Segment-Earnigns

AMD reported some modest ASP improvements in GPUs, but CPU/APU prices were downward sequentially and year-over-year. The enterprise, embedded, and semicustom segment (EESC) grew thirteen% sequentially, cheers to seasonally higher sales of Xbox 1 / PS4 chips.

Analyzing AMD's market position

Last quarter, we noted that AMD'southward APU sales had tanked year-on-year, and while Q3 improved those results, the gap is still critical. For the past fifteen years (salve for a cursory period in 2004 – 2006), AMD has had one critical weakness compared to Intel — it lacked a low-volume, loftier-margin business organisation that could shield it from the vagaries of the consumer space. One critical reason Intel is still clocking in margins north of threescore% and recording solid acquirement quarter later quarter is because Intel's share of the still-growing enterprise market is propping up its financials. AMD has no such shield.

Even in the consumer space, AMD has very little presence in the high-end boutique systems that are driving mobile gaming or loftier-stop consumer sales. Its Radeon Fury family unit, including the R9 Nano, will sell into these segments (Fury sales are credited with improving GPU ASPs), but it can't offer a high-end AMD solution that's competitive with in both CPU performance and ability efficiency. The lower-finish systems that anchored AMD'southward APU sales are falling to tablet SKUs.

AMD bears full responsibleness for its own mistakes and missteps, merely the company would exist in a vastly different position if the PC market place was still growing at 2-3 pct a year, or fifty-fifty holding flat. The steep quarterly declines that nosotros're seeing are killing the visitor'due south profits — AMD has been unable to trim its costs faster than the marketplace is trimming its income. The visitor isn't merely trying to reinvent itself — it's trying to reinvent itself in the worst, almost prolonged slump in PC sales, e'er.

Subtle shifts in strategy

One thing Lisa Su noted yesterday is that the company is exploring shifting from an "opportunistic" licensing strategy to a strategic one. Put merely, AMD wants to see if its patent portfolio can be shopped effectually for licensing opportunities. Su didn't utilise whatsoever of the language patent trolls tend to prefer, like "Aggressively pursuing infringement cases" or "We accept a new method of sucking the blood out of grandmothers and war orphans," but I suspect there's two motives backside the move. First, AMD needs the revenue patent licensing could bring. 2nd, AMD wants to show investors that information technology's serious about leveraging all available avails.

I believe that AMD's decision to reorganize and centralize its Radeon sectionalization is a expert move for the visitor and the future of its graphics products, but this kind of restructuring as well makes sense equally a precursor to a spin-off, however ill-advised that spin-off might be. Even a casual glance at the company's business organisation segments shows that the embedded / semicustom division is the one making money. In the past, when AMD split its GPU and CPU reporting into separate divisions, the GPU division often earned a small quarterly profit.

These restructuring and alignment changes are meant, I think, to show potential investors that AMD is serious about improving its own finances by taking steps it had previously avoided. The Silver Lake bargain may exist on concord, merely it wouldn't surprise me if AMD is nonetheless shopping for an angel investor.

What about K12?

The last thing I want to talk most is K12 — or rather, the increasingly obvious lack thereof. During the conference phone call, AMD mentioned Zen repeatedly. When asked about Zen'south roadmap and prospects, Lisa Su had this to say: "In terms of long-term roadmap we are extremely committed to loftier performance x86 CPUs. And there should be no confusion on that signal… it continues to be our number one priority for the visitor."

AMD-Datacenter2

AMD's K12 slide

AMD's K12 slide

Compare that statement confronting her remarks on the ARM business, when analysts asked when we should expect to run across the Cortex-A57 in-market:

"I go along to believe ARM has a place in the datacenter both as yous think about towards the convergence between networking storage and servers. I call up it's fair to say for all of us that information technology'southward been slower to adopt in the server market just due to the some of the software and the infrastructure. Relative to Seattle nosotros will exist starting our first modest production shipments in the fourth quarter in this coming quarter this year. I view it as a longer-term bet, so no question that server market place is bonny, datacenter is bonny, nosotros're very focused on it from an X86 standpoint and we'll keep our ARM efforts in a complementary way."(Emphasis added)

I'm increasingly convinced that K12 is either canceled or indefinitely delayed — and there may be good reasons for AMD to take this road. Ever since Keller left, AMD has fallen over itself to reassure people that Zen is finished, prepare for prime time, and will launch in commercial volume in 2017. K12 hasn't even gotten an official mention. With the PC market collapsing around its ears, AMD needs a product information technology can sell to a market that it knows exists. ARM servers may be a great play in the long-term, just at that place's no short-term certainty in that infinite.

The fact that it takes iii-iv years to bring a new microprocessor design to market, even in the all-time-case situation, suggests that AMD fabricated the decision to build K12 back in 2012, when the PC market was a very different place and its own revenues were much higher. At the time, the visitor obviously thought it could launch simultaneous new products in both the ARM and x86 space, capturing burgeoning demand for the new ISA and positioning itself to become toe-to-toe with Intel over again in the high-cease x86 market. With CPU revenue collapsing and the clock running out, AMD simply can't afford to pour money into a server product for a market place that won't catch fire for several more years.

This is all supposition — I take no inside information on K12 or AMD's long-term ARM plans — but I suspect the visitor wants to take Seattle available in example the ARM market starts to bear witness signs of life, but has pulled resources away from the more-expensive custom efforts to focus on capturing marketplace share in x86. For a company in AMD's position, information technology's a smart move.

AMD expects revenue to subtract 10% in Q4 2015, thank you to a seasonal decline in demand for semi-custom units. Compute and graphics revenue should increase sequentially, perhaps offsetting some of that decline. The company made no remarks on its rumored R9 Fury X dual-GPU products, or on timetables for futurity GPU introductions in 2016.