AMD sales slide, but investors like looks of licensing deal

AMD could earn $293 million, plus royalties, from Chinese deal.

Posted April 21st, 2016

The jury is still out on whether struggling chipmaker Advanced Micro Devices is on the cusp of a turnaround.  

The company reported that its sales fell 19 percent in the first quarter, compared to the same period a year ago. The company blamed flagging sales of its semi-custom "system-on-a-chip" and client notebook processors. 

AMD also announced it had reached a $293 million licensing agreement for its proprietary technology with Tianjin Haiguang Advanced Technology Investment Co. This deal creates a new joint venture in China. 

As part of the deal AMD licenses its x86 chip technology to develop processors for the Chinese market. 

But the legality of this agreement is in question given a previous deal with rival chipmaker Intel Corp. 

The two companies have a 2009 cross-licensing agreement, according to the Wall Street Journal, that says neither party can transfer rights to licensed technology to other companies. 

An AMD spokesman told the American-Statesman it didn't violate that agreement.

"AMD is a very legally conservative company," said industry analyst Patrick Moorhead of Moor Insights and Strategy. "And I don't think they are going to roll the dice on anything like this to wind up in court with Intel."

Wall Street investors seemed to like the looks of the licensing agreement and AMD's performance, as AMD's shares soared more than 20 percent in after-hours trading. 

Advanced Micro Devices reported sales of $832 million, versus $1 billion this same time last year. 

The company reported a loss of $109 million, or 14 cents a share, an improvement from the same period a year ago when AMD had a profit loss of $180 million, or 23 cents a share. 

Next quarter AMD expects revenue to increase 15 percent from the first quarter.


AMDLisa Su, CEO of Advanced Micro Devices.

AMD CEO Lisa Su said the company is optimistic about growth prospects in the second half of the year. The company reiterated that it expects to return to profitability in the second half of 2016 and that it expects revenue growth

AMD makes computer and graphics processors that are used in personal computers and other devices, such as servers and game consoles. The company's formal headquarters are in Sunnyvale, Calif., but Austin is where most of its senior executives live and much of its engineering is done.

PC sales, which contribute heavily to AMD's bottom line, have been declining because of the popularity of tablets and mobile devices. And AMD is struggling to gain market share against rivals Intel Corp. and Nvidia. 

AMD is attempting to diversify its revenue by developing new markets for its graphics chips and processors.

Moorhead, the analyst, said AMD this year will focus its turnaround efforts on graphics chips, boosted by the release of new technology for its graphics processors. 

"When you change the architecture of a chip, unless you screw something up or didn't plan effectively, that is going to be your chance to make up some ground competitively." 

He said the potential for new models of Microsoft's XBox and the Playstation 4 to drive sales will be key to whether AMD returns to profitability in 2016. 

The company had previously announced a workforce reduction last year of about 500 people. AMD is one of the largest tech employers in Austin, employing about 1,500 people.