AMD turns a profit in Q3 thanks to custom PS4, Xbox One chips

By on October 18, 2013, 11:45 AM
sony, microsoft, amd, xbox, ps4, rory read, playstation 4, profit, q3, xbox one

After more than a year of significant losses, AMD is back in the black. The company reported a profit of $48 million on $1.46 billion in revenue for Q3 2013. By comparison, AMD lost $29 million last quarter and reported losses of nearly $131 million this time last year.

While that all seems well and good, the issue is in the fact that AMD managed to bring in the profit largely due to its work on semi-custom chips for next generation game consoles from Sony and Microsoft. Its Graphics and Visual Solutions business increased significantly, doubling to $671 million in revenue based on the company's work on the Xbox One and PS4. The problem is that this is likely a short term business opportunity, AMD said themselves just a few months ago that game console revenue would likely begin to decline after this holiday season and that royalties on the units will decrease significantly as time goes on.

In its third quarter report, AMD said the CPU industry is continuing to decline at 6% sequentially and 15% year over year. The company's next quarter projections only point at a 5% revenue growth.

Even still, the company appears to be heading in the right direction. It will be focusing on its ARM-based server options and semi-custom chips for game consoles and other non-PC devices, a route the company sees as the future.  "We have several strong semi-custom designs moving through the pipeline," AMD CEO Rory Read said. "Two years ago, 90 to 95 percent of our business centered around PCs," he continued. "We see it as an important business, but times are changing."




User Comments: 10

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wastedkill said:

Great to see AMD turning a profit finally and I am going to say no the revenue will not decline on consoles for a good while and they are going to be turning over a lot more cash once consoles are released as they will be getting more orders which increases revenue!

backo said:

Great to see AMD turning a profit finally and I am going to say no the revenue will not decline on consoles for a good while and they are going to be turning over a lot more cash once consoles are released as they will be getting more orders which increases revenue!

"AMD said themselves just a few months ago that game console revenue would likely begin to decline after this holiday season and that royalties on the units will decrease significantly as time goes on."

I guess you know AMD better than AMD.

wastedkill said:

"AMD said themselves just a few months ago that game console revenue would likely begin to decline after this holiday season and that royalties on the units will decrease significantly as time goes on."

I guess you know AMD better than AMD.

No but I do understand that the PS4+XBOX ONE won't just sell like 10million consoles then like less than 10million each year I mean come on do you really think the only good sales day they have would be the day its released? hell no its bound to get better specially as not everyone has buttloads of cash and wont be get both at the same time some will get one now then the other later.

Watch in a few months after release we see "Consoles selling better than release thanks to x/y/z.

For one I have seen such things happen frequently I am surprised you haven't also their is a reason ps2 has sold more than any other console and no it didn't all happen on release date that was just a fraction.

Scavengers Scavengers said:

Great to see AMD turning a profit finally and I am going to say no the revenue will not decline on consoles for a good while and they are going to be turning over a lot more cash once consoles are released as they will be getting more orders which increases revenue!

"AMD said themselves just a few months ago that game console revenue would likely begin to decline after this holiday season and that royalties on the units will decrease significantly as time goes on."

I guess you know AMD better than AMD.

Revenue will decline. Profits will show a steady straight line for a while. Manufacturing costs will decline and a portion of that will translate to lower costs for the customers. But the new consoles will gain traction and start an upward climb in sales for years to come. So the console makers will see reduced costs, but AMD will profit on a fairly even curve.

I can refer you to Intel and their profits and margins when they supplied the CPU's.

AMD's statement was to keep tech investors (I am one of them) on an even keel.

Dave

dividebyzero dividebyzero, trainee n00b, said:

Great to see AMD turning a profit finally and I am going to say no the revenue will not decline on consoles for a good while and they are going to be turning over a lot more cash once consoles are released as they will be getting more orders which increases revenue!

Bear in mind that one of the main reasons AMD turned a profit in Q3 is from selling their property assets:

The transaction [sale of AMD's Singapore facility] is expected to generate proceeds of approximately 59 million Singapore dollars (USD$46 million), net of all fees, which will be reflected in AMD's third quarter 2013 financial statements when reported on Oct. 17, 2013.

Basically you're looking at a short term cut-and-slash of assets to fulfil [link] :

AMD is also putting in place a business model to break even at an operating income level of $1.3 billion of quarterly revenue. The company is targeting to achieve this by the end of the third quarter of 2013.

Scavengers Scavengers said:

Those calculations have already been done.

In a nutshell, AMD turned a relatively small $2.1m profit before revenue from the sale.

Up $31m from last year.

Dave

Lionvibez said:

"AMD said themselves just a few months ago that game console revenue would likely begin to decline after this holiday season and that royalties on the units will decrease significantly as time goes on."

I guess you know AMD better than AMD.

lol I was just gonna say this.

But I guess the Armchair analyst knows best.

Railman said:

It is excellent that AMD are making a profit. Hopefully they may invest more in R&D. Competition in the CPU market has been minimal and consumers have been losing out.

dividebyzero dividebyzero, trainee n00b, said:

It is excellent that AMD are making a profit. Hopefully they may invest more in R&D. Competition in the CPU market has been minimal and consumers have been losing out.

Doesn't work like that I'm afraid- not unless one side of the competition has a performance disadvantage or is suffering from a degradation of brand perception. When both (or more) competitors offer roughly equal performance and both brands are viewed as strong then they charge accordingly. Most people would agree that the last time AMD had an architecture that went toe-to-toe with Intel were the days of the Athlon 64. The market segments were pretty much aligned alike on both sides. Here is what the top SKU priced at:

23 Sep. 2003 Athlon 64 FX-51....$733

03 Nov. 2003 Pentium 4 3.2EE...$999

02 Feb. 2004 Pentium 4 3.4EE...$999

18 Mar. 2004 Athlon 64 FX-53....$799

19 Oct. 2004 Athlon 64 FX-55.....$827

02 Nov.2004 Pentium 4 3.46EE. $999

01 May 2005 Pentium EE 840.....$999

27 Jun.2005 Athlon 64 FX-57.....$1031

10 Jan.2006 Athlon 64 FX-60.....$1031

16 Jan.2006 Pentium EE 955.....$999

22 Mar.2006 Pentium EE 965.....$999

23 May.2006 Athlon 64 FX-62....$1031

Remarkably consistent pricing- both between competitors, and the $1K price point that Intel sets for its top desktop SKU. FWIW, the ~$550 and ~$250 price points for the second and third tier SKU's also reflect the top parts continuity of pricing historically.

Railman said:

But two companies producing comparable items is better than one having a complete monopoly.

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