AMD outlines its cunning plan for profitability

When things started to go badly for AMD a few years back it demanded the head of its CEO for not spotting the mobile revolution. But, as the company talked about its cunning plans, the mobile was largely off the agenda.

AMD had a rubbish 2012 and things were not exactly going well for it before that. Earlier this week the firm’s quarter showed a loss of $473 million, including charges related to restructuring and the reduction of buying obligations from contract chipmaker GlobalFoundries. AMD’s fourth-quarter revenue fell 32 percent to $1.16 billion.

Yet AMD hopes to be profitable by the end of fiscal 2013 with the help of new products and a boost from its custom chip business.

The moves include releasing new chips this year for laptops and tablets and generating more revenue from its embedded and custom chip business, the executives said. Given that AMD was supposed to be in trouble for not spotting the so called mobile revolution, its hopes to be in profit by the end of the year without doing much about it are interesting.

What it suggests is something which we have been saying for a while – the mobile boom is separate from the PC slump. The PC slump is due to a suffering economy. If or when that picks up, so will PC sales.

This makes AMD’s plan more sense. The outfit has been selling off its assets, cutting back on R&D and has laid off 15 percent of its workforce. This makes no sense if you have to find a way of getting into the mythical mobile computing boom. It seems more reasonable if you are cutting back to hold down the fort until the economy picks up. AMD seems, quite rationally, to think that deals with ARM are better than wasting its own money chasing the low powered mobile chip market.

CEO Rory Read expects “continued choppiness in the PC market in the first half of 2013”, and said he will closely manage the business as AMD is reset, restructured and ultimately transformed.

The release of new A8 and A10 quad-core chips later this year should boost AMD’s core processor business. The chips, code-named Richland, will deliver up to 40 percent more performance than AMD’s existing Trinity chips. They will be appearing in PCs in the first half of this year, ahead of the important back-to-school and holiday PC sales cycle in the second half.

In fact the only sops to the “mobile revolution” is the launch of chips code-named Temash and Kabini, also in the first half this year. AMD showed Temash in a Windows 8 tablet at the CES earlier this month. Temash is targeted at tablets priced between $499 and $599. However, this is too little too late and is more or less just planting a flag in the market.

AMD’s custom chips are used in Nintendo’s Wii U gaming console, and other chips are expected to be in gaming consoles coming later this year.

AMD expects the custom and embedded businesses to constitute 20 percent of revenue by the fourth quarter, Read said, adding that the business could deliver as much as half of AMD’s revenue in the coming years.

Either way the, AMD is doing what sensible companies should be doing in a recession. That means hunkering down, restructuring, trimming fat and putting yourself into hibernation until things get better. It is more conservative, and less exciting, but will probably serve AMD well.