AMD Q1 2016 Earnings Preview

  • AMD is slated to report Q1 2016 earnings on Apr. 21, 2016 after market close.
  • Expectations for the company are low going into the earnings season.
  • Long-term investors should focus more on the second half of the year when the company launches a new line of GPUs and CPUs.

Advanced Micro Devices, Inc. (NASDAQ:AMD) is due to report Q1 2016 earnings on April 21, 2016, after market close. Wall Street expects AMD to report revenue of $819.20M, good for -20.5% Y/Y growth and EPS of $(0.15), an improvement compared to Q1 2015 when the company posted EPS of $(0.23). Meanwhile, AMD had guided for revenue to decline 14% sequentially ±3%, which points to revenue in the range of $852.6M-$795.14M, the mid-point being $823.87M. The company, however, did not offer earnings guidance for the quarter. Wall Street is therefore slightly more pessimistic about the company's prospects.

AMD has missed earnings estimate in three out of the last four quarters, the December quarter being the exception after its EPS came in-line with expectations.

AMD Earnings Surprise History

Fiscal
Quarter End
Date
Reported
Earnings
Per Share
Consensus
EPS* Forecast
%
Surprise
Dec2015 01/19/2016 -0.12 -0.12 Met
Sep2015 10/15/2015 -0.19 -0.12 -58.33
Jun2015 07/16/2015 -0.19 -0.17 -11.76
Mar2015 04/16/2015 -0.11 -0.06 -83.33

Source: NASDAQ

Expectations for AMD are quite low going into the earnings season.

Positive Buzz for AMD

After tumbling badly in the early part of the year, AMD stock has rallied 33% in the month of March after various positive developments came to its aid. The first was that Intel was interested in licensing some of its graphics patents. Intel corporation(NASDAQ:INTC) is planning to launch its second-generation of compute accelerators codenamed Knights Landing after the first-generation Xeon Phi GPU, codenamed Knights Corner, failed to compete favorably against GPU market leader NVIDIA (NASDAQ:NVDA). Intel currently licenses its GPU patents from Nvidia but the current patent deal is set to expire in 2017. AMD will get an opening to strike a deal with Intel once the Nvidia agreement expires.

AMD stock chart

Source: Advanced Micro Devices, Inc. stock price chart by amigobulls.com

The second was a report that AMD's chips currently power 83% of dedicated virtual reality systems including gaming consoles. AMD chips power Sony Corp's (NYSE:SNE) PS4 and Microsoft's (NASDAQ:MSFT) Xbox One. Then there were reports that Sony planned to upgrade PS4 using AMD chips to handle 4K gaming. If Sony goes ahead with its plans, then AMD's semi-custom segment could receive a much-needed boost. The segment recorded a worrying 15% Y/Y decline during the last quarter due to a huge decline in the number of older consoles being sold.

So there is a lot of positive buzz around AMD, which is doing wonders for the stock. Long-term investors should, however, focus more on the company's upcoming Polaris GPU and Zen CPUs, both of which are set to hit the market later this year.

Investors are particularly anxious to see if Polaris GPUs will compete well against Nvidia's Pascal GPUs and finally help AMD claw back some of the market share it has lost to Nvidia over the years. About four years ago, AMD had 40% GPU market share. Nvidia's high-end cards have however helped it to steal GPU market share from AMD which now stands at only 20%. Although both companies have been keeping the specs of their respective new GPUs under the table, early indications are that Polaris might help AMD score a rare victory against Nvidia.

Investor Takeaway

AMD stock has come under a lot of pressure over the last couple of years due to the company's top and bottom line contractions. These trends have already been fully baked into the AMD stock price so the stock is unlikely to be affected much after yet another poor quarterly report. The second half of the year might, however, prove to be the inflection point for AMD's fortunes after it launches new GPU and CPU chips to revamp  its product line. Perhaps long-term investors should wait until after first quarter earnings call to buy AMD stock for the long haul.

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