AMD’s New Reporting Structure Will Mask PC Weakness

AMD has fundamentally shifted its reporting structure. How should investors view this?

Jun 16, 2014 at 3:05PM

It has been quite clear that Advanced Micro Devices (NASDAQ:AMD) continues to bleed market share in the PC processor market to larger rival, Intel (NASDAQ:INTC). At the high end, AMD's parts aren't performance (or power) competitive, and at the low end, Intel has been successful in taking share with its new Atom-based Pentium/Celeron products. So, it's not surprising that AMD has decided to fundamentally reorganize the company and – more importantly – the reportable segments.

What's the new reporting structure?
AMD's new organizational structure will consist of the following:

Images

AMD's A10 APUs are among the higher end of the company's PC processor product stack. Source: AMD.

  • Computing and Graphics. This will include client CPU/APU sales and graphics cards.
  • Enterprise, Embedded, and Semi-Custom. This group will consist of – you guessed it – server-oriented processors, embedded products, and semi-custom products.

This reorganization makes a lot of sense from a "managing expectations" perspective. The computing and graphics will probably be viewed as a "legacy" business that doesn't necessarily need to do all that well, but strategic enough to keep around. The Enterprise, Embedded, and Semi-Custom, on the other hand, will be starting from a relatively low base so AMD can point to very fast year-over-year growth in the segment for several quarters.

Computing and Graphics will keep investors from knowing how bad PC microprocessor sales are

Radeon

AMD's Radeon branding is well-known among gamers. Source: AMD.

Indeed, in the most recent quarter, AMD's computing solutions division was down 11.7% from $751 million to $663 million in net revenue. Intel's PC Client Group, on the other hand, came in at $7.941 billion – down only 1.4% (units were actually up, so the revenue number represents a greater presence in the low end of the market). It's well known that AMD's graphics chips are actually quite competitive with what rival NVIDIA (NASDAQ:NVDA) has to offer, so that business is likely to be stable, but AMD's PC processors just don't seem to be enough to stop Intel from continuing to rip away share.

It really does make sense to just merge PC graphics and PC CPUs/APUs so that combined this new "legacy" business doesn't look as weak as the computing solutions segment on its own would suggest. This doesn't change AMD's fundamentals, but it does make things optically better.

Enterprise, Embedded and Semi-Custom will look attractive
AMD is basically starting from next-to-zero in server processor sales at this point, its embedded business is also fairly new in its current form, and of course semi-custom is still in the early innings of the game console ramp as well as whatever new projects eventually come in.

Xboxonechip

Microsoft's Xbox One is powered by a semi-custom AMD chip. Source: Techinsights.com.

As a result, this business is likely to be a very high growth rate one, albeit from a fairly low revenue base. AMD will point to the high growth here and as this segment becomes a larger part of AMD's revenues, the market is likely to care less about AMD's competitive positioning in PCs.

Foolish bottom line
AMD's reorganization doesn't fundamentally change much. However, the mew reporting structure is much more useful as AMD seems to be heavily promoting itself as a company that will no longer be heavily dependent on PC sales. Further, the new structure will ultimately serve to make the company "look" better – and there's nothing wrong with that.

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Ashraf Eassa owns shares of Intel. The Motley Fool recommends Intel and Nvidia. The Motley Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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