Image source: Advanced Micro Devices.

Advanced Micro Devices (AMD -0.17%) launched the first of its long-awaited Polaris graphics cards in June, raising hopes that a turnaround was right around the corner. That turnaround won't be evident in the company's second-quarter results, though, as the RX 480 came at the very beginning of the third quarter. AMD is set to report its second-quarter numbers after the market close on Thursday, July 21. Here's what investors need to know.

What happened last quarter

AMD managed to beat analyst estimates on all fronts in April when it reported its first-quarter results. Revenue came in at $832 million, down 19% year over year but about $13 million higher than the average analyst estimate. On a non-GAAP basis, AMD posted a loss of $0.12 per share. That number was worse than the $0.09-per-share loss in the prior-year period, but it was a penny better than analysts were expecting.

Along with beating first-quarter expectations, AMD provided guidance for the second quarter that was above what analysts predicted. AMD anticipates growing revenue on a sequential basis by 15%, well above the 7% growth that the average analyst estimate called for.

The biggest news had nothing to do with AMD's results. The company announced that it had licensed its processor and SoC intellectual property to a newly created joint venture targeting the Chinese server market. AMD will receive $293 million in licensing fees, contingent on the JV achieving certain milestones, in addition to royalty payments from future sales.

AMD will be launching new server chips next year based on its upcoming Zen microarchitecture, and the JV offers a second path for AMD to claw back market share. In the near term, the deal bolsters AMD's balance sheet and gives the company more time to turn itself around. In the long term, it improves AMD's chances of reasserting itself in the server chip market.

What analysts expect this quarter

After a rough few years, analysts forecast that AMD will post growth during the second quarter. The average estimate calls for a 1% year-over-year increase in revenue to $951.6 million, up from $942 million during the prior-year period and in-line with the company's guidance.

AMD is still expected to post a loss, although analysts expect an improvement in that area as well. The average estimate calls for a non-GAAP loss of $0.08 per share, substantially better than the $0.17-per-share loss AMD reported during the same period last year.

Analysts are expecting AMD's results to improve later this year and next year, driven by both Polaris and Zen. The average estimate calls for 0.9% revenue growth in 2016, followed by 5.4% revenue growth in 2017.

Looking forward

AMD's Polaris graphics cards, which target the mainstream portion of the market, won't have an impact on AMD's results until the third quarter. But investors should look for management to give an update on the launch during the company's conference call. The RX 480 garnered positive reviews, and for a brief period, rival NVIDIA (NVDA 1.75%) won't have a competitor at the price point AMD is targeting.

But the announcement of NVIDIA's GTX 1060, a $249 card that promises to best the RX 480 in terms of both performance and efficiency, could pose a problem for AMD. The competing card is set to launch on July 19, cutting short the period during which the RX 480 faces no current-generation competition. NVIDIA shipped about 77% of discrete graphics cards during the first quarter, and the GTX 1060 will act as a major obstacle to AMD's plan to win back market share.

The PC version of AMD's Zen CPU is still expected to launch toward the end of this year, although the chips are unlikely to have much of an effect on AMD's results until 2017. Polaris and Zen are the linchpins of AMD's turnaround, and the company will need both to be successful in order to pull itself out of the red.

Shares of AMD have soared so far this year on the hope that the company's turnaround is finally taking shape. The stock is up nearly 90% year to date, a sign that confidence in the company has vastly increased. The second half of 2016 will be the real test of whether AMD's strategy will ultimately pay off. If Polaris or Zen fall short of expectations, AMD investors could be in for a rough ride.