Advanced Micro Devices (NYSE: AMD) made me nervous ahead of Thursday's earnings report. "The company doesn't have much room for error here," I mused, "and even a pretty good quarter could send the chart squiggling southward."
So it's good to see the company doing better than just "pretty good." AMD reported adjusted first-quarter earnings of $0.12 per share on sales of $1.6 billion, in line with Wall Street's revenue estimates but 33% ahead of analysts on the bottom line. Shares jumped as much as 3% on the news before sliding down to a 2.6% loss on Friday.
This is one of those times when non-GAAP results make a lot more sense than the standard numbers. This quarter included a one-time $703 million charge for ending the exclusive manufacturing relationship with former manufacturing arm Globalfoundries, and the year-ago period saw a unique $69 million gain because of changes in the accounting treatment of Globalfoundries. I think it's pretty fair to exclude these events from AMD's results if you're building a model to forecast the company's future earnings. Globalfoundries in now totally separate from AMD and will have no effect on future results.
AMD followed in the footsteps of rival Intel (Nasdaq: INTC), which also beat analyst targets this quarter. When the only two meaningful players in a market, like the PC and x86 server processor fields in this case, both do better than expected, we have a strong end market on hand.
That's actually a little bit early. Microsoft (Nasdaq: MSFT) was supposed to give PC and server sales a boost later in 2012 with the release of Windows 8, but the chip makers already show that there's healthy demand for their products today. AMD's revenue stayed flat year over year while non-GAAP earnings jumped 50%. And Mr. Softy's big catalyst is still months away.
AMD is aiming for big gains in the server space thanks to the recent acquisition of system builder SeaMicro, which forgot more about custom systems for cloud computing than you or I ever knew. The company also rides Intel's coattails as the larger chip titan spends millions to market and promote its thin and light Ultrabook form factor -- AMD's Trinity chips make a mean ultralight laptop, too. If the Trinity mobile chips take off like a rocket, AMD can thank Apple (Nasdaq: AAPL) for creating the category years ago with the first Macbook Air and Intel for doing the heavy PR lifting today. The Macbooks are still going strong, but there's plenty of room for another player in that market.
This company might not reach directly for the trillion-dollar mobile computing revolution but is sure to benefit indirectly with a larger presence in the servers that make mobile computing sing. Big Data is changing the face of business beyond the patently obvious ways.
