What: Shares of Advanced Micro Devices, (NASDAQ:AMD) jumped more than 38% Friday after the company announced a notable IP licensing agreement along with better-than-expected first-quarter 2016 results.
So what: Quarterly revenue fell 19.2% year over year, to $832 million, and, based on generally accepted accounting principles (GAAP), translated to a net loss of $109 million, or $0.14 per share. On an adjusted basis, AMD's net loss was a more modest $96 million, or $0.12 per share, compared to a loss of $73 million, or $0.09 per share in last year's first quarter.
That might not sound impressive, but analysts, on average, were anticipating a wider net loss of $0.13 per share on even lower revenue of $818.2 million.
In any case, AMD blamed its revenue declines primarily on lower sales of semi-custom SoCs and client notebook processors. But gross margin also ticked up two percentage points, to 32%, helped by "a richer product mix and the mix of revenue between business segments."
Now what: But arguably most exciting is the fact AMD has struck a $293 million agreement to license its processor and SoC technology to a newly created joint venture it formed with China-based Tianjin Haiguang Advanced Technology Investment Co., Ltd. -- THATIC, for short -- to develop SoCs tailored to the Chiense Server market to complement AMD's offerings.
The company calls the agreement "a meaningful step in AMD's IP monetization strategy intended to accelerate the Company's growth and better monetize its valuable assets."
Payments are contingent upon the joint venture achieving certain undisclosed milestones, while AMD anticipates receiving additional royalty payments from the joint venture's future product sales.
Finally, AMD anticipates revenue for the current quarter to increase 15% sequentially, plus or minus 3%. That equates to a range of $931.8 million to $981.8 million, which is also well above analysts' expectations for second-quarter 2016 revenue of $889.2 million. During the subsequent conference call, AMD management credited three semi-custom SoC design wins as a "large driver" of this upside surprise -- potentially hinting its semi-custom chips have found a home in all three major gaming console providers' widely anticipated next-gen systems.
In the end, AMD's beat and raise would have been good enough to send the stock flying today. But by combining that beat with the significant IP licensing agreement and the hope it will set the stage for similar deals with other licensees going forward, AMD is understandably riding a wave of optimism regarding its ability to once again achieve sustained profitability. While I'm personally content watching from the sidelines until the dust settles given the gravity of Friday's pop, it's no surprise to see shares of AMD up big.