AMD Sees Q2 Revenue Slide, Says Llano Sales In Channel Are Down

As it warned investors earlier this month, AMD reported Thursday a drop in its second-quarter revenue, citing a weak global economy and low channel sales of its Llano desktop processors.

The Sunnyvale, Calif.-based chip maker reported a net income of $37 million on a revenue of $1.41 billion, which is down 10 percent from the $1.57 billion in revenue it reported during the same quarter last year.

"Clearly, our performance in the quarter was disappointing and did not meet our commitments," said AMD CEO Rory Read during a call with investors Thursday. "When I joined AMD last year, we laid out a set of priorities to improve our execution and transform the company to sustain our long-term growth potential. This has not changed."

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AMD took the biggest hit in its Computing Solutions segment, with revenue slipping 13 percent from last quarter, down to $1.05 billion. Read attributed the drop to weak sales of AMD’s Llano APUs through the channel, as OEMs continue to sit on high levels of unsold desktop inventories.

"Looking at the specifics of the desktop business … sales to OEMs increased sequentially based on their continued adoption of APUs," Read explained. "However, our desktop channel revenue declined significantly as our Llano product did not experience the same uptake it had with our OEM customers."

Last year, AMD faced manufacturing constraints with its 32-nm Llano chips, prompting it to prioritize shipments of them to its OEM customers. This backfired, however, because channel partners are now struggling to find "motherboard availability" for the Llano line, Read said, sitting on large, unsold inventories, primarily in China and Europe.

Ensuring channel sell-through for Llano is a top priority for AMD moving forward, Read continued, as well as more effectively communicating the chip’s "value proposition" to OEM customers and its channel partners.

When asked how long it would take for channel inventory levels to stabilize, Read said AMD will track these levels on a weekly basis to ensure there is progress, but didn’t offer an exact time frame.

In addition to high channel inventories, weak consumer demand for desktop and notebook PCs also hurt Llano sales.

"It is clear that the overall PC market experienced softness in the second quarter, particularly in the consumer space," Read sad.

Rival chip maker Intel also reported a year-over-year drop in revenue this week, attributing it to lackluster PC sales across the global market.

AMD’s Graphics segment, which produces its Radeon series of GPUs, also dipped quarter-on-quarter, with revenue falling to $367 million.

NEXT: AMD Says Trinity, Ultrathins Are Bright Spots

Though its Computing Segment as a whole took a hit, Read said shipments of its mobile processors were up compared to the year-ago quarter. Sales of its low-power Trinity APUs, which are optimized for notebooks and Ultrathins, AMD’s answer to Intel’s Ultrabook line of super-thin notebooks, sold particularly well, with shipments nearly doubling from last quarter.

OEMs HP and Samsung were the first out of the gate with Trinity-based Ultrathins this year, and another wave is expected to launch when Windows 8 becomes available this fall.

"We are also seeing good response to recently launched Trinity systems, including the first Ultrathins from HP and Samsung that hit the mainstream price points," Read said. "We expect a second wave of Ultrathins will launch in the second half of the year aligned with Windows 8."

Read said during AMD’s first-quarter earnings call in April that Ultrathins will be able to compete against Intel’s Ultrabooks because they will be priced more aggressively and targeted at more "mainstream" users.

AMD predicted its third-quarter revenue to decrease by 1 percent sequentially, and its yearly growth numbers to see a dip as well, as demand continues to wane in the global PC market.

"We expect macro headwinds will continue for the third quarter," Read said during the call. "We also believe the PC industry may be resetting to a new baseline and that full year industry growth estimates will be reduced."