As with any company, there's always a financial issue. With AMD, it's even more pronounced considering that the first half of 2015 isn't off to a good start. According to CEO Lisa Su, the first half of 2015 will see a loss in profit, with the company holding only $800 million in cash. But for the latter half of 2015 and beyond, AMD has a focused plan to ensure growth while also reducing its debt and honing in on the most important markets.
CFO Devinder Kumar explained the need to refocus the company's financial targets. In the past, 90 percent of revenue came from its computing and graphics division. Over the next few years, the revenue became more diverse. In 2014, computing and graphics only held 60 percent of the revenue, while AMD's enterprise, embedded, and semi-custom products had a firmer 40 percent.
This diversity in revenue seemed to pay off to the tune of $5.5 billion. For the future, AMD sees its biggest revenue (specifically in double-digit percentage growth) from three specific areas: pro graphics, servers, and embedded products. In the long term, Kumar forecasted that the gross margin will increase by 36-40 percent from these three areas alone.
Another area of improvement was the operating expenses. In 2012, the operating expense was $2.1 billion. Last year, that cost dropped 36 percent, with the operating expense landing at $1.6 billion. The reason behind the lower expenses is mainly due to restructuring the finances. Other factors include more efficient sales, a reduction in the cost of processing technology, and the inclusion of over $100 million in R&D incremental funding, specifically for its semi-custom products.
AMD has also done well by keeping enough cash on hand, even if it's lower than expected. Kumar said that the company needs to keep a minimum value of $600 million in cash and liquidity, with an optimal target of $1 billion. Fortunately, the company never came close to its minimum target. Instead, it stayed near the $1 billion mark through the first quarter of 2014. In Q4 2014, the amount of cash even exceeded $1 billion.
To make sure AMD stays afloat, Kumar also devised a financial system that would keep the cash amount close to $1 billion in the coming years. Any cash that exceeds the $1 billion mark would be used to reduce the company's debt, without further increasing it, as well as reducing the amount of debt interest with each payment.
The projected loss in the first half of 2015 doesn't exactly indicate that things are going downhill for AMD for the rest of 2015. In fact, it's the opposite; Kumar projected that the second half of 2015 will be profitable, with revenue rising up to 15 percent, and the amount of cash on hand increasing from $800 million to as high as $1 billion.
In the long run, he expects the gross margin to increase 36-40 percent on AMD's diverse revenue. With more revenue comes more money for operating expenses, which Kumar expects to rise 26-30 percent.
Of course, this all hinges on the premise that AMD's products, especially in its three projected growth areas, are successful at release. The company seems to be on point with its somewhat constant cash flow, but it seems that even a small slip in profit could necessitate an entirely new game plan for AMD.
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