Hands up, who prayed for AMD? Well, it worked

About a year ago, we asked you to pray for AMD. It's working.

AMD has announced a joint venture with a Chinese manufacturer that will churn out server processors using mini-Chipzilla's technologies in the Middle Kingdom. It also said it will bank about $1.5bn from three new games console chips over the next three or four years. AMD's share price soared 22 per cent in after-hours trading on Wednesday, cracking the three buck mark.

Earlier the California chip designer had published its Q1 financial results for the three months to March 26. Here's the summary:

• Revenues: $832m (£581m), down 19 per cent year on year.
• Operating loss: $68m (£47m), better than last year's $137m loss.
• Earnings per share: Minus 12 cents, which was slightly better than analysts expected.

The main news, though, is that AMD and THATIC – Tianjin Haiguang Advanced Technology Investment Co – have formed a joint venture to, in AMD's words, "develop system-on-chips tailored to the Chinese server market that will complement AMD’s own offerings." AMD has basically licensed its microprocessor technologies to THATIC, which will build chips for enterprise, data center and government buyers in China.

The deal netted AMD $52m in cash this quarter. Another $25m is due next quarter, and $293m in total will be received if various engineering milestones are reached. AMD will also receive royalties on the JV's chips. AMD CEO Lisa Su was a little coy on a conference call about what exactly was being licensed, but she said it was all AMD's own technology, and nothing encumbered. In other words, you can't touch this, Intel.

It's assumed AMD has licensed its upcoming x86 Zen CPU designs to THATIC so that it can produce customized system-on-chips to suit Chinese server makers and customers who want some homegrown tech rather than Intel imports. Samples of Zen-based CPUs are due to be shipped to "priority" AMD customers in the next quarter; the processors are expected to reach general availability for data centers in 2017. How or when Zen will appear for the desktop world is not clear.

Su would only say that AMD has licensed its "microprocessor and system-on-chip" technologies, which also includes things like fabrics and other interfaces. Judging from the conversation, it sounds as though this bundle includes x86 and ARM designs (AMD has a 64-bit ARMv8 server chip, Seattle) but the focus will be on x86. The deal is also non-exclusive: AMD can find other server chip makers to partner with in China if it wants.

The JV's deal has been closed and its operation is already underway. "This is very positive for us because it leverages our intellectual property and gives us a very key partner in the Chinese market, which is very important for data center growth," said Su.

Quarterly breakdown

AMD's overall sales were down 13 per cent sequentially, mainly due to following a Christmas gift-buying season, and down 19 per cent year-over-year due to lower sales of PC notebook processors and lower custom semiconductor sales. AMD's semi custom business is basically the chips it makes for games consoles and the like. A 4K Sony PlayStation due to launch in the second half of 2016 is expected to use AMD CPU and GPU tech.

Su said her biz had recently secured three custom semi design wins which will have a lifetime revenue of $1.5bn or more, spread out over the next three to four years. She added that business will start ramping up in 2H 2016 in time for the 2016 Christmas shopping spree, hint, hint. These three new chips are expected to emerge in new consoles from Nintendo, Microsoft, and well, we'll have to wait to find out.

Average AMD desktop processor prices for the quarter fell year-on-year and sequentially; GPU prices fell sequentially but were up on last year. AMD's new Polaris GPUs are due to launch the second half of this year.

Sales from the Enterprise, Embedded and Semi-Custom segment fell to $372m, down 24 per cent sequentially and 25 per cent year on year, due to lower sales of custom SoCs.

AMD reckons its revenues will be up about 15 per cent quarter-to-quarter in the next three months, although analysts reckons it will be closer to seven per cent, or $889.2m. The company hopes to slip into the black, non-GAAP, in the second half of 2016. ®