Advanced Micro Devices used to be a big player in microchips. But that was a long time ago.
Currently, its stock price (AMD) sits at one quarter of the level of four years ago and its market share can barely be measured in double digits in many markets, particularly for the most lucrative chips that go into servers.
But the company’s first quarter report delivered on Thursday had a plethora of good news for battered investors looking to the future. And the surprise good news sent the now small-cap stock, worth a meager $2 billion, barreling up nearly 24% in after hours trading. If the after hours price of $3.24 holds on Friday, it would mark the highest level since mid-2014.
AMD’s quarterly revenue was still down 19% from year ago to $832 million, and it is still lost 14 cents per share, or 12 cents on an adjusted basis that excludes certain costs. That was better than the $818 million in sales and the adjusted loss of 13 cents per share that analysts had expected.
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But the company also revealed a new joint venture to license server chip designs that will be made and sold in China by a Chinese partner, Tianjin Haiguang Advanced Technology Investment. And with the valuable new China deal already bringing some dollars, AMD now says its overall revenue will increase this year instead of declining 4%, as analyst had anticipated.
The company says it will also become profitable on an adjusted basis for the year and will show positive free cash flow. That’s a complete turn around from the losses piled up over the past four years. AMD was last out of the red in 2011.
There are limits on AMD’s ability to license its technology in China, both due to U.S. regulations as a well as prior agreements AMD made with Intel. AMD says it’s confident the new agreement will pass regulatory muster, but Intel (INTC) and the U.S. government will both likely take a hard look.
