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AMD’s Loss Deepens After Disastrous Quarter

AMD’s (NASDAQ: AMD) hope for a successful turnaround continues to fade as the company’s quarterly loss widened in the first quarter of 2015.

AMD posted a quarterly loss of $180 million Thursday, or $73 million when adjusted. In comparison during the same quarter last year the company posted adjusted earnings of $35 million. The company’s revenues for the first quarter fell 26% to $1.03 billion from $1.4 billion a year ago. AMD has $906 million in cash and equivalents on hand going forward, which is down $134 million from before the quarter.

Across the company each division reported lower than expected revenue. The company’s Computing and Graphics segment, once a cornerstore of the company, saw revenues drop to $532 million from $861 million last year. The Enterprise, embedded and semi-custom segment revenues dropped to $498 million from $536 million last year.

AMD predicts a 3% dip in revenue for the next quarter.

At Computex 2014 in Taipei, AMD announced that it was pushing strongly to diversify its business away from the traditional markets of PC CPUs and GPUs. However aside from the high-profile wins of the Playstation 4 and Xbox One AMD has been unable to win the business it wanted in that segment.

During an earnings call AMD’s Lisa Su said the company is hoping that Windows 10 will ‘reboot’ demand for the PC market.

“We are all hopeful that the Windows 10 launch will be a strong catalyst for the market,” she said. “Under the backdrop of a challenging PC environment, we are focused on improving our near-term financial results and delivering a stronger second half of the year based on completing our work to rebalance channel inventories and shipping strong new products.”

What about Nvidia?

When compared to Nvidia (NASDAQ: NVDA), obviously Nvidia is in better financial health than AMD but it also faces some of the same challenges. Like AMD, Nvidia has been working hard to diversify its business. It has had plenty of success in some markets such as high-performance computing and professional graphics, but it some cases its plans are wishful thinking.

Nvidia’s mobile phone and tablet strategy didn’t work out as expected, and last year the company’s CEO said it would be shifting Tegra’s focus to automotive. But despite promising things like self-driving cars with Tegra these wins in the sector just aren’t materializing as expected to that extent, and are limited to some in-car entertainment systems.

What’s AMD to do?

AMD’s future success is twofold. It’s hoping that Windows 10 will push up demand for the PC business, and that its semi-custom division can secure its next set of big wins.

But both of these rely on a number of variables that AMD can’t control. AMD simply can’t compete against Intel (NASDAQ: INTC) in the notebook business, which will be a big driver of future PC growth. In addition, it may be that Windows 10 simply doesn’t fuel the growth of the PC business like everyone hopes it does. Microsoft (NASDAQ: MSFT) has a lot of work to do in order to convince consumers to upgrade from Windows 7 after Windows 8.

AMD’s semi-custom business also has an uphill battle. It has to convince its customers that it’s x86 based products are competitive with offerings from ARM (LON: ARM). This might not be a problem when its mixed x86-ARM Skybridge parts launch, but this won’t be for some time still and AMD needs something to fill demand until then.

There is still considerable hope left for AMD in these two markets. But it’s banking a lot on the success of these two divisions, and if it doesn’t work out the company will be in some serious trouble.