AMD Q3 Earnings

[Hitman928]

http://ir.amd.com/news-releases/new...-reports-third-quarter-2018-financial-results

Highlights:

Revenue = $1.65B which was a $50M "miss" from expectations. This is up 4% y/y and down %6 Q/Q.
EPS = $0.13 (Non-GAAP, $0.01 beat), $0.09 (GAAP, $0.01 miss).
Gross Margin = 40%.
Net Income = $102M (GAAP) and $150M (Non-GAAP)

AMD gave a revenue guidance for Q4 of $1.45B which is weaker than the $1.6B expected. AMD expects gross margin to increase to 41%

Revenue in this quarter and guidance for next quarter mostly down due to high channel inventory for GPUs due mostly to the blockchain market crash. AMD expecting it to take a few quarters for the channel inventory to work back to normal seasonality.

The THATIC joint venture generate $86M in IP revenue this quarter. None expected next quarter.

Ryzen products accounted for more than 70% of client revenue this past quarter.

In notebooks, Ryzen mobile processor unit shipments doubled sequentially for the second straight quarter.

"In server, we delivered our third straight quarter of strong double-digit percentage sequential revenue and unit shipment growth."

Still expecting the exit the year with mid-single digit server share.

In professional graphics, revenue increased by a double-digit percentage from a year ago, driven by datacenter GPU sales. The 7nm Vega GPU is shipping to customers this quarter.

Console revenue continues to decrease as the consoles continue to age. AMD expects console revenue to continue to decline next year but to grow again in 2020.

When asked about how the intel shortage could effect AMD, Lisa Su said that they are seeing "pockets" of shortages and that they are working with partners and ramping to meet their needs. Lisa gave the impression that this wouldn't be too significant a boost for AMD.

AMD believes their 7 nm server chips will help them to continue to grow their server share. This lead to the following Q/A.

Mitch Steves - RBC Capital Markets LLC

Hey, guys. Thanks for taking my questions. I had two of them really quick. The first is actually on the CPU side, the server side. So, is there any reason why a 10-nanometer chip wouldn't be able to outperform your 7-nanometer product, given that you've already been able to do some of the testing on the server side?

Lisa T. Su - Advanced Micro Devices, Inc.

Maybe I would answer the question this way. When we look at our 7-nanometer product and its positioning in 2019 across the server landscape, we feel very good about the positioning. I think it's not just 7-nanometer, 7-nanometer is important, but we've also made some significant changes to the architecture as well as how – sort of the system. So, I think, overall, we feel with the design and process capabilities, that our 7-nanometer products will be quite competitive.

 

[VirtualLarry]

When asked about how the intel shortage could effect AMD, Lisa Su said that they are seeing "pockets" of shortages and that they are working with partners and ramping to meet their needs. Lisa gave the impression that this wouldn't be too significant a boost for AMD.

I thought that they were essentially selling every Ryzen CPU die that they make, more or less, so yeah, Intel's shortages, are possibly going to increase demand for AMD's CPUs, but if their supply is constrained, then it's not going to significantly affect their revenue.

 

[Kenmitch]

I thought that they were essentially selling every Ryzen CPU die that they make, more or less, so yeah, Intel's shortages, are possibly going to increase demand for AMD's CPUs, but if their supply is constrained, then it's not going to significantly affect their revenue.

Pockets of shortages? Maybe I'm wrong but I'd view that as there are certain skus that the demand is much higher than anticipated. You'd probably only make xxx amount of sku x if you anticipated only selling xxx amount of them.

 

[dacostafilipe]

Pockets of shortages? Maybe I'm wrong but I'd view that as there are certain skus that the demand is much higher than anticipated. You'd probably only make xxx amount of sku x if you anticipated only selling xxx amount of them.

Normally, there are some SKUs that sell a lot (best perf/watt, perf/$, etc ... ) and maybe those are the ones in short supply.

Potential buyers may look at other, less optimal, SKUs instead of going all the way to AMD.

That's what I understand with "pockets of shortages".

 

[deathBOB]

So the big deal is that Epyc isn’t taking off as fast as people thought it would, right?

 

[CHADBOGA]

Whilst AMD continue to head in the right direction, I am seriously surprised they are only predicting revenue of 1.45B for the next quarter.

 

[PotatoWithEarsOnSide]

Discount season, plus Intel and Nvidia still have clear leads.
GPUs for miners was clearly contributing far more than would have been expected, but that is now on a decline.
It could well be that the CPU side is doing very well, just that it contributing loss overall, since I'd imagine that on a per unit basis AMD will get significantly less revenue from a CPU sale than a GPU sale.
Revenue on the server side of things is likely a slow burner.

 

[zinfamous]

So the big deal is that Epyc isn’t taking off as fast as people thought it would, right?

I guess the bold hyper-optimistic fears of 10-15% gain were really only ever hyper-optimisitc, and they were even coming from Intel (but I believe the term of that gain extends to 2019 and 2020, I think). And it's still relatively early in Epyc's life to be making such huge gains--these contracts take time, don't they? Rome is only the end of this year, and I think that really has been the real play for where AMD can be extremely competitive against Intel's current stagnant/regressive technology that they are trapped in for another ~2 years.

There is also this (always was) over-importance on AMD value based on the crypto market. ...which has always been very absurd. Yes, it was something of a boon to them because they sold tons of GPUs (like nVidia), but that's really all they got from it. The inflated prices didn't really benefit them that much, and this generation of GPU never was what AMD had going for them, anyway. ...not to say that consumer Vega, especially, was not disappointing, because it was. All I'm saying is that their high-margin and growth market potential is pretty much tied to Zen, so that's where the bulk of their valuation and future earnings should be considered. A lot of these "finance gurus" seem to be defining AMD by one part of their 3-4 part business, from week to week, depending on how that particular aspect of AMD is defined by their analysis.

 

[DrMrLordX]

A lot of these "finance gurus" seem to be defining AMD by one part of their 3-4 part business, from week to week, depending on how that particular aspect of AMD is defined by their analysis.

Stock analysts are horrible.

 

[gdansk]

A stable and reasonable valuation for AMD would be better. But there's so much speculation because their valuation depends heavily on their competition. Intel could play unfair in the server market and more or less kill AMD if they wanted to and then only be fined years later. Even if AMD ships a competitive product, it can be made difficult to actually compete.

 

[Abwx]

Overall those number are not good, i guess that AMD underestimated the grip their opponent has over the market, by mean of coercition in some cases.

It s not normal business practice that HP and Lenovo are publicly advising to buy AMD server chips rather than Intel's, if anything HP big marketshare loss is an indication that there s unusual events occuring in the server space.

Hopefully Zen 2 will be up to the task of getting everybody faced by the only choice to buy the most relevant product or else to die rapidly, at the end whoever will do odd choices will be soon driven out of business, moreover given that 64C Rome will be sold at about the same price as current 32C Epyc.

 

[zinfamous]

A stable and reasonable valuation for AMD would be better. But there's so much speculation because their valuation depends heavily on their competition. Intel could play unfair in the server market and more or less kill AMD if they wanted to and then only be fined years later. Even if AMD ships a competitive product, it can be made difficult to actually compete.

very much agreed. it's been a sisyphean task for AMD for quite some time.

 

[SpaceBeer]

Now that AMD is competitive, if not better in some tasks, it looks to me that some (big) sompanies are willing to go for AMD (mostly Epyc, maybe Radeon) no matter what. Just to let know Intel (and maybe nVidia) they have an alternative solution. So even if Intel plays unfair, they will keep some AMD products

 

[french toast]

40% margin is good...year on year is decent.
They have been hurt by their failure to bring about a new midrange gpu and also CPU capacity (not their fault).

Something like a 44CU Vega card with 64 ROPs and gddr5x would have done the trick, with cut down variants serving the 1060 3gb-1070..range, using gddr5 9gbs for the lower end skus.
On a proper 12nm this would be a decent card imo and fly off the shelves, wouldn't be too expensive to manufacture either.

 

[Trumpstyle]

Reading the transcript gave me the impression we won't see Navi gpus until end of next year and the next-gen consoles will be released 2020.

 

[USER8000]

The main problem is AMD GPU sales have probably tanked due to the cryptocurrency crash. OTH,despite this Computing and Graphics saw an increase in YoY revenue,and more operating income. This says that AMD is selling more Ryzen CPUs,which is confirmed by Lisa Su saying 70% of their revenue is from CPUs.

 

[DrMrLordX]

A stable and reasonable valuation for AMD would be better. But there's so much speculation because their valuation depends heavily on their competition. Intel could play unfair in the server market and more or less kill AMD if they wanted to and then only be fined years later. Even if AMD ships a competitive product, it can be made difficult to actually compete.

Not anymore. Intel is suffering from shortages. It's not like they can bribe OEMs and integrators to ignore AMD chips and use Intel chips instead. Now Intel has to bribe them to wait for months just to buy anything (assuming they don't buy AMD).

(mostly Epyc, maybe Radeon)

There is no maybe about it. AMD reported double-digit increases in professional graphics sales. Vega20 is coming, soon. This market is swiftly becoming RTG's bread and butter. Navi? What's that?

 

[jpiniero]

Not anymore. Intel is suffering from shortages. It's not like they can bribe OEMs and integrators to ignore AMD chips and use Intel chips instead. Now Intel has to bribe them to wait for months just to buy anything (assuming they don't buy AMD).

Intel made it sound like that the shortage was mostly plaguing the low end in terms of PCs and not Core, at least to OEMs.Given that they are pretty much selling Atom Celeron and Pentium at near cost, I don't know if there is really that much of an opportunity unless the shortages affect Core much.

 

[Arachnotronic]

Given that they are pretty much selling Atom Celeron and Pentium at near cost, [...]

How do you arrive at that conclusion?

 

[frozentundra123456]

The usual knee jerk reactions that if intel is doing well and AMD not as well as expected, must be intel cheating. Couldnt be related to the fact that AMD has not had a competitive high end gpu for well, I cant even remember, 2 or 3 years at least. Naw, that couldnt be it. Plus, as much as this forum loves Zen, Intel still rules the mainstream desktop and laptop markets. APUs is really where the volume and profit lies, and AMD has a very limited selection of zen APUs and has not really broken into the laptop market yet.

 

[DrMrLordX]

Intel made it sound like that the shortage was mostly plaguing the low end in terms of PCs and not Core, at least to OEMs.Given that they are pretty much selling Atom Celeron and Pentium at near cost, I don't know if there is really that much of an opportunity unless the shortages affect Core much.

Pretty sure there's a Xeon shortage:

https://forums.servethehome.com/ind...-a-supply-shortage-of-14nm-intel-xeons.21812/

(this matter has come up on AT forums before)

We've also seen shortages of Core CPUs leading up to and during the 9-series launch.

 

[jpiniero]

How do you arrive at that conclusion?

That's the only way to keep the Chromebooks from going full ARM. At least it's not Contra-Revenue now.

Pretty sure there's a Xeon shortage:

Intel has since then re-allocated things to Xeons and Core. Now Retail/DIY might be having issues.

 

[DrMrLordX]

Intel has since then re-allocated things to Xeons and Core. Now Retail/DIY might be having issues.

I guess? Intel announced new fab capacity coming online (along with new testing facilities) at a cost of $1 billion or more, but I hadn't heard anything else. And that expenditure would take months to generate results. And we're definitely seeing shortages of Core products.

 

[Arachnotronic]

That's the only way to keep the Chromebooks from going full ARM. At least it's not Contra-Revenue now.

That's just plain false.

 

[jpiniero]

That's just plain false.

I don't know why you think otherwise. The OEMs would all go back to ARM if Intel actually tried to make a profit, it's so obvious. That's probably why we haven't really seen a Stoney Chromebook either.