Discussion AMD Reports Fourth Quarter and Full Year 2020 Financial Results

[uzzi38]

AMD Reports Fourth Quarter and Full Year 2020 Financial Results :: Advanced Micro Devices, Inc. (AMD)

Don't have much time to read through it but here's the report if you guys want to have at it.

 

[Doug S]

i want to know what happened to all the Huawei and apple wafers?
if AMD is already consuming alot of those and its like it is right now.... then god damnit, my ideas of new rig in march are probably out the door!

Apple is likely consuming N7/N7P wafers at nearly the same rate as last year. Sure, the iPhone 12 is now on N5, but Apple sells a lot of "last year's model" iPhone 11 at $100 discount, and some "two years ago model" Xr, plus the SE using A13, plus the iPad Pro using A12Z, plus watches that I'm sure many are using N7/N7P. Plus probably Apple TV is gearing for a refresh using A12X/A12Z unless they plan to leapfrog all the way to A14X as part of a gaming push or something.

 

[itsmydamnation]

These are the official numbers straight from AMD, if they would be selling more than that they would be going straight to jail.

This comes from tax benefits doubling the income, not from anything AMD actually did.

Tax Valuation Allowance Release Benefit ($M)

$1,301

I dont live in the crazy place called the USA but since when does Tax benifit become REVENUE .
I then went and looked and you are wrong is easy to see , it only contributes to overall Net income.

 

[chrisjames61]

I dont live in the crazy place called the USA but since when does Tax benifit become REVENUE .
I then went and looked and you are wrong is easy to see , it only contributes to overall Net income.

The Elf talks about AMD like it is a person.

 

[DrMrLordX]

Wouldn't those profits be better spent guaranteeing capacity from TSMC for 6, 5 or even 3nm instead? Share buybacks have no chance of making AMD's dominance permanent, but being able to take full advantage of Intel's 7nm delay might.

Remember that AMD just acquired Xilinx:

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There might be a push to get back some of the shares that were used in that acquisition.

 

[moinmoin]

Remember that AMD just acquired Xilinx:

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There might be a push to get back some of the shares that were used in that acquisition.

That'd totally defeat the transaction being completely stocks based. Even worse now (and very likely more so in the future as well) as the AMD stock keeps rising.

 

[fusionTi]

Apparently Rembrandt is N6.

Can someone explain in english what the tax rebate is and why now?

Certain tax benefits are only available to companies in the future (such as net operating loss carryforwards - when a company loses money, they can use those losses to offset income in future years, which makes sense so that companies don't get punished for losing money and then turning things around and becoming profitable). However, all of these benefit carryforwards have expiration dates. If a company does not anticipate being able to utilize these carryfowards, they have to put an "allowance" against them and basically act like the carryforwards don't exist (since they won't get to use it). In AMD's case, they are making enough money now where they have a shot of using these carryforwards, so they are able to account for them again without putting an allowance against it. It's good news.

 

[fusionTi]

It's more complicated than this in the real world. Which countries are those cash reserves and that debt located. If they're all over the place, moving that cash around can get quite expensive.

Until recently the US corporate tax rates were higher than almost anywhere else on the planet, which meant companies would never bring overseas revenue back to the US and subject it to additional taxation. It's cheaper to have outstanding debt that gets paid off over time.

Also interest rates are at an all-time low and interest also offsets taxable income (lowering taxes which makes the debt even cheaper), whereas equity is pretty expensive to carry (investors want you to start paying dividends or buying back a ton of shares if you let your equity get too large). So carrying some debt lowers the "weighted average cost of capital" (WACC) for a company, which is a benefit to project planning (projects and acquisitions are estimated to ensure they will make enough money to exceed the WACC and therefore be a net benefit to the company).

 

[Kocicak]

I would argue that principles of "good bookkeeping" for an individual and a company should not be different.

If it is cheaper for a company to be indebted than being debt free, something is seriously wrong with how the economic system now runs.

 

[fusionTi]

No difference. We are talking about a very, very modest amount of debt/leverage. It's basically like taking a mortgage on a house, something that very few people would argue should be avoided 100% of the time. We can argue about how much is appropriate, but AMD has a very reasonable debt level. Being completely debt free is a pretty unreasonable way to run a business. Even Apple carries debt.

 

[amrnuke]

I would argue that principles of "good bookkeeping" for an individual and a company should not be different.

If it is cheaper for a company to be indebted than being debt free, something is seriously wrong with how the economic system now runs.

What is wrong with borrowing money when you think you can turn that into growth at a higher rate?

Isn't that what most of us do when auto loans and mortgages have rates lower than the historical stock market return rate? We finance the car and invest the money, right?

From 2016-now, someone who cash-purchased a car and dollar-cost-averaged into the market over 5 years, instead of investing lump-sum and financing the car, would have a net value of that investment 20% lower than what it could have been. Are you suggesting that the correct way to do things is to end up with a lower net value?

 

[Kocicak]

AMD has been reducing the debt significantly over the last few years. I was just thinking it would be COOL to have zero debt.

"optimising" the amount of debt is uncool in my opinion, if you can get rid of it completelly.

I do not run finance of any company, as it must be obvious... 🙂

 

[Doug S]

Even Apple carries debt.

Yes, but Apple's case it is pure financial engineering, because of the cost that had been associated with repatriating foreign earnings. They aren't a good example for what you're talking about. They just reported their cash went up to $195 billion, still far higher than their debt despite promising to become "cash neutral". They may have to accomplish that by issuing debt since they can't seem to deplete their cash pile quickly enough with buybacks and dividends lol

 

[Vattila]

For those still talking about AMD's inability to grow due to wafer supply "shortages", please take a minute to think it through.

AMD is a large company, growing at an impressive pace. CEO Lisa Su started last year by planning for 25% year-on-year revenue growth, which already was ahead of their ambitious long-term financial target of 20% CAGR. Then at the peak of pandemic uncertainty she guided down to 21%. Then up to 31% after the Q2 surprise beat. Then up again to 41% after Q3. In the end, they achieved 45% year-on-year growth!

All that excess growth came from chip sales. All of which required excess wafer supply and packaging capacity — which she managed to secure. Obviously, she plans to be able to tap into excess supply well beyond initial projected targets. But there has to be a limit at some point.

No one could have predicted the strength of the PC market and crazy demand in the midst of a pandemic. Too ambitious planning is risky and may fail, and too rapid growth can be fragile and costly. I think AMD has done very well considering the circumstances. Personally, as a long-term shareholder, I'd be content with a steady 20% CAGR, in line with their financial model. I trust that wafer supply will be planned accordingly.

 

[DrMrLordX]

That'd totally defeat the transaction being completely stocks based. Even worse now (and very likely more so in the future as well) as the AMD stock keeps rising.

Thought AMD's stock went down after announcing earnings? Or is it net up since the Xilinx deal?

 

[Hans Gruber]

I can't handle the swings. Zen 3 will be my last and final PC build for 3 or 4 years. Zen 3 CPU shortages and paying extortion prices for GPU's is unbearable. With the advent of DDR5, I feel that is the wall that will take 1-2 years to level off. Besides, I have a good inventory of DDR4 memory right now.

 

[moinmoin]

Thought AMD's stock went down after announcing earnings? Or is it net up since the Xilinx deal?

AMD's stock always goes down for a short time after the announcement of its QE, that's completely unrelated to the actual content of the reports and has more to do with calls expiring around that time.

 

[DrMrLordX]

AMD's stock always goes down for a short time after the announcement of its QE, that's completely unrelated to the actual content of the reports and has more to do with calls expiring around that time.

Not really what I was talking about though. If the downward movement was great enough that it knocked AMD down to a price lower than at the time of the Xilinx acquisition, it would be a buyback opportunity. Turns out it didn't (I looked it up) so the point is moot.

 

[moinmoin]

Not really what I was talking about though. If the downward movement was great enough that it knocked AMD down to a price lower than at the time of the Xilinx acquisition, it would be a buyback opportunity. Turns out it didn't (I looked it up) so the point is moot.

You mean you were suggesting AMD effectively does insider trading for catching the one time where a stock buyback would make sense at all? 😉

 

[Hitman928]

You mean you were suggesting AMD effectively does insider trading for catching the one time where a stock buyback would make sense at all? 😉

If I remember correctly, the stock exchange wasn't set at a price but at a ratio, so the actual price won't be known until the deal closes.

 

[amrnuke]

Not really what I was talking about though. If the downward movement was great enough that it knocked AMD down to a price lower than at the time of the Xilinx acquisition, it would be a buyback opportunity. Turns out it didn't (I looked it up) so the point is moot.

"Xilinx stockholders will receive a fixed exchange ratio of 1.7234 shares of AMD common stock for each share of Xilinx common stock they hold at the closing of the transaction. [...] The transaction is currently expected to close by the end of calendar year 2021. Until close, the parties remain separate, independent companies."

The transaction hasn't closed and thus the value of the shares is undetermined.

 

[moinmoin]

If I remember correctly, the stock exchange wasn't set at a price but at a ratio, so the actual price won't be known until the deal closes.

Since it's an all stocks transaction a ratio was set, yes. And at the point the deal was announced that ratio was worth $35B, now it's ~$38B and at the high point of AMD's stock it was ~$43B. The ratio was set in early 2020 when AMD stock's worth was under $50, starting in H2 it's between $80-100 most of the time, with it more likely passing $100 than dropping below $50 again. So I have to repeat my initial point, that a stock buyback would totally defeat the Xilinx transaction being completely stocks based. The ratio is already considered too positive for Xilinx stock owners due to AMD's stock rise since, a stock buyback would exacerbate that even more.

 

[Hitman928]

Since it's an all stocks transaction a ratio was set, yes. And at the point the deal was announced that ratio was worth $35B, now it's ~$38B and at the high point of AMD's stock it was ~$43B. The ratio was set in early 2020 when AMD stock's worth was under $50, starting in H2 it's between $80-100 most of the time, with it more likely passing $100 than dropping below $50 again. So I have to repeat my initial point, that a stock buyback would totally defeat the Xilinx transaction being completely stocks based. The ratio is already considered too positive for Xilinx stock owners due to AMD's stock rise since, a stock buyback would exacerbate that even more.

I agree, especially since AMD is still considered a growth stock and (assuming things go well), their stock price will rise by their performance anyway. I'd rather see them spend that money in R&D where they are still significantly below other companies in their approximate space and then maybe look at paying a dividend once their free cash flow can support a decent enough dividend after expanding their R&D to where it needs to be long term.

 

[amrnuke]

Since it's an all stocks transaction a ratio was set, yes. And at the point the deal was announced that ratio was worth $35B, now it's ~$38B and at the high point of AMD's stock it was ~$43B. The ratio was set in early 2020 when AMD stock's worth was under $50, starting in H2 it's between $80-100 most of the time, with it more likely passing $100 than dropping below $50 again. So I have to repeat my initial point, that a stock buyback would totally defeat the Xilinx transaction being completely stocks based. The ratio is already considered too positive for Xilinx stock owners due to AMD's stock rise since, a stock buyback would exacerbate that even more.

Yes, a pre-closing stock buyback would be really silly on AMD's part. AMD's stock being higher pre-acquisition makes the possibility of a Xilinx shareholder sell-off post-acquisition more likely (diminishing AMD share value). In such a case, if I were AMD, a stock buyback would probably be high on my list to resolidify control as well as to make remaining shareholders happy.

Speaking for myself, I'll hold the stock through these tumultuous times.

 

[DrMrLordX]

You mean you were suggesting AMD effectively does insider trading for catching the one time where a stock buyback would make sense at all? 😉

If it's legal, why not? Most stock buybacks are sheer idiocy designed to pad some executive's pockets at the expense of shareholders who are not going to be selling anytime soon.

 

[moinmoin]

If it's legal, why not? Most stock buybacks are sheer idiocy designed to pad some executive's pockets at the expense of shareholders who are not going to be selling anytime soon.

Insider trading is not legal, thus the wink smiley. Stock buybacks essentially have to be announced in advance, so the kind of timing I alluded to is not possible with it either.