AMD Posts Strong Revenue and Earnings Beat for Second Quarter, Stock Soars 20% in Two Days
Advanced Micro Devices Inc. (NASDAQ:AMD) shares soared Thursday by 14% to close at their highest price in a decade, helped by strong revenue improvement and the company's best earnings in seven years.
Revenue for the second quarter of 2018 was $1.76 billion compared to $1.15 billion in the second quarter of 2017. More importantly, AMD finally posted a solid net income of $116 million compared to a loss of $42 million a year ago.
AMD is a tale of two major business units. There is "Computing and Graphics" which are the traditional CPU and GPU products, such as Ryzen processors and Vega video cards, respectively. And the second unit is the "Enterprise, Embedded, and Semi-Custom" segment that is getting a big boost from new EPYC sales as well as semi-custom designs like Xbox and Playstation console APUs.
- Q2 net income of $116 million up from a loss of $42 million a year ago, a $158 million swing
- Q2 revenue of $1.76 billion up from $1.15 billion a year ago, a 53% improvement
- Gross corporate margins at 37%, up from 34% a year ago
- 7nm EPYC and 7nm GPU now sampling to customers
- Video card product sales continue to be strong despite weak crypto market
Dr. Lisa Su was appointed the CEO of AMD in late 2014 and she immediately guided AMD back to a laser focus on high-performance CPU designs. She enlisted the help of famed CPU architect Jim Keller to design Zen, the engine powering Ryzen and EPYC products. In the world of high-performance computing, higher performance products mean commanding higher prices and thus higher margins, something AMD sorely lacked with its ill-fated FX products.
We are now finally seeing the turnaround that Dr. Su has envisioned in AMD's firm return to profitability.
“We had an outstanding second quarter with strong revenue growth, margin expansion and our highest quarterly net income in seven years,” said Dr. Lisa Su, AMD president and CEO. “Most importantly, we believe our long-term technology bets position us very well for the future. We are confident that with the continued execution of our product roadmaps, we are on an excellent trajectory to drive market share gains and profitable growth.”
-CEO Dr. Lisa Su, Investor call July 25th 2018
AMD Computing and Graphics - Leading the charge
Computing and Graphics has been enjoying success due to very competitive Ryzen products versus comparable Intel (NASDAQ:INTC) offerings. AMD was the first to offer more than four cores on a mainstream CPU socket, something that had languished for over seven years due to Intel's refusal to offer more cores. That coupled with vastly improved instructions per clock made Ryzen SKUs a very compelling offering to consumers which is shown by the numbers above.
AMD now has a full line-up of desktop and mobile Ryzen parts and launched second-generation Ryzen 2000 series in April.
Video cards have seen a massive surge in worldwide demand starting a bit over a year and a half ago thanks to cryptocurrency mining. While crypto-mining should have begun to die off due to slumps in market prices, demand seemingly has stayed strong with both Nvidia (NASDAQ:NVDA) and AMD going on record saying that demand is still near all-time highs.
AMD did make a note that the average selling price of desktop CPUs has dropped while the ASP of video cards has risen slightly Q-o-Q. On the flip side, mobile APU shipments more than doubled from a year ago all while increasing their own ASP. We are finally seeing results as OEMs and consumers move away from cheap Bristol Ridge parts to more premium Raven Ridge APUs.
Embedded, Enterprise, and Semi-Custom: All eyes on EPYC
Meanwhile the EESC segment booked $670 million in revenue for the quarter, up a healthy $180 million from 2Q 2018.
EESC has been hugely bolstered in years past by design wins with both Xbox and Playstation chipset design wins. That is still true today with newer PlayStation 4 Pro and Xbox One X APUs continuing to sell in the millions of units, however, margins on these products just aren't good. Certainly nowhere near as good as the highly sought-after and highly lucrative data-center margins that Intel enjoys with its dominant Xeon brand of enterprise X86 processors.
EPYC has been securing more design wins, according to AMD, and sales rose over 50% from a year ago when EPYC completed its first quarter of sales.
Revenue was up 37% from the quarter ended a year ago. While AMD does not break out individual product line sales numbers, its obvious EPYC is finally starting to contribute to margin growth.
The semi-custom APUs have also done better than expected thanks to some non-cancellable purchase orders.
CEO Lisa Su: Data Center is our Number 1 Priority
Dr. Su made no qualms about it on the investor call. She pointed to 7nm several times and her message is crystal clear: They expect to capitalize on Intel's 10nm woes to the fullest while attacking the data center market. 7nm EPYC is already sampling and in customer's hands. Data center and enterprise are where the highest margins exist and Su knows this all too well, especially given her background at IBM. AMD has very ambitious goals with its next-gen EPYC parts which are expected to roll out next year.
Shifting back to the current first generation EPYC parts, AMD expects to penetrate the enterprise server CPU market into the "mid-single-digit percentage" by end of Q4. Keep in mind that AMD had basically 0% market share a year ago in the X86 enterprise and data center space and that CPU market is oft-cited as a $12 billion dollar market. A move to 5% would produce tangible results for the company's bottom line.
AMD is depending on EPYC to take it to the promised lands. As they own the entire console video game market, they are topped out there. The Nintendo Switch is using an Nvidia chip so its reasonable that both Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE) are using that fact to negotiate better contracts for their next round of consoles. AMD is no longer the only GPU game in town for consoles.
Also on the horizon are consumer 32-core Threadripper 2000 series products. Expect AMD to really push aggressive pricing on these, likely offering a 32 core SKU at $1,500. Its these types of products that will help to pull AMD up to its 40+% average margins that it needs.
While things look pretty rosy on every X86 front from mobile APUs up to next-gen monster EPYC parts, there is less certainty surrounding the company's graphics processors. Intel may be struggling with 10nm, but Nvidia couldn't be executing any better than it currently is. Datacenter GPU work is just as much about software ecosystem as it is the hardware powering it and Nvidia certainly has a good headstart here.
Raja Koduri was the chief of AMD's GPU division until his recent departure to Intel. However, AMD appointed two well-known industry experts to replace him. Mike Rayfield is the new Senior Vice President and General Manager, while David Wang is Senior Vice President of Engineering. Questions swirl around what the first generation 7nm GPU offering from AMD will look like.
Looking at the remainder of 2019 AMD may be at real risk of losing GPU market share once Nvidia's 11xx series is released as no new response from AMD is expected. Current rumors point to AMD's 7nm offering, the next actual update to the product line, to drop in the first quarter of 2019 at the earliest for consumers. Data center might get their hands on early 7nm products later in the fourth quarter this year.
Overall AMD is riding high for now. Stock is at a 10+ year high, over $19 per share as of this writing.
The turnaround is finally real.