AMD To Post $4.6 Billion 4Q Revenue & Chip Inventory To Correct Later This Year Says KeyBanc

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Chip designer Advanced Micro Devices, Inc (AMD) is on track to beat analyst estimates for its revenue for the fourth quarter of last year according to fresh estimates from investment bank KeyBanc. KeyBanc shared its expectations for the current earnings season in a report released last week, and the firm expects that not only will AMD top its own guidance and analyst estimates for the fourth quarter of 2021 in its earnings report due February, but that it will also perform strongly during the current year due to a growing presence in the enterprise and cloud computing sector.

AMD Slated To Post $4.6 Billion In Revenue For 4Q 2021 Believes Investment Bank

The full report, which can be accessed here, lists down the firm's expectations for the current earnings cycle which was kicked off by the Taiwan Semiconductor Manufacturing Company (TSMC) earlier this month when it comes to the larger market players.

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It zones in on AMD and goes on to mention the company several times throughout the coverage. KeyBanc believes that for AMD's fourth quarter 2021 earnings results, which are due next week, the company will end up reporting $4.633 billion in revenue. This estimate is higher than the low end of AMD's guidance of $4.6 billion which the company provided at its Q3 2021 earnings release and consensus Wall Street estimates of $4.52 billion.

KeyBanc shares strong optimism for AMD's server market share this year, as it believes that when compared to the 2021 market share of 11%-12%, the company will nearly double its presence in the segment by posting a share of 20% this year.

As the investment bank outlines:

We see AMD benefiting from strong demand in cloud data center, with increased traction at CSPs, such FB and particularly at MSFT Azure, where we anticipate the rollout of Milan (link) should be a key driver of near-term upside. Having secured meaningful incremental wafer and substrate capacity, we anticipate AMD market share in servers to reach over 20% vs. 11-12% in 2021. We are looking for AMD to report higher 4Q21 results and higher 1Q22 guidance.

AMD's Q3 2021 revenue of $4.3 billion marked its seventh consecutive growth quarter. Image: AMD Presentation For 3Q 2021

The cloud data center growth for AMD will follow the overall trend for the market which in itself is slated to grow at 18% this year outlines KeyBanc.

This report also comments on the current supply chain situation in the semiconductor sector, as it cautions readers that even though inventories are high when compared to historic levels, this is overstated due to 'kitting' issues and other constraints. These are reflected by the bulk of inventory growth coming in the form of raw materials and not through finished goods.

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KeyBanc elaborates on the constraints by stating that:

We don’t expect these issues to negatively impact results in the NT, as the risk is being taken on by the distributor and any pushout of orders related to incomplete kits is being offset by price increases. As these kitting issue imbalances increase, there are concerns that this could ultimately result in an inventory correction in 2H22 [EMPHASIS OURS].

The belief about inventory correction in the chip sector taking place in the second half of this year is also mirrored by Piper Sandler's Harsh Kumar. Kumar, in a note released yesterday, quoted statements made by an Infineon Technologies AG executive to share his optimism that the inventory correction will start either in the second half of this year or in 2023.

Subsequently, chipmakers will find limited space to further increase prices, and their margins will face pressure believes Kumar.

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