The News: Chipmaker Advanced Micro Devices (AMD) late Tuesday matched Wall Street’s target for earnings in the third quarter but came up short on sales. Its revenue guidance for the current quarter also lagged views. The AMD earnings news caused its stock to waver in extended trading.
The Santa Clara, Calif.-based company earned an adjusted 18 cents a share on sales of $1.8 billion in the September quarter. Analysts expected AMD earnings of 18 cents a share on sales of $1.83 billion. On a year-over-year basis, AMD earnings rose 38% while sales climbed 9%. Read the news on Investors Business Daily.
Analyst Take: Overall the third quarter proved to be another successful quarter for AMD and Lisa Su as the stock has gained nearly 80% YTD and despite relatively low EPS, investor optimism on the company’s continuously improving product portfolio continues to push the stock price up.
In terms of the quarter itself, the company was close on revenue, coming in at 1.8 Billion versus analyst estimates of $1.83 Billion, and the 18 cents was exactly what was expected.
Looking ahead, the company shared a target of $2-2.15 Billion USD for the next quarter which barely touched the bottom of estimates that analysts had at $2.15.
So what is driving the growth for AMD and how is the company performing? I believe it is mostly positive, but I see some areas where things are a bit overstated given the annual growth of the stock. Let’s explore.
7NM Shipments Take Flight
The company’s CEO Lisa Su pointed to AMD’s latest technology as a big influence on the company’s solid Q3 results.
“Our first full quarter of 7nm Ryzen, Radeon and Epyc processor sales drove our highest quarterly revenue since 2005, our highest quarterly gross margin since 2012 and a significant increase in net income year-over-year,” said Lisa Su, AMD president and chief executive, in a statement.”
This bump was bound to happen as we have been hearing about the impact that 7nm was going to have on chip sales, but it appears that this quarter is the first time that the sales have hit critical mass.
Strong Numbers in PC and Graphics
PC group comprised of Ryzen processors and Radeon graphics showed a strong performance at 36% growth. This has been an area where the company has been performing well in recent quarters. These numbers were the highest for the segment in almost 8 years, so this was a good result.
Server Numbers Show Enterprise Strength, But Muted Compared to Intel
Epyc sales grew over 50% sequentially signalling that volume has picked up for AMD Epyc. This would be a really promising number if Intel hadn’t smashed its Data Center Group number by over a billion in just the last quarter.
For AMD, running its own race here should be the focus more than gaining market share in data center. Market share gains are ambitious, but we’ve been hearing that for some time and it has been mostly smoke and mirrors.
Margins a Big Focus
The company referred to increased margins nearly a dozen times in the earnings call. While the actual earnings are still razor thin compared to rivals Intel and NVIDIA, the growth of margin should be considered encouraging. Margins this quarter came in at 43%, up about 2% from last quarter and are estimated at 44% for the next quarter.
Overall Impressions: AMD is still much smaller than Intel, but for the first time in a long time it isn’t overstated to say the company is building competitive products that are driving wins in key categories and even market share gains in areas where Intel has had particular troubles with supply and process technology innovation.
I feel the continued growth of the stock is a bit overstated based on the fundamentals, but AMD is ultimately one of those great examples of how perception, sentiment and emotion can move prices higher.
While I see significant challenges ahead for CEO Lisa Su to win key battles with Intel and NVIDIA, the results this quarter indicate that AMD is on a strong path and will be one to watch closely over the next few quarters.
Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice.