AMD has had a lack of late, because I have raised two questions in the past: the company’s high dependence on the Chinese market and its adelistability in AI. Due to these two issues, I believe AMD’s stock will continue to lag behind the NASDAQ average in the coming months and quarters.
On June 2nd Devinder Kumar, AMD’s chief financial officer, said the company would meet its previous goal of 21 per cent year-on-year revenue growth. He also reiterated the company’s previous full-year outlook that “revenue will increase by about 25 per cent in 2020”.
That sounds good, but Nvidia’s second-quarter revenue guidance suggests revenue will grow nearly 30 percent year-on-year. The data center has expanded rapidly, helped by an increase in the proportion of telecommuting workers, and two other chipmakers, Micron and Serings, recently raised their revenue forecasts for the current quarter.
AMD’s shares have fallen nearly 3 percent since it reaffirmed its target, while the Nasdaq has risen about 6 percent. Clearly, after AMD reaffirmed its guidelines, investors are no longer excited about the company’s stock.
So why isn’t AMD growing as fast as NVIDIA, or why not raise development goals like Micron and Serings?
The most important reasons are the Chinese market and AI. As I’ve previously reported, Goldman Sachs estimates that revenue from China will account for about 26% of AMD’s revenue in 2018.
AMD and china
In my research on this column, I found that an article published by TechCrunch in December 2019 stated: “China is reported to be replacing all foreign PC hardware and operating systems in the next three years.” “
China plans to replace 30 per cent of foreign computers this year, 50 per cent next year and 20 per cent by 2022, the article said, citing a report in the Financial Times. Software must also be Chinese in order to replace Intel and AMD processors. “
If China extends the ban to server chips, 30 per cent of the company’s revenue from China this year could be lost. The new policy could have a significant impact on AMD’s 2020 revenue since it received 26 percent of its revenue from the Chinese market in 2018, according to reports.
AMD lags behind in servers
NextPlatform estimates AMD’s total data center revenue for 2019 is just under $1 billion. By contrast, Nvidia generated $1.14 billion in data center revenue in the first quarter of this year alone, compared with $7 billion for Intel’s data center division in the first quarter.
FIRST-QUARTER REVENUE FOR AMD’S ENTERPRISE, EMBEDDED AND SEMI-CUSTOMIZED DIVISIONS, INCLUDING EPYC SERVER CHIPS, FELL 21 PERCENT YEAR-ON-YEAR TO $348 MILLION. However, the company said sales of its server chips were up 300 per cent from a year earlier.
AMD blamed the decline in revenue for the division on falling demand for “custom chips for gaming consoles.” Still, I think the threefold decline in server chip sales and the decline in the division’s overall revenue suggest that the company’s server chips are significantly cheaper than their competitors.
In fact, last September, Tom’s Hardware reported: “AMD’s server chips promise a much lower price per core than Intel, while each core offers relatively similar performance.” “
However, the reason for the price difference is AMD’s relative lack of AI expertise. As AMD’s AI level gap with Intel and Nvidia widens, I believe AMD must lower the price of its server chips, which will have a negative impact on its second-quarter guidelines.
Kumar Kumar, AMD’s chief financial officer, predicted last month that the company’s data center business would “generate about 30 percent of AMD’s revenue over the next three to four years,” now about 15 percent. Although the company is likely to achieve this goal, it will sell its chips at a fairly low price.
AMD’s growth rate is significantly lower than Nvidia’s. In addition, unlike Micron and Serings, AMD was unable to raise its revenue forecast for the current quarter.
I believe that changes in the Chinese market and the relative weakness of AMD AI technology are having a negative impact on the results. As companies’ problems in these areas may only get worse.
This article’s author Larry Ramer has been researching and writing about U.S. stocks for 13 years. He has worked for The Fly and Globes, Israel’s largest business newspaper.