This week, AMD reported fourth-quarter 2019 results that beat analysts’ expectations, but investors were concerned when it reported lower-than-expected first-quarter 2020 forecasts. Notably, AMD executives are not able to give a more detailed account of the data center business that analysts are generally concerned about, making it difficult to measure AMD’s real challenge to Intel’s position in the data center through quantitative data.
There are optimistic forecasts that AMD data center revenue will double again in 2020.
AMD’s 2019 Q4 results showed amd revenue for the quarter was $2.13 billion, up 50 percent from $1.42 billion a year earlier, slightly above analysts’ expectations of $2.11 billion, and net profit was $170 million, up 347 percent from $38 million a year earlier.
Amd’s PC business (including graphics cards and PC chips) generated revenue of $1.66 billion, up nearly 69% year-on-year and 30% year-on-month, beating the average analyst estimate of $1.50 billion in factset surveys, while non-PC businesses (enterprises, The embedded and semi-customized division earned $465 million, up 7 percent from a year earlier and down 11 percent from a year earlier, below analysts’ expectations of $604 million in factSet surveys.
THE REPORT ALSO SHOWED AMD’S FOURTH-QUARTER OPERATING EXPENSES OF $601 MILLION, UP FROM $509 MILLION IN THE SAME PERIOD IN 2018 AND $591 MILLION IN THE PREVIOUS QUARTER. Excluding some one-time items (NON-GAAP), AMD’s adjusted operating expenses for the fourth quarter were $545 million, up from $474 million a year earlier and $539 million in the previous quarter.
Separately, the company also reported adjusted earnings of 32 cents per share, beating analysts’ estimates of 30 cents.
AMD’s shares fell after the latest earnings report. But AMD’s stock has been on an upward trend for the past two years, largely because it is expected to challenge Intel, which dominates the high-margin server market. But the latest earnings and AMD’s first-quarter forecasts have raised clear concerns about the investment argument.
AMD also forecast revenue of $1.8 billion in the first quarter of 2020, below analysts’ expectations of $1.86 billion. For full-year revenue, AMD expects revenue to grow 28%-30% in 2020, with a gross margin of 45% excluding certain items. Analysts expect AMD’s full-year revenue to be $8.59 billion in 2020, up about 24 percent from a year earlier.
AMD Financial Results.Source:AMD
AMD said its fourth-quarter results were “partially offset” by a semi-customized business, which is driven mainly by custom chips for video game consoles, which are expected to rebound in the second half of the year with the launch of Microsoft and Sony’s next-generation consoles. But executives declined to give a specific share of the future growth in game chips and server chips. Moreover, AMD executives did not give a detailed account of the data center business.
“On the server side, sales per unit and ASP both grew in double digits over the previous quarter due to strong demand for second-generation Epyc processors,” AMD Chief Executive Lisa Su said at the start of Tuesday’s conference call. “
Of course, much of this will depend on the third-generation “Milan” Epyc processor expected to be launched later this year. This means amd can grow steadily in the server CPU market, but can it double again?
In a conference call with analysts, it was clear that AMD was frustrated by the combination of these two seemingly disparate businesses. Wall Street analysts tried various strategies to understand how much the semi-customized business actually fell and how its profit margins affected AMD’s overall gross margin, but was vague.
RBC Capital Markets analyst Mitch Steves was frank in calling for a clearer explanation. “Basically, for the fourth quarter, the semi-custom business seems to have fallen by 50 per cent in a row or within that range. Is that so? Steve asked. “From a server perspective, perhaps qualitatively, how much revenue does cloud computing and enterprise computing actually generate?” “
Lisa Su’s response provided only a few help, noting that the company believed revenue from the semi-custom business would fall by “up to 30 per cent” or higher in the second half of the year, which could mean a fall of more than 36 per cent in the second half of 2019. She also said that with regard to the cloud/business mix in 2020, “it will change quarter by quarter, but I think the best guess is that we’ll simply talk about the relationship between the two.” “
Amd would save a lot of time if, like rivals Intel and Nvidia, provided only specific numbers for its semi-customized business and enterprise/data center business, such as revenue and profit information. Analysts were visibly frustrated, with Wells Fargo analyst Aaron Rakers writing in a note before the conference call began: “AMD needs to provide investors with more transparent revenue information, that is, more quantifiable details about servers and data center GPUs.” “
“Our business is divided into two parts, one involving PC business (computing and graphics) and the other involving non-PC business (enterprise, embedded, and semi-custom),” an AMD spokesman said in a statement. “We do not report market segments separately, but will do our best to provide valuable information and data to help investors best understand our business drivers.” “
The Next Platform speculated that AMD’s Radeon Instinct GPU accelerator generated $82 million in sales, up 28.4 percent, while Epyc processor sales rose 55.7 percent to $232 million, driven mainly by sales in Rome. Together with their model, AMD’s data center sales reached $314 million, up 14.8 percent.
For the full year, AMD’s Radeon Instinct GPU sales in data centers are expected to be $293 million in 2019, and Epyc CPU sales to be $694 million, or $986 million, or 14.7 percent of its $6.73 billion sales. If all goes well by 2020, AMD’s sales will increase and data center revenue should be doubled again, as it will be from 2018 to 2019.
Of course, some analysts also think it would be good if AMD wanted to continue to be seen as a PC. However, if it wants to be a server/data center provider, it needs more data for investors.
Otherwise, it may become increasingly difficult to see AMD as a strong competitor in the market.