It has been about a month since the last earnings report for Advanced Micro Devices (AMD). Shares have added about 13.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Advanced Micro due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
AMD Q2 Earnings Match Estimates, Revenues Up Y/Y
Advanced Micro Devices (AMD) reported second-quarter 2020 non-GAAP earnings of 18 cents per share, which surpassed the Zacks Consensus Estimate by 12.5%. Notably, the bottom line soared 125% year over year but remained flat sequentially.
Revenues of $1.93 billion outpaced the Zacks Consensus Estimate by 4.3% and surged 26% year over year. On a quarter-over-quarter basis, the top line improved 8%.
Strength in Computing and Graphics segment drove year-over-year improvement. Markedly, Datacenter products contributed more than 20% to total second-quarter revenues.
Segmental Details
Computing and Graphics segment’s (70.8% of total revenues) revenues of $1.37 billion, improved 45% year over year. This can be attributed to robust adoption of Ryzen processors. The figure declined 5% sequentially thanks to sluggish graphics processor sales.
Client processor average selling price (ASP) improved year over year on higher Ryzen processor sales. Client processor ASP declined sequentially owing to higher Ryzen mobile processor sales.
Coronavirus crisis-induced work-from-home and online learning wave drove PC market strength, which led to robust growth in client processor revenues. Management noted that growth was also backed by “11th straight quarter of market share gains.”
Nevertheless, desktop processor sales fell on a quarter-over-quarter basis, as was anticipated. Meanwhile, revenues in ASP improved year over year, driven by higher mix and solid demand for high-end Ryzen processors.
In mobile domain, growth in notebook processor unit shipments and revenues was driven by increasing traction of Ryzen 4000 mobile processors.
Management also remains optimistic regarding growing clout of Ryzen 4000 mobile processors families across leading OEMs. Markedly, Ryzen PRO 4000 Series processors are powering “more than 30 ultrathin premium and gaming consumer notebooks launch for multiple OEMs.”
AMD’s latest series of notebook processors — Ryzen 4000 — offer superior performance and longer battery life. This has been enabling company to strengthen mobile processor business.
Markedly, latest Ryzen 4,000 Series processors sales surged significantly in the second quarter, which led to strong double-digit percentage growth in mobile revenues. Besides on a year-over-year basis, revenues more than doubled courtesy of significant increase in unit shipments and ASP.
The latest AMD Ryzen PRO 4000 Series mobile processors are witnessing traction across leading commercial OEMs. Lenovo is leveraging the processors in its ThinkPad T series, X series and L series of business notebooks, while HP has rolled out new “enterprise-ready” ProBooks. ASUS and Acer have already launched notebooks based on the AMD Ryzen 4000 Series mobile processors.
In graphics domain, revenues fell year over year as decline in desktop channel sales offset the robust double-digit growth in mobile GPU sales.
Desktop GPU shipments declined on a year-over-year basis, while channel sellout improved in the second quarter. Higher sales of Radeon RX 5000 M series mobile GPUs based on RDNA architecture on deal wins from Apple and Dell, remained noteworthy. However, GPU ASP declined on a year-over-year basis and sequentially owing to lower channel sales.
The company noted that Data Center GPU business decreased on a year-over-year basis. Management is optimistic on new deal wins in cloud gaming and VDI verticals.
Enterprise, Embedded and Semi-Custom segment’s (29.2% of total revenues) revenues of $565 million were down 4% year over year but up 62% sequentially.
The year-over-year decline can primarily be attributed to lower semi-custom product revenues, partially offset by higher EPYC server processor sales. Improvement on a quarter-over-quarter basis was led by robust uptake of EPYC processors and growth in semi-custom product sales.
In semi-custom space, AMD commenced initial production and shipments of next generation game console SOCs during the second quarter.
In server domain, strength in AMD’ latest EPYC processors are enabling the company to win new deals from major enterprise, cloud, and HPC companies.
In cloud vertical, AMD’s second gen EYPC processors witnessed traction across Amazon Web Services, Tencent, and Microsoft Azure. Moreover, major cloud players utilized server processors to meet accelerated demand for collaboration services induced by coronavirus-led work-from-home wave and increased use of online schooling solutions.
AMD’s focus on introducing new high-performance processors to support complex applications, advanced modeling, database and hyper-converged workloads is driving growth. In enterprise domain, Dell, Lenovo and HPE have selected EPYC processors to power their respective next gen platforms.
Considering HPC vertical, AMD’s second Gen EPYC processors wins across Indiana University, Purdue and CERN, remain noteworthy.
Moreover, the processors have been selected by Amazon, Oracle, Microsoft and IBM to power their respective cloud based HPC offerings.
Further, management is optimistic on increasing utilization of AMD CPUs and GPUs across supercomputing systems.
Operating Details
Non-GAAP gross margin expanded 300 basis points (bps) on a year-over-year basis to 44%, driven by strong adoption of client and server processors.
Non-GAAP operating expenses increased 20.5% year over year to $617 million, due to higher investments in Research & development (R&D) and go-to-market initiatives.
R&D expenses rose 23.3% year over year to $460 million. Marketing, general and administrative expenses climbed 13.8% year over year to $215 million.
As a percentage of revenues, non-GAAP operating expenses were 32%, contracting 100 bps from the year-ago quarter.
Adjusted EBITDA soared 87.1% year over year to $305 million. The increase can be attributed to earnings growth.
Non-GAAP operating income came in at $233 million, up 109.9% year over year. Growth in revenue base drove year-over-year improvement.
Non-GAAP operating margin of 12% expanded 500 bps year over year.
Segment wise, Computing and Graphics operating income was $200 million, compared with $22 million reported in the year-ago quarter courtesy of higher revenues. Enterprise, Embedded and Semi-Custom operating income was $33 million compared with $89 million reported in the year-ago quarter. The decline can be attributed to higher operating expenses and lower revenue base.
Balance Sheet & Cash Flow
As of Jun 27, 2020, AMD had cash and cash equivalents (including marketable securities) of $1.78 billion compared with $1.39 billion as of Mar 28, 2020. As of Jun 27, 2020, total debt (long-term plus short-term) was $690 million, up from $488 million as of Mar 28, 2020.
Operating cash flow was reported at $243 million, against operating cash outflow of $65 million in the first quarter. Free cash flow was $152 million in the second quarter against free cash flow outflow of $120 million in the prior quarter.
Guidance
AMD expects third-quarter 2020 revenues of $2.55 billion (+/-$100 million), indicating year-over-year and quarter-over-quarter growth of 42% and 32%, respectively.
For third-quarter 2020, AMD expects robust sales from Ryzen, EPYC processors and next-gen semi-custom products to drive year-over-year and sequential increase in revenues.
Semi-custom revenues are projected for strong growth, driven by gains from production increase to support the launch of the latest Xbox Series X and PlayStation 5 gaming consoles scheduled for holiday season of 2020.
Non-GAAP gross margin is anticipated to be 44%.
For 2020, AMD now projects revenues to grow 32% over 2019 backed by momentum in PC, gaming and data center products. Previously, AMD had projected growth 25% (+/-5%) over 2019.
The company expects to “deliver strong growth in the second half” backed by strength in current product portfolio. Also, initial shipments of latest next generation ZEN 3 CPUs and RDNA GPUs, set to launch in late 2020, are projected to drive growth.
For 2020, management continues to expect non-GAAP gross margin of 45%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 16.78% due to these changes.
VGM Scores
At this time, Advanced Micro has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Advanced Micro has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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August 27, 2020 at 10:31PM
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Why Is Advanced Micro (AMD) Up 13.1% Since Last Earnings Report? - Yahoo Finance
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