AMD (AMD) has been a subject of various kinds of speculative discussions of late. While some bears believe that the chipmaker is poised to register a slow quarter due to impending launches from Intel, Nvidia and AMD itself, others feel that supply chain disruptions can hamper its operations. In this article, I want to discuss the monthly sales performance of AMD's supply chain partners to highlight that these speculative theories are baseless and its long-side investors should ignore the fear, uncertainty and doubt (or FUD) floating around in the rumorverse. Let's take a closer look at it all.
(Image source)
The Data
I'd like to start by saying that AMD isn't a vertically integrated company. The chipmaker gets its chips fabricated from foundry-partner Taiwan Semiconductor (TSM), and later gets its GPUs assembled and packaged together from companies such as Gigabyte, ASRock, MSI and TUL Corporation. Some of the mentioned firms also manufacture motherboards for AMD chips, which further diversifies their revenue mix. So, tracking the monthly sales performance of these channel partners can provide us with leading insights about how AMD's Q3 is coming along and the state of its supply chain.
This tool covers the monthly sales figures for over 1300 such Taiwanese firms and it revealed an interesting trend for July and August. As it turns out, all the mentioned firms saw their revenue growing in both July and August. TUL Corporation, which exclusively manufactures AMD-branded graphic cards under its PowerColor line-up, was struggling with sales growth in prior months, but it's evident from the table below that it has started to excel lately.
(Source: Business Quant)
Other mentioned firms such as Gigabyte, MSI and ASRock are non-exclusive hardware partners with AMD; they manufacture GPUs and motherboards for Nvidia and Intel ecosystems in addition to AMD. Similarly, Taiwan Semiconductor is a non-exclusive foundry partner for AMD, which manufactures chips for Nvidia and Apple as well. Clearly, none of these firms are solely reliant on AMD and its product portfolio for their own sales generation. But this data does show that the state of AMD's supply chain is healthy and very much intact. But what does this data mean for investors?
The Assessment
For starters, there are some significant product releases lined up ahead. To put things in perspective, Nvidia's first 7nm-based mainstream GPUs will be commercially available later this month and AMD is expected to launch its own 7nm-based GPU and desktop CPU line-ups in October. Intel, too, is gearing to roll-out its new 10nm-based Tiger Lake chips in commercial notebooks before year-end. So, there was the general concern that consumers may defer their purchases in Q3 till these new products are commercially available in Q4.
But the data shared above suggests that such a slowdown isn't underway, at least not in a meaningful way. All of the mentioned firms registered healthy sales growth in the first two months of Q3. This data negates the popular bear theory that AMD may go on to post dismal Q3 sales numbers, and is also indicative of strong consumer demand.
It's also evident from the table above that growth rates for the mentioned firms slightly decelerated in August on a sequential basis. This, in my opinion, is perfectly normal and shouldn't be a cause of concern for AMD's long-term investors because:
- The growth rates in August are still at healthy levels when seen on a standalone basis. We can argue that stellar growth rates posted during June and July are causing a higher-base effect which is making August numbers seem like they're not good enough, and/or;
- AMD's Q3 spans from July through September which means the sales figures in the said timeline, all belong to the same quarter. So, if one month out of three rakes in lower growth rates, then the entire quarter doesn't turn out to be downright dismal, and/or;
- The tapering of sales growth could just be a transitory slowdown. Customers such as yours truly, who were able to defer their purchases until newer products are out, may return with purchases in full-steam during Q4.
The Caveats
None of these firms are pure-play firms that derive all of their revenues exclusively from AMD's products. All the companies, especially Gigabyte and Taiwan Semiconductor, have a range of clients and have diversified revenue streams. So, the individual-level sales performance of these Taiwanese firms may not be perfectly correlated with AMD's overall quarterly results. Hence, I believe this dataset should, at best, be used to corroborate or dispel channel-related rumors floating around in the rumorverse.
Also, we're yet to see September results for these Taiwanese firms. This means that we don't have the complete dataset required to make reliable projections for AMD's upcoming Q3 results. Maybe there are industry tailwinds that boost the financial performance for these hardware firms during September or maybe the growth rates taper down once again. Only time will tell what the ground reality really is.
Lastly, there's the possibility that the financial performance of these Taiwanese firms gets impacted due to changes in their product mix, marketing strategies or other such vendor-level factors. For instance, Gigabyte may register a massive rise in sales if its Intel motherboard and Nvidia GPU sales skyrocket but AMD GPU sales remain stagnant. So, we must study the sales performance of other firms too, before arriving at any conclusion.
The Takeaway
If there truly was an abrupt slowdown taking place due to consumer preferences, heightened geopolitical tensions and/or difficulty in procuring raw materials, we would have seen sales growth figures plunge for most if not all of the mentioned firms. But that did not happen. Instead, these firms seem to have thrived in July and August. So, the takeaway here is that AMD's supply chain is very much healthy and intact.
In fact, this partner sales data should come across as an encouraging sign for AMD and its shareholders as it negates the dire image that the bears have been projecting of late. Hence, I believe that readers should remain long on AMD, focus on the competitiveness of its new product releases, rather than unnecessarily worrying about speculative theories surrounding the state of its supply chain. Good Luck!
Author's Note: I'll be writing another article on AMD next week, you can stay updated by clicking the "Follow" button at the top. Thanks!
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
The Link LonkSeptember 15, 2020 at 08:00PM
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