How AMD Makes Money: Processing Units and Chipsets - Investopedia

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Advanced Micro Devices Inc. (AMD), known as AMD, is a global semiconductor company providing central processing unit (CPU), graphics processing unit (GPU), chipsets, and similar computing products. The company's products are used in a variety of computing platforms including in desktop, notebook, and commercial applications, as well as for graphics processing, server processors, and more. AMD's products also play an important role in blockchain applications.

Major competitors for AMD include Intel Corp. (INTC) and NVIDIA Corp. (NVDA). Other computing and technology companies are less specialized in the semiconductor area but still have overlapping offerings, making them competitors, such as International Business Machines Corp. (IBM).

Key Takeaways

• AMD is a global semiconductor company providing processing units, chipsets, and similar products.
• The fastest-growing segment is Enterprise, Embedded, and Semi-Custom products.
• AMD has experienced solid growth in its two major segments in recent quarters.
• AMD is waiting for regulatory approval for its proposed $35-billion merger with Xilinx Inc., a maker of programmable logic devices.

AMD's Financials

AMD reported net income of $1.8 billion on revenue of $3.2 billion for Q4 2020, ended December 26, 2020. Besides net income and revenue, another top metric for AMD is gross margin, which is the total revenue minus cost of goods sold (COGS). Gross margin is one way to measure AMD's efficiency and its competitiveness. AMD's gross margin for Q4 2020 was 45%, which was the same compared to a year earlier.

Although gross margin did not increase YOY for Q4 2020, AMD's net income and revenue have skyrocketed. Net income grew by nearly 950% and revenue by 52.5% YOY. Net income growth was bolstered by income tax benefit of $1.3 billion associated with a valuation allowance release. AMD's net income growth and core operating income growth, nonetheless, were robust during the period.

AMD breaks down its revenue into two segments: Computing and Graphic; and Enterprise, Embedded, and Semi-Custom. The company also has an All Other category which is not a reportable segment and primarily includes employee stock-based compensation expenses.

AMD's Business Segments

Computing and Graphics

The Computing and Graphics segment includes desktop and notebook processors and chipsets as well as GPUs. This segment also includes AMD's data center and professional products and development services.

AMD's Computing and Graphics segment posted $1.96 billion in revenue for Q4 FY 2020, ended December 26, 2020. This represented just over 60% of total revenue for the quarter. Operating income for the segment for the same period was $420 million, accounting for 63.3% of total operating income. Segment quarterly revenue and operating income grew by 18% and 16.7% year-over-year (YOY), respectively.

Enterprise, Embedded, and Semi-Custom

AMD's Enterprise, Embedded, and Semi-Custom segment includes server and embedded processors, System-on-Chip products, and various services and technology for game consoles.

Enterprise, Embedded, and Semi-Custom segment revenue was $1.28 billion for Q4 FY 2020. This represents nearly 40% of total revenue for the quarter. Operating income was $243 million for the quarter, or 36.7% of total operating income. Enterprise, Embedded, and Semi-Custom was the fastest-growing of AMD's segments in Q4 FY 2020, with revenue and operating income climbing by 176% and 440% YOY, respectively.

The pie chart operating income percentages do not include AMD's All Other category, which had an operating loss of $93 million, including $14 million acquisition-related costs. All Other had operating losses of $57 million in the same period a year earlier.

AMD's Recent Developments

On October 26, 2020, AMD entered into a merger agreement involving its wholly owned subsidiary, Thrones Merger Sub Inc. and Xilinx Inc., a programmable logic device developer. Under the terms of the merger, Thrones Merger Sub and Xilinx will combine and Xilinx will become a wholly owned subsidiary of AMD. The transaction is a major strategic step that helps AMD to broaden and strengthen its business. The deal, valued at about $35 billion, is subject to regulatory approval and expected to close by the end of 2021.

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March 23, 2021 at 02:41AM
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How AMD Makes Money: Processing Units and Chipsets - Investopedia

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