A month has gone by since the last earnings report for Advanced Micro Devices (AMD). Shares have lost about 6.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Advanced Micro due for a breakout? 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 drivers.
AMD Q1 Earnings & Revenues Beat Estimates
Advanced Micro Devices reported first-quarter 2021 non-GAAP earnings of 52 cents per share, which surpassed the Zacks Consensus Estimate by 18.18%. Notably, the bottom line soared 189% year over year but remained flat sequentially.
Revenues of $3.445 billion outpaced the Zacks Consensus Estimate by 7.46% and surged 93% year over year. On a quarter-over-quarter basis, the top line increased 6%.
Strength in the Computing and Graphics and Enterprise Embedded and Semi-Custom divisions drove year-over-year improvement. AMD also stated that it completed several regulatory milestones for its proposed acquisition of Xilinx as shareholders approved of the deal. The buyout is expected to conclude by end of 2021.
Segmental Details
Computing and Graphics segment’s (61% of total revenues) revenues of $2.1 billion, increased 46% year over year and 7% sequentially. The upside can be attributed to robust adoption of Ryzen and Radeon processors, and higher revenues from client processor and graphics sales.
Client processor average selling price (ASP) was record high as client computing revenues grew in double-digit percentage on a year-over-year basis and improved sequentially. The increase was driven by a favorable mix of Ryzen desktop and notebook processor sales.
Coronavirus crisis-induced work-from-home and online learning wave continued to drive PC market strength, which led to robust growth in client processor revenues especially across ultrathin, gaming, and commercial segments.
Considering notebooks, AMD delivered sixth straight quarter of record mobile processor revenues driven by persistent demand for Ryzen 4000 Series processors and incremental adoption of newly launched Ryzen 5000 Series processors.
Management noted that Ryzen Mobile 5000 Series processor raked in revenues twice as fast as the prior generation. Momentum is expected to continue through 2021 as the number of notebook platforms powered by new processors is on track to increase by 50% compared to the prior generation.
In the commercial market, Ryzen PRO Processors’ unit shipments improved by a strong double-digit percentage sequentially. The company clinched multiple high-volume wins across Fortune 500 companies across aerospace, automotive, electronics, and engineering domains in the first quarter. Management was elated as the company tripled commercial notebook design wins across the largest OEMs.
In graphics, revenues surged in double-digit percentage both on a year-over-year basis and sequentially, courtesy of channel sales growth driven by solid uptick in high-end Radeon 6000 GPUs, revenues from which more than doubled from the prior quarter.
In March, the company rolled out Radeon 6700 XT desktop GPU with leading 1440p gaming performance and remains on track for the first notebooks featuring the latest leading-edge mobile RDNA 2 architecture and 7 nanometer (nm) process technology to launch later in second quarter.
Also, AMD anticipates Radeon 6000 Series GPU sales to grow significantly over the coming quarters as production ramps up.
The company noted that Data Center GPU business improved on a year-over-year basis as well as on a quarter-over-quarter basis, backed by growing clout of Instinct accelerators across cloud and HPC customers. GPU ASP was higher both on a year-over-year basis and sequentially, owing to strong uptake of high-end Radeon graphics products.
Traction witnessed across AMD Instinct MI100 accelerator chips is noteworthy. The company also added that it is working on commencing the production ramp of AMD Instinct GPU to support the launch of Frontier, the first U.S. exascale supercomputer; as well as various other HPC deal wins.
Enterprise, Embedded and Semi-Custom segment’s (39% of total revenues) revenues of $1.345 billion were up 286% year over year and 5% sequentially.
The year-over-year increase can be attributed to higher semi-custom product sales and EPYC processor revenues. The sequential increase was led by higher EPYC processor sales, which was partially offset by lower semi-custom product sales.
Semi-custom revenues declined by a single-digit percentage sequentially, which per management fared better than typical seasonality. The company anticipates semi-custom sales to remain strong through 2021, courtesy of robust demand for the latest gaming consoles from Sony and Microsoft.
In server domain, AMD witnessed sequential increase in both second and third generation EPYC processors. Growing adoption of second generation solutions was complemented by third generation EPYC processors, which are successfully ramping into production amid new deal wins from major enterprise, cloud, and HPC companies.
AMD noted record server processor revenues as EPYC processor sales more than doubled on a year-over-year basis and grew by a strong double-digit percentage on a quarter-over-quarter basis.
Markedly, third generation EPYC processors offer 25% more performance per watt compared to previous generation and offers leading per core and per socket performance, across database, ERP, data analytics, Java, virtualization, cloud, and supercomputing workloads.
In cloud vertical, AMD highlighted that demand was strong following the roll out of 11 new AMD-based public cloud instances in the reported quarter by major Tier 1 cloud providers, as they expanded their EPYC processor deployments to power more of their internal infrastructure.
AMD’s focus on introducing new high-performance EPYC CPUs and Instinct GPUs to support complex applications, advanced modeling, database and hyper-converged workloads are driving growth.
In enterprise domain, the company’s servers are witnessing rapid uptake as companies like Cisco, Dell, HP Enterprise, Lenovo, and Supermicro, continue to expand their AMD-based offerings with more than 100 new third generation EPYC processor-powered server platforms that deliver enhanced performance and total cost of ownership (TCO).
Further, management is optimistic on increasing utilization of AMD CPUs and GPUs across supercomputing systems. In HPC domain, the company clinched new high-volume wins, including Sweden's Institute of Science, the National Center for Atmospheric Research, and an exclusive on-prem and cloud solution for the U.K.'s National Weather Modeling Service, which is touted to be the world's most powerful weather and climate forecasting supercomputer.
Operating Details
Non-GAAP gross margin remained unchanged at 46% on a year-over-year basis.
As a percentage of revenues, non-GAAP operating expenses were 24%, contracting 900 basis points (bps) from the year-ago quarter’s levels.
Adjusted EBITDA soared 181.9% year over year to $857 million. The upside can be attributed to earnings growth. Non-GAAP operating margin of 22% expanded 900 bps year over year.
Segment wise, Computing and Graphics operating income was $485 million (23% of segment revenue) up 85% year over year, courtesy of higher revenues. Enterprise, Embedded and Semi-Custom operating income was $277 million (21% of segment revenue) against operating loss of $26 million reported in the year-ago quarter, owing to higher revenues.
Balance Sheet & Cash Flow
As of Mar 27, 2021, AMD had cash and cash equivalents (including marketable securities) of $3.116 billion compared with $2.29 billion as of Dec 26, 2020. As of Mar 27, 2021, total debt (long-term plus short-term) was $314 million, down from $338 million as of Dec 26, 2020.
Operating cash flow was reported at $898 million compared with $554 million in fourth-quarter 2020. Free cash flow was $832 million in the first quarter compared with $480 million in fourth-quarter 2020.
Hikes ‘21 Revenue Guidance
AMD expects second-quarter 2021 revenues to be $3.6 billion (+/-$100 million), which indicates year-over-year growth of 86% and quarter-over-quarter improvement of 4%. For second-quarter 2021, AMD expects robust sales across all its businesses to drive year-over-year increase in revenues. Meanwhile, the sequential increase is projected to be led by growth across data center and gaming verticals.
Non-GAAP gross margin is anticipated to be 47%, while non-GAAP operating expenses are expected to be $900 million.
For 2021, management now expects revenues to increase 50% year over year, compared with prior projected growth of 37%, encouraged by improvement across all its businesses.
Nevertheless, the company continues to expect non-GAAP gross margin for 2021 to be 47%, while non-GAAP operating expenses are anticipated to be 26% of total revenues.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 18.45% 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 D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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. It comes with little surprise Advanced Micro has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Zacks Investment Research
May 27, 2021 at 10:31PM
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Advanced Micro (AMD) Down 6.8% Since Last Earnings Report: Can It Rebound? - Yahoo Finance
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