Advanced Micro Devices Inc. (AMD, Financial) is an American multinational semiconductor company that develops computer processors and other components used in consumer electronics goods, including motherboard chipsets, embedded processors and graphics processors for servers, workstations and personal computers. The second-largest manufacturer of personal computer microprocessors, the company operates through two business segments:
- Computing and Graphics: This segment includes x86 microprocessors and chipsets, discrete and integrated graphics processing units, data centers, professional GPUs and development services.
- Enterprise, Embedded and Semi-Custom: This segment includes server and embedded processors, semi-custom system-on-chip products, development services and technology for game consoles.
AMD’s customers include original equipment and design manufacturers, public cloud service providers, system integrators, independent distributors, online retailers and add-in-board manufacturers.
On Oct. 26, the company released its third-quarter financial results that exceeded analysts' revenue and earnings estimates. AMD reported earnings of 73 cents per share against expected earnings of 66 cents. Strong demand for technology products related to game consoles boosted the chip manufacturer's performance in the third quarter, and the company seems well-positioned to benefit from the favorable macroeconomic environment for the industry.
Solid earnings and strengthening partnerships
The company reported revenue of $4.31 billion for the third quarter, up 54% year over year, supported by the increase in demand for electronic products. The demand for electronic goods increased around the world due to pandemic-induced changes in the working culture and restricted traveling. Companies adopting work-from-home or remote working models required individuals to set up a home office, leading to a surge in the demand for computers and other necessary equipment. On the other hand, schools and colleges have also embraced virtual learning, which has increased demand for laptops and tablets. This pattern is expected to continue in the post-pandemic era, keeping electronic goods in high demand.
AMD's latest generation Ryzen, Radeon and AMD Instinct CPUs drove sales in the computer and graphics division up 44% year over year to $2.4 billion. According to management, shipments of Ryzen 5,000 processors grew by a double-digit percentage. The company launched Ryzen 5000 G-Series with integrated Radeon graphics, which are said to have powerful features and graphic capabilities while also being energy efficient. The new processors and graphics are designed to provide greater gaming experiences and to facilitate intensive professional designing and content creation.
As a result of the launch of these advanced processors, Acer Inc., ASUSTek Computer Inc. (AKCPF), HP Inc. (HPQ, Financial) and Lenovo Group Ltd. (LNVGY, Financial) have all increased their product offerings powered by Ryzen processors. Lenovo has started shipping Ryzen-powered Thinkbook and Thinkpad E business notebooks with Windows 11. Lenovo also unveiled the Yoga Slim 7 Carbon and Yoga Slim 7 Pro, both of which are Ryzen-powered. In addition, ASUS announced the Ryzen 5000 Series-based Zenbook, Zenbook PRO, ProArt StudioBook and VivoBook, while HP released two AiO devices with Ryzen processors. AMD has also partnered with Microsoft Inc. (MSFT) to offer Windows 11, powered by Ryzen processors and Radeon graphics, to users, allowing more than 175 AMD CPUs to now be compatible with Windows 11 operating systems.
Sales of AMD’s EPYC processors and semi-custom sales, which are used by data centers and game console makers, drove the Enterprise, Embedded and Semi-Custom segment's revenue up 68.9% year over year to $1.9 billion. Semi-custom revenue increased owing to high demand for the latest Microsoft Xbox models and Sony’s Playstation 5. Furthermore, the company reported record server processor revenue for the sixth consecutive quarter, with sales more than doubling year over year. Third-generation EPYC processors continue to ramp up at a higher rate, accounting for the majority of server CPU revenue. During the quarter, Cloudflare Inc. (NET, Financial), Vimeo LLC (VMEO, Financial) and Netflix Inc. (NFLX, Financial) all announced EPYC processor-based deployments. Argonne National Laboratory chose third-gen EPYC processors to power the new Polaris supercomputer as well. On Sept. 30, Google Cloud announced the preview of N2D Virtual Machines powered by the AMD EPYC 7003 series. AMD also announced in August that new sizes for Amazon EC2 G4ad instances will be powered by 2nd Gen AMD EPYC CPUs and AMD Radeon Pro V520 GPUs. All these new developments suggest the company is increasingly winning the trust of renowned tech companies around the world, which is a very promising sign of what the future holds for the chipmaker.
The outlook is promising
AMD is in the process of acquiring Xilinix Inc. (XLNX, Financial) for $35 billion in a deal that will give the company an advantage over Intel Corp. (INTC, Financial) in the data center chip market segment. The deal is expected to close by the end of 2021. For the fourth quarter of 2021, AMD expects revenue of $4.5 billion, representing 39% year-over-year growth and 4% quarter-over-quarter growth. For full-year 2021, the company now expects revenue to grow approximately 65%, up from the previous guidance of 60%, and a non-GAAP gross margin of 48%.
According to Research and Markets, the global semiconductor memory market will grow at a compounded annual rate of 7% through 2026, aided by the increasing demand for gaming consoles, PC hardware and high-performance computing equipment. Although industry supply is expected to remain below demand for the rest of 2021, companies with their own fabrication capacity and that make tools and machinery for chipmakers stand to benefit as chipmakers increase budgets to add to production capacity.
Takeaway
Semiconductors play a critical role in technological advancement, and the demand for semiconductors is at an all-time high today. The chip shortage is expected to ease in 2022, so the current market conditions appear to be strongly in favor of chipmakers to deliver stellar earnings. AMD, as one of the leading chipmakers in the world, is likely to emerge as a big winner of these macroeconomic tailwinds.
