Advanced Micro Devices (AMD, Financial) reported its third-quarter earnings today, beating top-line and bottom-line expectations. Revenue was $1.64 billion, up 26% on a year-over-year basis. Analysts were looking for revenue of $1.51 billion. EPS came around 10 cents, beating the consensus by 2 cents.
Ryzen and EPYC lines of processors are driving the revenue and EPS growth of Advanced Micro Devices. “Strong customer adoption of our new high-performance products drove significant revenue growth and improved financial results from a year ago,” said Lisa Su, the CEO of Advanced Micro Devices.
For the fourth quarter, Advanced Micro Devices is guiding for revenue of $1.39 billion, which is slightly above the analyst consensus of $1.34 billion. Full-year revenue is expected to increase more than 20% on a year-over-year basis. Despite beating consensus, the stock is down 10% in after-hours trading.
Ryzen and EPYC drive revenue growth
Revenue growth was primarily driven by increased revenue from the Computing and Graphics (CG) segment. Computing and Graphics revenue increased at an astonishing 74% to reach $819 million, thanks to Ryzen sales. Average selling price (ASP) also increased as a result of the availability of Ryzen.
AMD, earnings presentation (October)
Enterprise, embedded and semi-custom (EESC) revenue was down 1% year over year, which was not reassuring given the launch of EPYC, Advanced Micro Devices' server play. The company notes that growth in EPYC offsets the decline in the semicustom revenue.
Gross margin expansion improves EPS
Earnings growth was supported by expanding gross margin. Gross margin increased 30% on a year-over-year basis to reach 35% during the third quarter of 2017. Gross margin was 34% for the nine months ending in September, compared to 20% during the same period last year. Margin expansion resulted amid increasing ASP, thanks to Ryzen sales.
Ryzen Mobile, EPYC and AI
Ryzen is doing well as evident from a 74% increase in Consumer and Graphics revenue during the quarter.
The company's node-parity and multithreading strategy has started to pay off. Advanced Micro Devices is planning to launch Ryzen Mobile, the first Zen-based APU, in 2018. This will help the company gain market share in the portable computing market.
AMD, earnings presentation (October)
The company is also eyeing the 1S server market with its EPYC server offerings. It has the potential to address 40% of the total server market commanded by Intel (INTC, Financial). Big cloud players are already deploying Advanced Micro Devices' enterprise offerings. Microsoft (MSFT, Financial), Baidu (BIDU, Financial) and Tencent (TCEHY, Financial) are planning to deploy EPYC in their data centers. Advanced Micro Devices is also tapping into the AI market with its Radeon Instinct MI25. Machine learning is on the rise. Advanced Micro Devices is late to the AI market, but it can still benefit from its latest offerings.
Takeaways
Growth in revenue and earnings show that market is taking Ryzen quite well. The company is maintaining a revenue growth of more than 20%.
Ryzen mobile processors for portable computers will further boost Advanced Micro Devices' CG revenue going forward. EESC revenue will also witness growth once EPYC server sales start to kick in. Graphics continue to be among the strongest suits of the company. AI offerings can also bring additional revenue.
It all comes down to the fact that process technology is important. Advanced Micro Devices deployed 14nm in Ryzen and started to see results immediately. The company will continue to create problems for Intel as it launches 12nm and 7nm processors. Current weakness in price should be considered a buying opportunity as Advanced Micro Devices is consistently growing its top line.
Disclosure: I have no positions in any stocks mentioned and have no plans to initiate any positions within the next 72 hours.
