Advanced Micro Devices (AMD) released its first quarter results after the bell today, beating both the top line and the bottom line estimates.
Revenue came in at $1.65 billion, up 39.8% year-over-year. Analysts’ consensus for the quarter stood at $1.57 billion. Non-GAAP earnings per share reached 11 cents, beating the street by 2 cents.
AMD is guiding for mid-point revenue of $1.725 billion for the next quarter, which is ahead of Wall Street consensus of $1.57 billion. The market reacted positively as the stock was up approximately 8% in after-hours trading.
Ryzen and EPYC helped AMD post double-digit revenue growth
Alongside year-over-year growth, revenue was also up 23% sequentially. Revenue growth was primarily supported by an astonishing 95% growth in the computing and graphics segment, slightly offset by year-over-year decline in revenue from enterprise, embedded and semicustom (EESC) segment.
Source: 1Q 2018 SEC filing
It can be seen that Advanced Micro Devices has been consistently growing its computing and graphics revenue, thanks to the launch of Ryzen and cryptocurrency-related GPU sales. The growth in Ryzen and Radeon sales was driven by a mix of increased average selling prices (ASP) and increase in unit sales.
While EESC revenue was on decline last year; it has picked up pace since then, probably due to server related sales of EPYC processors. Revenue for the segment was down 12% during the quarter compared to the same quarter last year. However, the enterprise and embedded segment registered 23% sequential growth. This shows that Advanced Micro Devices might be picking up pace on the server side. Note that server deployments and related revenue recognition need time as OEMs and data centers test deployments. To review, Ryzen and EPYC have been successful in driving the top line during the last few quarters. Crypto-related revenue also provided a nudge.
Note that 5-6% of Advanced Micro Devices revenue came from crypto-mining-related GPU sales in the past. However, there are rumors of a slowdown in crypto-related revenue. Taiwanese graphics card manufactures expect a drop in graphics cards shipments to the tune of 40% during April as mining demand fades, reported Digitimes. Nonetheless, ignoring the crypto-related GPU revenue, Advanced Micro Devices grew its revenue more than 15% sequentially.
Margin grows while the company exercises cost discipline
Earnings growth was supported by revenue growth and declining operating costs. The company managed to increase its margin to 36%, up 4% compared to the same quarter last year. The management noted that the increase in margin was driven by increased share of revenue driven from Ryzen and EPYC. Demand for mining might also have contributed to the improved gross margin.
Although Advanced Micro Devices has adopted an aggressive pricing strategy, its margin continues to improve. Floor-bound margin on previous generation products allowed the company to compete on pricing while improving margin. Intel (INTC), on the other hand, will have to forgo margin in order to compete on pricing.
Operating costs have been declining, pointing towards cost discipline of the company. Operating expenses, as a percentage of revenue, declined to 28% as compared to 32% during the same quarter last year.
Second quarter will be supported by an even stronger Ryzen; EPYC can further boost revenue
Advanced Micro Devices recently launched the second generation Ryzen, which builds on the performance of the first generation through some minor design tweaks. Second generation Ryzen provides better single-threaded performance, making the processors more competitive in gaming scenarios, Lisa Su, the CEO of Advanced Micro Devices, said in the earnings conference call. To review, second generation Ryzen will most certainly boost AMD’s revenue, which is also reflected in the second quarter guidance.
What does the future hold?
What is looking good is 7nm execution. Answering a question regarding the roadmap, Su said that 7nm Zen 2 will sample later this year and will be available in 2019. She further noted that adoption will be higher for 7nm Zen 2 as customers will be more familiar with its new architecture.
“As we look forward, the 7nm capability of foundry ecosystem is very good from manufacturing standpoint,” the CEO said on the earnings call.
The obvious improvement in performance will be another reason for higher adoption of Zen 2. The company is also expected to release the 7nm based EPYC next year. All in all, product execution seems smooth. Advanced Micro Devices will continue to steal market share from Intel amid a strong forward product line and better-than-before execution.
Note that some AI-related revenue is expected during the second half of the year, according to Su’s comment during the earnings conference call.
Bottom line
Ryzen continues to gain traction. EPYC’s success has finally started to reflect on financial statements. Zen+ along with the ramp up of Ryzen Mobile for portable PCs during the second half will continue to boost the company’s revenue. Going forward, 7nm and EPYC 2 look promising. In short, the turnaround is up and running.
Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.
