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AMD Beats Q4 Earnings & Revenue Estimates, Provides 2021 View

Advanced Micro Devices AMD reported fourth-quarter 2020 non-GAAP earnings of 52 cents per share, which surpassed the Zacks Consensus Estimate by 10.6%. Notably, the bottom line surged 63% year over year and 27% sequentially.

Revenues of $3.244 billion outpaced the Zacks Consensus Estimate by 7.5% and surged 53% year over year. On a quarter-over-quarter basis, the top line increased 16%.

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. The buyout is expected to conclude by end of 2021.

Advanced Micro Devices, Inc. Price, Consensus and EPS Surprise

 

Advanced Micro Devices, Inc. price-consensus-eps-surprise-chart | Advanced Micro Devices, Inc. Quote

 

Segmental Details

Computing and Graphics segment’s (60.4% of total revenues) revenues of $1.96 billion, increased 18% year over year and sequentially. The upside can be attributed to robust adoption of Ryzen processors.

Client processor average selling price (ASP) was lower compared with year over year ASP due to increased Ryzen mobile processor sales. However, client processor ASP improved sequentially owing to higher Ryzen desktop 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.

Nevertheless, desktop CPU sales registered “strong double-digit percentage” growth on a year-over-year and quarter-over-quarter basis. The improvement was driven by solid demand for Ryzen processors. In the fourth quarter earnings conference call, management also noted that its latest Ryzen 5000 Series desktop processor based on its Zen 3 architecture witnessed strong sell through.

In mobile domain, growth in notebook processor unit shipments and revenues was driven by increasing traction of Ryzen 4000 mobile processors. Management is optimistic regarding growing clout of Ryzen 4000 mobile processors families across leading OEMs.

The company recently launched a class of mobile processors — AMD Ryzen 5000 Series — which is based on Zen 3 core architecture at CES 2021. The company also unveiled AMD Ryzen PRO 5000 Series Mobile processors for enterprise. These are expected to be available in the first half of 2021.

Management stated that it was on track to increase the number of notebooks powered by Ryzen 5000 processors by 50% compared with the previous generation in 2021.

In graphics domain, revenues fell year over year, while registering improvement on a quarter-over-quarter basis.

Desktop GPU sales improved on a quarter-over-quarter basis due to new Radeon 6000 Series GPUs. Radeon 6000 Series GPUs are based on RDNA 2 architecture and deliver 65% performance per watt compared with the previous generation, per AMD estimates.

The company noted that Data Center GPU business declined on a year-over-year basis. However, the Data Center GPU business improved quarter over quarter, which includes shipments of AMD Instinct MI100 accelerator chips, further added AMD. 

The company also added that it is working on expanding its data center GPU business along with software ecosystem expansion to support the launch of the first exascale supercomputer in the United States at Oak Ridge National Laboratory.

Enterprise, Embedded and Semi-Custom segment’s (39.6% of total revenues) revenues of $1.284 billion were up 176% year over year and 13% sequentially.

The upside can primarily be attributed to higher semi-custom product revenues and higher EPYC server processor sales.

AMD noted that semi-custom revenues improved both on a year-over-year and quarter-over-quarter basis due to higher demand from latest generation hardware consoles from Sony and Microsoft MSFT. Due to higher demand, AMD added that it expects sales of semi-custom SoCs “to be better than typical seasonality” in the first half of 2021.

In server domain, strength in AMD’ latest EPYC processors enable the company to win new deals from major enterprise, cloud, and HPC companies.

In cloud vertical, AMD highlighted that 28 new AMD-based public cloud instances were rolled out in the quarter under review by major cloud providers including Amazon’s AMZN Amazon Web Services, Alibaba, and Oracle ORCL.

Further, Google also extended availability of its confidential computing Virtual Machines (VMs) powered by EPYC processors to nine regions.

AMD’s focus on introducing new high-performance processors 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 OEMs like Dell, Lenovo and HPE continue to clinch important deals across critical domains like, financial services, manufacturing and automotive.

AMD demonstrated third generation EPYC processors (codenamed “Milan”) at CES 2021 for the public for the first time. These processors are on track for public launch in March 2021.

Further, management is optimistic on increasing utilization of AMD CPUs and GPUs across supercomputing systems.

Operating Details

Non-GAAP gross margin remained unchanged at 45% on a year-over-year basis.

Non-GAAP operating expenses increased 45% year over year to $789 million, due to higher investments in Research & development (R&D) and go-to-market initiatives along with increased variable employee compensation-related costs.

R&D expenses rose 45.1% year over year to $573 million. Marketing, general and administrative expenses surged 49.5% year over year to $308 million.

As a percentage of revenues, non-GAAP operating expenses were 24%, contracting 200 bps from the year-ago quarter’s levels.

Adjusted EBITDA soared 60.6% year over year to $753 million. The upside can be attributed to earnings growth.

Non-GAAP operating income came in at $663 million, up 64% year over year. Growth in revenue base drove year-over-year improvement.

Non-GAAP operating margin of 20% expanded 100 bps year over year.

Segment wise, Computing and Graphics operating income was $420 million compared with $360 million reported in the year-ago quarter, courtesy of higher Ryzen processor revenues. Enterprise, Embedded and Semi-Custom operating income was $243 million compared with $45 million reported in the year-ago quarter, owing to higher revenues.

Balance Sheet & Cash Flow

As of Dec 26, 2020, AMD had cash and cash equivalents (including marketable securities) of $2.29 billion compared with $1.77 billion as of Sep 26, 2020.

As of Dec 26, 2020, total debt (long-term plus short-term) was $330 million, down from $373 million as of Sep 26, 2020.

Operating cash flow was reported at $554 million against operating cash flows of $339 million in the prior quarter.

Free cash flow was $480 million in the fourth quarter against free cash flow of $265 million in the prior quarter.

Quick Look at 2020 Performance

AMD reported non-GAAP revenues of $9.763 billion in 2020, up 45% over 2019 tally. The Zacks Consensus Estimate was pegged at $9.54 billion.

AMD noted that its data center sales now form a “high-teens percentage” of its overall annual revenues.

Non-GAAP earnings per share was $1.29, up 102% compared with 64 cents reported for 2019.

Non-GAAP gross margin expanded 200 bps to 45%, while non-GAAP operating margin expanded 500 bps to 17%.

For 2020, AMD generated cash flow from operations of $1.07 billion compared with $493 million in the previous year. Free cash flow during 2020 was $777 million compared with $276 million in 2019.

Guidance

Following stellar fourth-quarter 2020 results, the company provided encouraging outlook for 2021.

AMD expects first-quarter 2021 revenues to be $3.2 billion (+/-$100 million), which indicates year-over-year growth of 79%. However, on a quarter-over-quarter basis, this suggests a decline of 1%. For first-quarter 2021, AMD expects robust sales across all its businesses to drive year-over-year increase in revenues.

The Zacks Consensus Estimate for first-quarter revenues is pegged at $2.71 billion.

Non-GAAP gross margin is anticipated to be 46%, while non-GAAP operating expenses are expected to be $830 million.

For 2021, management expects revenue to increase 37% propelled by growth across board. The non-GAAP gross margin for 2021 is anticipated to be 47%, while non-GAAP operating expenses are expected to be 26% of total revenues.

Notably, shares of AMD, which carries a Zacks Rank #3 (Hold), have surged 87.5% in the past year compared with the industry’s rally of 63.8%.

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