AMD Guides Higher With Gross Margins Rising to 48% With Popularity of Expensive Processors

Advanced Micro Devices reported better than expected third-quarter earnings on Tuesday after the close of markets. $AMD also guided higher for the fourth quarter. Gross margin rose to 48% from 44% y/y with more expensive processors selling more.

Advanced Micro Devices reported better than expected third-quarter earnings on Tuesday after the close of markets. $AMD also guided higher for the fourth quarter. Gross margin rose to 48% from 44% y/y with more expensive processors selling more.

AMD Girl

 

Advanced Micro Devices, Inc. NASDAQ: AMD Reported Earnings After Close Tuesday

$0.73 Beat $0.65 EPS  Forecast and $4.31 billion Beat $4.11 Billion Forecast in Revenue

AMD earnings:

Advanced Micro Devices (AMD) reported third-quarter earnings after the bell on Tuesday, with earnings and revenue beating analyst expectations. AMD’s net income for the quarter was $893 million. EPS were $0.73 adjusted, versus $0.67 expected, up 16% year-over-year. Revenue up $4.31 billion, versus $4.12 billion expected, up 54% year-over-year. AMD reported after rival Intel (INTC) reported an earnings beat last Thursday but missed badly on revenue sending the stock down over 11%. Advanced Micro Devices once again showed gains in data-center gains as Intel declined two quarters in a row.

AMD is closing the gap on Intel.

At last Friday’s close,the day after Intel’s report, AMD shares closed at a record high of $119.82.  This gave AMD a market cap of $145.34 billion, or nearly 73% of Intel’s $200.66 billion.  In Summer AMD’s $111.5 billion valuation was a little more than half Intel’s $219.5 billion cap.

AMD is in the process of taking market share in the server market behind its Epyc processors, as giants like Microsoft and Google buy its chips to run their cloud services. AMD CEO Lisa Su said in a statment that data center sales doubled year-over-year and now represents “mid-20s” of overall AMD revenue.

Market Reaction: Advanced Micro Devices Inc

NASDAQ: AMD 123.20▲ 0.27 (+0.22%) After Hours

Highlights

  • AMD’s computing and graphics segment reported $2.4 billion in revenue, up 44% year-over-year.
  • AMD said its chips were selling at higher average prices as customers opt for more powerful processors.
  • AMD reports server chip and console chip sales in its Embedded, Enterprise, and Semi-custom segment. AMD reported $1.9 billion in sales here, up 69% year-over-year
  • Driven by Epyc server chips, and higher “semi-custom” sales, which are the semiconductors it sells to game console makers.
  • AMD gross margin was 48%, up from 44% in the same period last year because customers are buying more expensive processors.
  • It forecast gross margins at 49.5% in the fourth quarter. AMD’s net income for the quarter was $893 million.

“Semi-custom revenue grew sequentially and year-over-year as demand for the latest Microsoft and Sony consoles remains very strong,” Su said on a call with analysts on Tuesday. “We expect semi-custom revenue to increase sequentially in the fourth quarter as we further ramp supply to address the ongoing game console demand.” In September, AMD CEO Su said she expects the chip shortage to become less severe in 2022. AMD is a fabless chip company. It designs the technology inside its semiconductors and outsources manufacturing to foundry partners like TSMC and GlobalFoundries. Xilinix Buy Last October AMD announced its plans to buy Xilinix in a deal worth $35 billion that would give the company more firepower to compete with Intel in the data center chip market. AMD said the deal was still on track to close by the end of 2022 and the company is making “good progress” to securing regulatory approvals. Repurchasss AMD said it repurchased $750 million in shares during the quarter. AMD stock is up over 30% year to date.

 

Earnings Expectations

Earnings: Adjusted earnings of 66 cents a share, up from 41 cents a share reported in the year-ago period according to 34 analysts surveyed by FactSet. Estimize, a software platform that crowdsources estimates from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of 72 cents a share.

Revenue: Of the 32 analysts polled by FactSet, AMD, on average, is expected to post revenue of $4.11 billion, up from the $2.8 billion reported in the year-ago quarter. AMD had forecast $4 billion to $4.2 billion. Estimize expects revenue of $4.24 billion.

AMD is growing margins as Intel’s are projected to shrink

Analysts hammered Intel on it’s forecast for declining margins over the next few years as its chief executive doubles down on new manufacturing capacity to try to retake its position as the undisputed chip leader. Downgrades followed on Friday and Intel’s worst one-day performance since INTC said it was going to delay its next generation of chips. This announcement fueled even more investor support for AMD.

Last quarter Intel appears to be feeling the competitive heat from AMD Bernstein analyst Stacy Rasgon, who has a market perform rating on AMD and a $110 price target, said AMD will continue to benefit from Intel’s transition, and called attention to an AMD metric that was one of enormous concern during Intel’s call: Gross margins.

“We believe Street gross margin estimates appear unaggressive going forward (which is not something we have typically said for AMD), and the company is now (for the first time ever) starting to return cash,” Rasgon said.

Analysts on the Intel call were very concerned that Intel’s margins falling despite company assurances they would stay just above 50% for the next few years. On the AMD side gross margins have been rising, and are likely to break above 50%, if not in this earnings report, then sometime soon. Last quarter AMD reported gross margins of 48%, up from 44% in the previous year.

Data Center Sales

Data-center sales swung to a gain in that important segment in the quarter for Intel. Over the past two quarters, Intel has posted significant year-over-year declines in this increasingly important category. In the same period AMD has more than doubled its sales. In the AMD release we will be watching whether Intel clawed back some market share, or whether data-center sales were just generally better all around.

AMD Data Center efficiency

 

What analysts are saying

Cowen analyst Matthew Ramsay, who has an outperform rating and a $120 price target on AMD, said he’s “lookin’ for more of the same.” “We continue to monitor the PC market for signs of demand slowing or supply improving,” Ramsay said. “Near-term, we see resilient demand outside Chromebooks, but prefer a prudent/agnostic view on 2022 like AMD took on its last call.”

On data-center sales, Ramsay is even more optimistic estimating that segment will account for more than 25% of sales compared with less than 20% a year ago. “We believe datacenter passing a quarter of AMD’s business could draw investor attention,” Ramsay said.

“We remind investors that the most important business for AMD remains datacenter, which we estimate doubled in 2020, with CEO Lisa Su noting she sees the business momentum accelerating in 2021.” 

AMD’s previous earnings: Hey Intel, AMD’s CEO is also ready to ‘fight for every socket,’ while producing strong growth Susquehanna Financial analyst Christopher Rolland, who has a positive rating and a $130 price target on AMD, said he expects another solid quarter driven by enterprise and server sales, but that “given the slowing PC market, we do not expect mgmt to raise their FY top-line guidance as they have done in numerous updates over the last year.”

Still, Rolland expects AMD to report share gains from Intel in both desktop and laptop PCs as well as enterprise and gaming PCs.

Of the 39 analysts who cover AMD, 23 have buy or overweight ratings, and 16 have hold ratings, with an average price target of $117.55.

AMD chief competitprs are NVIDIA (NVDA) and Intel.  Analysts will be keyed into GPU adoption rates of AI techniques and machine learning tools in industries like gaming, automotive and blockchain.  Strong adoption of EPYC server processors is another growth catalyst.

AMD has partnerships with major game developers including Ubisoft, Capcom and Rebellion to optimize their next generation of games on Radeon graphics in a most competitive marketplace.

Source: AMD

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