12 Feb AMD Cranks Out An Inspiring Q4 2018 And Full Year 2018

After coming off of what I considered a successful CES 2019 showing headlined by CEO Lisa Su (wrote about that here), today Advanced Micro Devices announced its Q4 2018 earnings, full-year 2018 results, and forecast. Unlike some of the other earnings announcements we have seen so far, AMD appears to have bucked many of the trends like China and CSP purchase pauses impacting other earnings announcements.

Here is what AMD announced:

  • 2018 fiscal year: revenue of $6.48 billion, operating income of $451 million, net income of $337 million and diluted earnings per share of $0.32. On a non-GAAP(1) basis, operating income was $633 million, net income was $514 million and diluted earnings per share was $0.46.
  • Q4-2018: revenue of $1.42 billion, operating income of $28 million, net income of $38 million and diluted earnings per share of $0.04. On a non-GAAP basis, operating income was $109 million, net income was $87 million and diluted earnings per share was $0.08.
  • Q1- 2019: revenue to be approximately $1.25 billion, plus or minus $50 million, a decrease of approximately 12 percent sequentially and 24 percent year-over-year.
  • 2019: single-digit percentage revenue growth driven by Ryzen, EPYC and Radeon datacenter GPU product sales as the Company ramps 7nm products throughout the year.  AMD expects non-GAAP gross margin to be greater than 41 percent for 2019.

I wanted to call out a few things I thought were interesting from the release and the investor call.

First off, 2018 was AMD’s most profitable year since 2011. This is a really big deal as AMD needs these profits to plow into future designs and invest in growth, a sharp contrast from prior years. AMD said that 65% of Q4 sales were from new products like Ryzen, Epyc, and Radeon datacenter GPUs. Also, a good sign as those products are much more competitive and much more profitable. No longer are we asking if “AMD will survive” or “if AMD will be back”. AMD is back for a while and now it’s up to AMD to prove it has staying power.

The datacenter revenue engine is finally starting to kick into gear, as expected, more slowly than PC-driven revenue. While a PC manufacturer can qualify a consumer desktop PC platform in 90 days, it takes over a year to test before going into a branded, enterprise server. Public cloud players split the difference right in the middle between six to none months of qual cycles which is where most of AMD’s business is today. AMD said that datacenter revenue for CPUs and GPUs accounted for “mid-teens” percent of its overall revenue in Q4 which I think is a big deal and shows the datacenter progress. As we have seen from Intel’s quarterly results over the years, datacenter business is lumpy and hard to pin down quarter to quarter.

It was a good report for AMD’s computing and graphics segment, too as it was the 8th straight quarter of year on year segment growth. Client unit shipments increased by more than 50%  resulting in what was described as its highest client computing quarterly revenue in over four years. Growth in Ryzen and datacenter GPU offset lower desktop GPU sales from the absence of blockchain (cryptocurrency) and channel inventory. AMD also said it had record professional GPU revenue for the quarter (and year) driven by datacenter deployments. This is yet another positive sign.

Looking forward, CEO Lisa Su said the company expects PC OEMs to launch 30% more Ryzen systems in 2019 versus 2018, with a 50% increase in the number of Ryzen notebook systems. This is a positive sign and signals an upcoming bump in sales, particularly from notebooks where I believe AMD has been underrepresented. Finally, the company also said its 7nm Epyc datacenter and Ryzen desktop chips are on track to ship mid-year. 7nm designs should provide higher performance, lower power, and lower cost per mm(2) of die. I wrote on AMD’s 7nm disclosures here.

Su also comment its wafer supply with Globalfoundries: “The amendment affirms the strategic partnership with GF for products built at 12 nanometers and above and provides AMD with full sourcing flexibility at the 7nm and below nodes. GF continues to be a critical supplier of AMD’s current generation products, and will play a key role in our next-generation Ryzen and EPYC products with our ‘chiplet’ strategy.” Regarding AMD’s chiplet strategy, this is where AMD’s 7nm Zen 2 fabbed at TSMC will marry up with the 14nm I/O fabbed at Globalfoundries. Nice to see GF getting a continued piece of the action on AMD’s go-forward designs in addition to the remainder of the current 14nm and 12nm products.

AMD’s guidance seemed reasonable when it said it expects Ryzen, Epyc, and datacenter GPU revenue to increase Q1-18 versus Q1-17, but that it will be offset by a lack of crypto revenue,  ongoing GPU channel inventory reduction and lower semi-custom as this console generation life cycle continues to wind down. The current crop of AMD-based consoles are strong as the PlayStation 4 and Xbox One have combined shipped over 120 million units which the company says should make the PS4 the #3 bestselling home game console of all time.

AMD is in a unique position in that the company is in share gain mode in every major sector of its CPUs and GPUs, affected less by the ebbs of the China or CSP market. That’s not to say a growing China economy and CSP re-up wouldn’t help, it would, but rather declines impacts it less. Nice job AMD. AMD is back and here for a while.