A month has gone by since the last earnings report for Advanced Micro Devices (NASDAQ:AMD). Shares were flat in that time frame, outperforming the S&P 500.
But investors have to be wondering, will the recent trend continue leading up to its next earnings release, or is Advanced Micro due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
AMD Q4 Earnings & Revenues Top Estimates
Advanced Micro Devices reported fourth-quarter 2019 non-GAAP earnings of 32 cents per share, which beat the Zacks Consensus Estimate by 6.7%. Notably, the figure soared 300% year over year and improved 77.8% sequentially.
Revenues of $2.127 billion surpassed the Zacks Consensus Estimate of $2.101 billion. Moreover, the top line improved 50% year over year and 18% sequentially.
Seasonal uptick on holiday season, and strength in both Computing and Graphics, and Enterprise, Embedded and Semi-Custom segments drove the year-over-year improvement.
Segmental Details
Computing and Graphics segment (78.1% of total revenues) revenues grew 69% year over year and came in at $1.662 billion.
In desktop vertical, seasonal uptick in demand for second and third generation Ryzen processors on account of holiday season drove segment results.
During the reported quarter, AMD introduced Ryzen 3950X mainstream desktop processor and latest Ryzen Threadripper processors aimed at high-end desktop market.
Client processor average selling price (ASP) improved year over year and sequentially, on higher Ryzen processor sales.
Revenues from Mobile processors grew double-digit on a year-over-year basis, primarily on account of higher unit shipments during the reported quarter.
Moreover, the company is banking on utilization of new Radeon Pro 5300M and 5500M mobile GPUs in Apple’s latest MacBook Pro. The processors are based on 7 nanometer (nm) RDNA architecture to enable advanced graphics performance.
Management also remains optimistic regarding growing clout of Ryzen 4000 mobile processors families across leading OEMs.
In graphics domain, higher sales of Radeon 5000 series GPUs based on RDNA architecture drove year-over-year unit shipments by double-digit percentage growth. GPU ASP increased year over year and sequentially, primarily driven by higher channel GPU sales.
Additionally, AMD rolled out Radeon RX 5500 XT and 5600XT graphics card, powered by the AMD RDNA gaming architecture.
Management noted that Data Center GPU sales improved sequentially. The company inked new deal wins in cloud, game streaming and VDI verticals in the reported quarter.
Notably, the company is investing in software enhancements to aid developers leverage Radeon Instinct accelerators for complex AI and HPC applications.
Enterprise, Embedded and Semi-Custom segment (21.9% of total revenues) revenues of $465 million were up 7% year over year.
The year-over-year improvement can primarily be attributed to higher EPYC server processor sales, partially mitigated by lower semi-custom product revenues.
In server domain, management noted that improving ASPs and higher unit shipments of latest second-gen EPYC processors drove double-digit growth in revenues.
Strength in AMD’ latest EPYC processors are enabling the company garner new deal wins from major enterprise, cloud, and HPC companies.
For instance, Google (NASDAQ:GOOGL) is leveraging EYPC processors to enhance data center environment and strengthen Google Cloud Platform. Moreover, Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Oracle (NYSE:ORCL), Tencent, among others, are utilizing EPYC processors to enhance their respective data center architecture.
Particularly, AMD is optimistic about extended utilization of its 2nd Gen EPYC processors by Amazon Web Services, in Amazon EC2 (or Elastic Compute Cloud) compute-optimized instances, namely C5a and C5ad.
Further, Microsoft Azure HBv2 virtual machines are leveraging AMD’s EPYC 7742 processor for HPC applications.
In enterprise domain, Dell has rolled out new platforms based on latest EPYC processors. Considering HPC vertical, San Diego Supercomputer Center intends to utilize Dell EMC (NYSE:EMC) PowerEdge servers powered by AMD’s second Gen EPYC processors.
Operating Details
Non-GAAP gross margin expanded 400 basis points (bps) on a year-over-year basis to 45%, driven by strong adoption of latest 7 nm based EPYC and Ryzen processors.
Operating expenses on a non-GAAP basis increased almost 15% year over year to $545 million, due to higher investments in Research & development (R&D) and go-to-market initiatives. R&D expenses rose 6.5% year over year to $395 million. Marketing, general and administrative expenses surged 49.3% year over year to $206 million.
Adjusted EBITDA soared 208.6% year over year to $469 million on earnings growth.
Non-GAAP operating income came in at $405 million, up 271.6% year over year. The year-over-year improvement was driven by higher revenue base and improvement in gross margin.
Segment wise, Computing and Graphics operating income soared 213% year over year to $360 million, courtesy of solid improvement in Ryzen processors sales. Enterprise, Embedded and Semi-Custom operating income was $45 million, against an operating loss of 6 million reported in the year-ago quarter. This can be attributed to strong adoption of EPYC processors.
Balance Sheet & Cash Flow
AMD ended the fourth quarter with cash and cash equivalents (including marketable securities) of $1.50 billion compared with $1.21 billion in the previous quarter.
Total debt (long-term plus short-term) was $486 million, down from $872 billion reported at the end of the previous quarter.
Operating cash flow came in at $442 million, compared with $234 million in the previous quarter.
Free cash flow was $400 million compared with $179 million in the previous quarter.
Guidance
AMD expects first-quarter 2020 revenues to be roughly $1.8 billion (+/-$50 million), indicating year-over-year growth of 42%. However, it reflects a decline of 15% on a sequential basis.
For first-quarter 2020, AMD expects robust sales from Ryzen, Radeon and EPYC products to drive year-over-year revenue growth.
However, sequential decline in revenues is anticipated on account of softness in semi-custom sales and seasonality.
Non-GAAP gross margin is anticipated to be 46%. Operating expenses are anticipated to be $580 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -7.25% due to these changes.
VGM Scores
Currently, Advanced Micro has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Advanced Micro has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Advanced Micro Devices, Inc. (AMD): Free Stock Analysis Report
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