The Six Five team dives into the latest AMD earnings report.
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Transcript:
Daniel Newman: What a quarter for Lisa Su and AMD.
Patrick Moorhead: Yeah, Lisa Su and the team keep getting us in the habit of beating, even though they’re looking at sometimes 40% growth, they just seem to keep beating. And they absolutely had it beat, they beat on EPS by 21%, beat on revenue by close to 7%. Think they were up 12%, the market rewarded their bullishness. But they had record revenue, net income, and EPS, and I think there was a lot of focus on this gross margin line. So this is the AMD gross margin since 2006, and you’ll see it’s been a few years since they got to 50%. Now part of this, even in 2018, was the fact that on gross margin basis, the consult businesses were lighter on gross margin but heavy on net, because they get paid NRE. So it’s going to be low gross margin but very high operating margin or net margin. So the market absolutely loved what they saw here.
And from a pricing standpoint, Ryzen and GPU ASPs were up. I’m not surprised, because with the limited availability, the company is moving wafers to higher margin products. They didn’t say that Epyc had increased ASPs, but when you’re selling processors for $2000 apiece, I know that’s different. What they did say about Epyc was that it was the seventh straight record quarter for revenue. And this would make sense. The company is very strong in the cloud, but they did mention some increasing strength in the enterprise. And this would make sense, because it takes about, I would say two years of soak time for any new processor to really become accepted in the enterprise. It was the same for Opteron when it first came out back in 2006. Now, back then it was a two socket and four socket world, and you would’ve been a fool not to buy Opteron, so there’s a little bit of a quicker uptake in enterprise. But given the competitive state of Epyc, I’m not surprised at that delay.
Had a strong guide, too. In fact, without Xilinx numbers, a 45% revenue increase for Q1, nearly 51% gross margin. That is just insane. I have to go before 2006, if NVIDIA ever hit that. And, quite frankly, they had a killer 2022 guide, 51% gross margin without Xilinx, increase of revenue of 31%, 31% versus the 45% we’ve seen. I see that as a sandbag, aka conservatism.
Daniel Newman: Yeah, the overall results from AMD were once again impressive. I think the number in focus, Pat, for me was the gross margin number and the expansion. There was a whole lot of speculation, especially after Intel’s results that, there was Intel’s results, which they obviously had some additional expense related to their process overhaul to 10 nanometer. But there was also TSM that had come out and basically said, “There’s going to be some price increases,” and when those are going to hit, it’s not exactly like, “Hey, we’re going to raise prices and right away we’re going to see those reflected into the numbers. So there was some wonder about how all these established companies would do with these higher prices, potentially impact the margins. And the answer is no. The answer is that AMD is continuing to hit volume, hit growth numbers. They’re expanding market share, I think we will see that in the next market data that comes out from Mercury, that they did gain some market share. The area that’s been really fire for the company has been in the Epyc, but really across the whole portfolio, there’s not really a part of it that you’re like, “God, that’s really going badly for them.”
They are showing strength and growth everywhere. They’re seeing significant revenue growth, they’re delivering much higher profit. And of course, in a inflationary environment where earnings are being compressed, to some extent the higher earnings are going to be necessary if they want to keep that share price nice and tidy and high, I think, over 120, which is where it is. It had fallen for a while when the whole market had fallen, I think their earnings absolutely re-invigorated their base of investors, pushed the price north, and showed that they know what they’re doing, they know how to run their business. And Pat, what you’re showing right now is their guidance, and their guidance is, they gave the full year. They’re expecting significant growth, they’re expecting to be able to control and maintain their high margins, their growing margins. So everything’s in the right place for the company, Pat, there really isn’t much in this particular report to be concerned about.
The one thing I will say as a macro topic is every semiconductor company seems to be more bullish than the overall market is. And semiconductors, as you and I love to say, eat the world, that the foundation of every software, every application, every gaming console, every TV, every automobile that gets purchased are a whole bunch of chips. So if chip companies are feeling good about their future, then the broader tech slate should also reflect positively, because at the foundation of all that technology are semiconductors. So good quarter, Lisa Su, AMD, congratulations.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
