With an earnings beat, why AMD stock dropped?
$Advanced Micro Devices(AMD.US$ stock was flat in extended trading after the company announced revenue and earnings that beat Wall Street’s already high expectations for the chipmaker. One highlight was AMD’s embedded segment for server CPUs and game console chips which was up 176% year-over-year to $1.28 billion. AMD revenue was up 45% in 2020, and the company said it expects 37% revenue growth in 2021. Come and see what happened in the Q4 2020 earnings call! ![]()
This article is a script from the Q&A session of AMD's earnings call on January 26. In order to facilitate reading, we have made appropriate cuts. If you want to know more details, you can click the link provided by @moo_Live below to re-watch the earnings call.
Q: Could you characterize the magnitude of supply constraints AMD is facing, and could they be hindering growth? Does the guidance for FY2021 incorporate increasing supply and assumption of better supply?
A: As we look at the environment in 2020, it was strong. That led to a strong revenue ramp in our business, as well as the businesses of our peers. For AMD, the demand exceeded our planning, and as a result we did have supply constraints as we ended the year. This was mostly confined to our PC market offerings, particularly the low end of both PC and gaming. As it pertains to our manufacturing partners, we're getting great support from them, especially as the industry needs to increase capacity. But we have added capacity, with more coming online through 2021 into the second half. How we think about it all, with respect to our full year 2021 guidance, is that we have good visibility into both our supply side and the expected demand side, that's the reason we are confident in our guidance.
A: As we look at the environment in 2020, it was strong. That led to a strong revenue ramp in our business, as well as the businesses of our peers. For AMD, the demand exceeded our planning, and as a result we did have supply constraints as we ended the year. This was mostly confined to our PC market offerings, particularly the low end of both PC and gaming. As it pertains to our manufacturing partners, we're getting great support from them, especially as the industry needs to increase capacity. But we have added capacity, with more coming online through 2021 into the second half. How we think about it all, with respect to our full year 2021 guidance, is that we have good visibility into both our supply side and the expected demand side, that's the reason we are confident in our guidance.
Q: Can you help us dissect the Q1 and 2021 outlook, particularly with and without the semi-custom business? Can you explain the moving drivers?
A: In Q1, we do expect to see the PC market and console business to be a bit better than seasonal. Normally consoles would be seasonally down double digits, and we expect consoles to be modestly down, but still higher than what is seasonally normal. We expect to see a sequential QoQ increase in the server business and graphics as we ramp products there. As we go into 2021, we're in a place where we have 3 businesses that scale. Our FY2021 guidance encompasses growth in all three - PC, DC, and Gaming. This is due to the visibility we have on these platforms into launches and the strength of our portfolio. We see lots of demand across all three segments, and well balanced demand between the three. We also expect to see growth in consumer graphics and datacenter graphics due to new products and deployments as well.
A: In Q1, we do expect to see the PC market and console business to be a bit better than seasonal. Normally consoles would be seasonally down double digits, and we expect consoles to be modestly down, but still higher than what is seasonally normal. We expect to see a sequential QoQ increase in the server business and graphics as we ramp products there. As we go into 2021, we're in a place where we have 3 businesses that scale. Our FY2021 guidance encompasses growth in all three - PC, DC, and Gaming. This is due to the visibility we have on these platforms into launches and the strength of our portfolio. We see lots of demand across all three segments, and well balanced demand between the three. We also expect to see growth in consumer graphics and datacenter graphics due to new products and deployments as well.
Q: Could you address the demand environment you are seeing from cloud and HPC customers? With Intel on the same manufacturing node, how that will play a role to your decision making for customers? What's your ability, confidence, and visibility to take market share in this over CPU business?
A: Near term, cloud is a period for us that is seeing strong demand. Those are good signals for us. We've already seen what Zen 3 can do in the desktop and notebook markets, and it builds upon what we did in Rome. With the manufacturing process, while it is one aspect of competitiveness, we've also focused on overall performance and system performance both in cloud and enterprise. Milan is the most balanced product we have both for enterprise applications as well as cloud applications. For visibility, we have better visibility this year than we've had in past years. This is our 3rd gen EPYC, and we’ve developed deeper customer relationships - lots of decisions have already made by our customers during the testing our products.
A: Near term, cloud is a period for us that is seeing strong demand. Those are good signals for us. We've already seen what Zen 3 can do in the desktop and notebook markets, and it builds upon what we did in Rome. With the manufacturing process, while it is one aspect of competitiveness, we've also focused on overall performance and system performance both in cloud and enterprise. Milan is the most balanced product we have both for enterprise applications as well as cloud applications. For visibility, we have better visibility this year than we've had in past years. This is our 3rd gen EPYC, and we’ve developed deeper customer relationships - lots of decisions have already made by our customers during the testing our products.
Q: How is that spend profile transferring into growth over the next couple of years? Earlier this year AMD was guiding 20% growth through to 2023, but with +45% last year and AMD guiding +37% this year, is 20% still the right number to consider?
A: This is a great time to invest in the business. AMD’s model has been to continually investment, but at a rate slower than revenue growth in order to get leverage in our model. Our actual spend of OpEx has decreased as a percentage of revenue, but actual dollar amounts have gone up as revenue has increased and as we build out. AMD has a strong spend on R&D, on expanding product portfolio, and we have leaned hard on our CPU and GPU expertise. We have our GPU split out into gaming and compute, so we have competitive offerings in both, for example. We have more investment going forward in system IP to link the CPU and GPU, as well as software, and investments going into the market. We're becoming a company of scale, and that helps ensure we have breadth and depth of roadmap and customer support for long term objectives.
A: This is a great time to invest in the business. AMD’s model has been to continually investment, but at a rate slower than revenue growth in order to get leverage in our model. Our actual spend of OpEx has decreased as a percentage of revenue, but actual dollar amounts have gone up as revenue has increased and as we build out. AMD has a strong spend on R&D, on expanding product portfolio, and we have leaned hard on our CPU and GPU expertise. We have our GPU split out into gaming and compute, so we have competitive offerings in both, for example. We have more investment going forward in system IP to link the CPU and GPU, as well as software, and investments going into the market. We're becoming a company of scale, and that helps ensure we have breadth and depth of roadmap and customer support for long term objectives.
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