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Today AMD announced their latest financial results for Q1 2018. We expected it to be a good quarter with their guidance earlier this year, but I doubt many thought it would be as strong as it turned out to be. AMD posted revenue of $1.65 billion with a net income of $81 million. This is up from the expected $1.57 billion that analysts expected from what is typically a slow quarter. This is up 40% from Q1 2017 and its $1.18 billion and up 23% from Q4 2017. There are multiple reasons behind this revenue growth. The compute and graphics segment lead the way with $1.12B of revenue. The entire year of 2017 AMD had released parts seemingly nonstop since March and the introduction of Ryzen. Q1 continued this trend with the release of the first Ryzen APUs with Vega Graphics introducing the 2000 series. AMD also ramped up production of the newly released Zen+ Ryzen chips and started shipping those out to retailers and partners alike. Initial mobile Ryzen parts were also introduced and shipped with SKUs being also shipped to partners who have yet to announce and release products based on these chips. Finally the strength of the Radeon graphics chips in both gaming and blockchain applications allowed them a tremendous amount of sellthrough throughout 2017 and into 2018. AMD estimates that 10% of the quarter was due to blockchain demand. Enterprise, Embedded, and Semi-Custom had a revenue of $532 million, which is lower than most analysts expected. Semi-Custom in particular has seen a decline over the past few quarters with the release and saturation of the market of the latest console platforms utilizing AMD designed chips. It appears as though much of the contract is front loaded in terms of revenue with royalties tapering off over time as sales decrease. AMD did have some significant wins, namely providing Intel with Vega based GPUs to be integrated with Intel’s Kaby Lake-G based units. These declines were offset by the shipment of EPYC based processors that are slowly ramping and being shipped to partners to be integrated into server platforms later this year. We have seen a handful of wins from companies like Dell EMC, but AMD is still slowly re-entering the market that they were forced to abandon with their previous, outdated Opteron products. AMD expects to reach mid-single digit marketshare during 2019, but for now they are just getting off the ground with this platform. The company is not standing still or resting on their laurels after the successful and heralded launch of the latest Ryzen 2000 series chips based on the Zen+ architecture. It is aggressively ramping their mobile chips featuring the Zen/Vega combination and have some 25 product wins being released throughout late spring and summer. Overall partners have some 60 products either shipping or will ship later this year featuring Ryzen based CPUs. There is some fear that AMD will see its GPU sales throughput be impacted by the recent drop of cryptocurrency value. Several years back with the Bitcoin crash we saw a tremendous amount of secondhand product being sold and GPU revenues for the company tanked. AMD is a bit more optimistic about the upcoming quarter as they expect the current cryptocurrency/blockchain market is much more robust and people will be holding onto these cards to mine other products/workloads rather than drop them on eBay. My thought here is that we will see a rise in cards available on the secondary/used market, but quite a bit might be offset by latent gaming demand that has been held back due the outrageous prices of GPUs over the past year. People that have been waiting for prices to get back to MSRP or below will then buy. This could be further enhanced if memory prices start to drop, providing more affordable DDR4 and flash for SSDs. The company is also forging ahead with advanced process technology. They have recently received silicon back from TSMC’s 7nm process and it looks to be a Vega based product. The rumor surrounding this is that it will be more of a compute platform initially rather than gaming oriented. Later this year AMD expects to receive new EPYC silicon, but it looks as though this will be from GLOBALFOUNDRIES 7nm process. AMD wants to be flexible in terms of manufacturing, but they have a long history with GLOBALFOUNDRIES when it comes to CPU production. The two companies work closely together to make sure the process and CPU design match up as cleanly as possible to allow products such as Zen to reach market successfully. The GPU arm is obviously more flexible here as they have a history with multiple foundry partners throughout the past two decades. AMD has set an aggressive, but achievable, timetable of product releases that is initially focusing on the CPU side but would logically be transitioning to the GPU side. Zen+ is out on time and has met with acclaim from consumers and reviewers alike. The latest GPU products are comparable in performance to what NVIDIA has to offer, though they are less power efficient for that level of performance. The “pipecleaner” Vega on 7nm will pave the way towards Navi based products that look to be introduced next year. AMD could possibly refresh Vega on 12nm, but so far there has been no concrete information that such a product exists. They may very well continue to rely on current Polaris and Vega products throughout the rest of this year while focusing on Navi efforts to have a more competitive part come 2019. Q2 2018 looks to be another successful quarter for AMD. The company’s outlook calls for revenue in the $1.725 billion range, plus or minus $50 million. AMD expects continued growth in all Ryzen product lines and greater throughput of EPYC based products as companies test and release products based on that platform. The GPU market could remain flat, but will most likely decline. That decline will be more than covered by the sell-through of the Ryzen line from top to bottom. AMD improved their margin by an impressive 4%. Going from 32% to 36% showed the strength and higher ASPs of both CPU and GPU products. AMD expects another 1% increase over the next quarter. While these are good numbers for AMD, they do not match the 58%+ for NVIDIA and Intel when it comes to their margins. AMD certainly has a lot of room for improvement, and a richer product stack will allow them to achieve greater ASPs and see a rise in their overall margins.
