AMD Earnings: What to Look For From AMD

Advanced Micro Devices Inc. (AMD), like other semiconductor companies, has seen a surge in demand for its products. The boom is driven partly by greater demand for data storage and processing triggered by the pandemic-induced acceleration of remote work and study. But it’s also due to the rapidly expanding volume of consumer products, such as automobiles, which are built with chips embedded in them. The inability of chip companies to ramp up supply fast enough to meet that demand has helped to create a global semiconductor shortage.

Investors will be watching closely to see if AMD can maintain its strong financial performance when the company reports earnings on Feb. 1, 2021 for Q4 FY 2021. Analysts expect AMD’s adjusted earnings per share (EPS) to rise, but at its slowest pace in nine quarters. Revenue is also expected to rise, but at its slowest pace in six quarters.

Investors will also be focusing on AMD’s revenue from its Enterprise, Embedded and Semi-Custom segment, one of the company’s two primary business segments. The segment—which includes server and embedded processors rather than processors for desktops and laptops—has been growing rapidly over the past year. Analysts expect another quarter of robust growth, but at a slower pace compared to recent quarters.

Amid the semiconductor boom, AMD has been looking for ways to expand. The company announced in October 2020 an agreement to acquire semiconductor company Xilinx Inc. The deal was recently approved by Chinese regulators. AMD is still waiting for clearance from the U.S. government, but expects the deal to close sometime in the current first quarter.

Shares of AMD have outperformed the broader market over the past year. The stock lagged the market between mid-February 2021 and late July 2021. It surged after its Q2 FY 2021 earnings report in late July, and has essentially outpaced the market ever since. The stock rose rapidly beginning in early October, but has since given back most of those gains. AMD’s shares have provided a total return of 20.3% over the past year, above the S&P 500’s total return of 17.0%.

AMD Earnings History

AMD reported Q3 FY 2021 earnings results that beat analysts’ expectations. The company’s adjusted EPS rose 78.2% compared to the year-ago quarter, a fast pace but slower than the two previous quarters. Revenue grew 54.0% year over year (YOY), its slowest pace since the final quarter of FY 2020. The company said that its data center sales more than doubled on a YOY basis in the third quarter.

In Q2 FY 2021, AMD’s earnings and revenue surpassed consensus estimates. Adjusted EPS increased 258.7% YOY, marking its fastest rise since the final quarter of FY 2019. Revenue grew 99.3% compared to the year-ago quarter, its fastest pace out of any quarter in at least the past three years. During the quarter, AMD announced a $4 billion share repurchase program and purchased 3.2 million shares of common stock for $256 million.

Analysts expect both earnings and revenue to grow at a healthy pace in Q4 FY 2021, but much slower than in recent quarters. Adjusted EPS is expected to rise 46.6% YOY, its slowest pace since the third quarter of FY 2019. Revenue is forecast to rise 39.6% YOY, its slowest since the second quarter of FY 2020. For full-year FY 2021, analysts expect adjusted EPS to rise 106.4%, which would be the fastest pace since FY 2018. Annual revenue is forecast to grow 65.3%, its fastest pace in at least five years.

^{Source: Visible Alpha}

The Key Metric

As mentioned above, investors will also be focused on the amount of revenue generated by AMD’s Enterprise, Embedded and Semi-Custom segment. The segment encompasses server and embedded processors, semi-custom System-on-Chip (SoC) products, development services, and game console technology. It does not include AMD’s desktop and notebook microprocessors, which are included in the company’s Computing and Graphics segment. The Enterprise, Embedded and Semi-Custom segment is the smaller of the company’s two main segments, generating a little over a third of companywide revenue in FY 2020. However, it has been growing much faster than the Computing and Graphics segment as processing chips are being embedded in more and more products.

Demand for the types of chips AMD’s Enterprise, Embedded and Semi-Custom segment offers have risen sharply, especially since the start of the pandemic. Data centers saw increased online traffic from people working and studying from home, causing a need for greater server capacity. People also increased their consumption of video games as a form of entertainment during the pandemic. Supply has not been able to increase as fast as demand, triggering a global semiconductor shortage. Microsoft’s recent announcement to acquire popular video game company Activision Blizzard could also create additional demand for AMD’s chips used in Xbox consoles, which are likely to become a hot item if Microsoft adds Activision Blizzard’s games to its Xbox video game subscription service.

After revenue sank 14.0% in FY 2019, AMD’s Enterprise, Embedded and Semi-Custom segment posted revenue growth of 64.7% in FY 2020 amid the onset and continuation of the pandemic. All of that growth came in the second half of the year, as revenue declined in both of the first two quarters. In Q3, revenue for the segment increased 116.0% YOY, which then accelerated to a pace of 176.1% YOY in Q4. The acceleration continued into FY 2021, as the segment’s revenue rose 286.5% YOY in Q1. That was the peak as growth has been decelerating ever since, rising 183.2% YOY in the second quarter and 68.9% YOY in the third. Analysts expect revenue for the Enterprise, Embedded and Semi-Custom segment to expand 63.7% YOY in Q4 FY 2021, a robust growth rate but, nonetheless, continuing the slowing trend. For full-year FY 2021, analysts expect the segment’s revenue to rise 109.1%, which would be the fastest pace in at least five years.