AMD’s Q4 2018 Results Show a Strong Finish, Despite Crypto Hangover

AMD announced its Q4 2018 results earlier this week, and the data was fairly positive for the company. Revenue was up 6 percent, quarter-on-quarter, to $1.42B. For the year, AMD recorded revenue of $6.48B, up 23 percent from the same period a year ago. Client CPU shipments grew more than 50 percent compared with a year ago, with the highest CPU revenue in more than four years. AMD believes it gained market share for the fifth straight quarter, though data isn’t available yet to confirm or deny that hypothesis.

There’s been discussion as to whether AMD managed to hit its mid-single-digit target for Epyc market share by the end of 2018. According to AMD CEO Lisa Su:

Fourth quarter server unit shipments more than doubled sequentially based on growing demand for our highest end 32 core EPYC processors with cloud, HPC and virtualized enterprise customers. As a result, we believe we achieved our goal of mid-single-digit server unit share exiting 2018.

Gross margin for the year was 38 percent, up from 34 percent a year earlier. Lisa Su noted that 65 percent of AMD revenue came from new products, while Devinder Kumar stated that in the Computing & Graphics segment (consumer CPUs and GPUs), Ryzen accounted for more than 80 percent of client revenue in this segment.

Graphics sales fell sharply, due to the ongoing crypto hangover and the associated inventory glut. Both NV and AMD indicated this would be an issue in Q4 2018, and both firms are currently working through the inventory issues the crypto collapse created. Devinder does note that “Total Graphics revenue grew sequentially, driven by strong Radeon datacenter GPU sales.”

AMD’s server unit growth was somewhat offset by the decline in semicustom revenue. Given that we’re now in the seventh year of the current console cycle, and that AMD’s revenue from SoC sales to Microsoft and Sony was purposefully front-loaded, it’s not surprising to see the company holding relatively flat. Q3 has always been the largest quarter for console sales, not Q4.

AMD reported $451M in yearly operating income, making this the most profitable year for the company in the past seven years. Net income was $337M, an increase of $370M over 2017. Client CPU average selling prices were up year-on-year, as were GPU ASPs. Increasing Ryzen penetration into the CPU market accounted for the first improvement, while datacenter GPU sales filled in the second.

AMD has also announced a new WSA agreement with GlobalFoundries. Not many details were announced, but the company announced a purchase agreement for 12nm and above products that will run through 2021. The company notes: “The amendment provides AMD full flexibility for wafer purchases from any foundry at the 7nm node and beyond without any one-time payments or royalties.”

In other words, AMD isn’t going to get stuck paying a massive penalty to build products at a foundry other than GF.

AMD expects Q1 2019 revenue to be ~1.25B. That’s down 12 percent compared with Q4 (seasonality explains this) and 24 percent from the previous year. According to AMD, that’s mostly crypto-related. We saw this in Q3 as well, where the decline in the crypto market largely masked improvements in AMD’s Epyc and Ryzen shipments.

For the full year 2019, AMD expects high single-digit percentage revenue growth, driven by Ryzen, Epyc, and Radeon data center launches. Navi wasn’t particularly mentioned on the call, beyond a “coming later this year” nod.

Overall, this was a strong quarter and a good finish for 2018. The company ended the year firmly in the black. Its winning partners in enterprise segments and expanding its reach in the consumer market. None of the semiconductor companies are forecasting huge upside in 2019 at the moment — there’s too much concern about a potential recession — but AMD clearly believes its well-positioned for the year ahead.

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