Ryzen Roars: AMD Posts Best Quarterly Revenue Since 2005

AMD reported revenue of $1.8B, up 9 percent quarter-on-quarter and 18 percent year-on-year, with a gross margin of 43 percent, up 3 percentage points. While AMD’s margins still lag Intel’s significantly, a three percentage point improvement in one quarter is significant. It’s AMD’s highest gross margin since 2012 and its highest quarterly revenue since 2005. Even more impressive, it hit that revenue record despite declining profits in the Enterprise, Embedded, and Semicustom business.

The decline in EESC isn’t surprising. Even as 7nm Epyc maneuvers for the runway, the PS4 and Xbox One are both seeing declining sales. The last year of a console’s life is always the roughest, and AMD will take a hit for that through the end of 2019 and into the first half of 2020. Six years ago, when it announced the terms of its console deals, AMD also told us that the deals were front-loaded, paying the highest profits early in the cycle and lower rates as it drew to a close. This explains some of the decline in earnings in EESC as well. Epyc’s momentum is ramping, but AMD doesn’t have much server market share yet.

Other encouraging trends include higher average selling prices (ASPs) driven by higher Ryzen desktop sales and strong demand for AMD’s top-end Ryzen products. Revenue grew 36 percent year-on-year and quarter-on-quarter, which is an exceptional overall growth trajectory. According to AMD, Epyc processor revenue and unit shipments grew more than 50 percent sequentially. AMD CEO Lisa Su said:

We expect server revenue to grow sequentially by a strong double-digit percentage in the fourth quarter, as we continue ramping our second-generation EPYC processors. We remain on track to achieve our near-term goal of double-digit server CPU share by mid next year.

AMD expects to break $2B in revenue in Q4 2019, “an increase of 48 percent year-over-year and 17 percent sequentially.” This is despite the fact that semicustom is expected to continue to decline. In retrospect, AMD couldn’t have hoped for better timing as regards its server business. From 2012 to 2017, the PS4 and Xbox One basically kept AMD alive, injecting billions in revenue at a time when the company desperately needed it. Now, as the PS4 and Xbox One wind down, Epyc is already winding up, taking some of the sting out of that inevitable sales cycle. By the time the PS5 and Xbox Next launch in 2020, Epyc will be firing on all thrusters.

It’s clear that EESC will be the segment to watch 12 months from now. The combined impact of two console launches and improved server sales should drive significant revenue improvements in this segment. Intel’s own Q3 2019 was record-breaking, but both companies are openly acknowledging that the space between them is much more competitive than it used to be. But this is what the restoration of competition promised between the two companies, and it’s what we’re seeing today. AMD’s fortunes are improving. It’s paying down long term debt and improving its own net cash position. Long-term debt has fallen from $1.7B in Q4 2017 to roughly $1.1B today.

All in all, an excellent quarter.

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