As Intel (INTC) – Get Report tumbles post-earnings for the second quarter in a row, AMD (AMD) – Get Report is trading higher again, leaving shares up 78% on the year and 160% over the last 12 months.
It’s safe to say that markets are counting on the CPU and GPU developer to once more top estimates and issue strong guidance when it reports on Tuesday. Currently, the consensus among analysts polled by FactSet is for AMD to post Q3 revenue of $2.56 billion (up 42% annually) and non-GAAP EPS of $0.35.
AMD’s Q4 revenue consensus stands at $2.62 billion (implies 23% annual growth), and its full-year revenue consensus stands at $8.9 billion (up 32%). In July, the company guided for 32% 2020 revenue growth, up from a prior outlook for 20% to 30% growth.
I’ll be live-blogging AMD’s earnings report, which typically arrives 15 minutes after the market closes, along with an earnings call scheduled for 5 P.M. Eastern Time. Here are some things for investors to watch.
1. Server CPU Sales
With the help of strong demand from Internet/cloud giants (the proverbial hyperscalers), AMD’s Epyc server CPU revenue more than doubled annually in Q2, leading the company to declare that it hit its goal of obtaining a double-digit server CPU share.
And though some hyperscalers appear to be digesting recent capacity additions right now, AMD forecast Epyc revenue would continue growing during the second half of 2020, aided by new OEM and cloud platform ramps for its second-gen Epyc CPUs (Rome) and initial shipments for its third-gen Epyc CPU line (Milan).
On Thursday, Intel reported an 11% annual drop in its Data Center Group’s (DCG) “Platform” revenue, which largely consists of server CPU sales, thanks to a major drop in enterprise/government sales and slower growth among cloud and telco clients. The company also signaled DCG’s revenue would be down annually by a double-digit percentage in Q4, thanks to continued enterprise/government demand weakness as well as cloud digestion.
While softer end-market demand and OEM inventory corrections are weighing on DCG’s sales right now, AMD’s share gains also appear to be a headwind, particularly in the cloud and high-performance computing (HPC) server markets.
2. PC CPU Sales — Particularly for Notebook CPUs
Contributing to the Q2 revenue beat AMD posted in July: Notebook processor sales more than doubled annually, aided by strong consumer notebook demand and a major production ramp for PCs relying on AMD’s Ryzen Mobile 4000 processors, which launched in early 2020.
All signs suggest notebook demand within hasn’t cooled much (if at all) since then. Intel’s PC CPU division reported a 16% Q3 annual increase in notebook-related revenue — and a 25% notebook processor volume increase — as consumer/education purchases remained strong.
Intel also reported a 16% annual drop in desktop-related revenue amid weak corporate desktop demand. However, AMD’s desktop CPU business, which grew annually by an unspecified amount in Q2, might be in better shape, given share gains, a greater skew towards the consumer desktop market and the pending launch of its Ryzen 5000 desktop CPU line, which like Milan relies on AMD’s new Zen 3 CPU core microarchitecture.
3. The Game Console Processor Ramp
Sony and Microsoft’s next-gen game consoles — all of which are powered by AMD processors featuring 8-core CPUs and integrated GPUs — officially launch in November. And (at a time when gaming-related spending has spiked thanks to COVID-19) pre-order activity points to strong initial demand for the hardware.
Not surprisingly, AMD signaled in July that it expects strong sequential growth in Q3 for its “semi-custom” revenue, which is dominated by console processor shipments. The company also forecast that (in line with seasonality) semi-custom revenue would be down sequentially in Q4, but less than usual.
4. Gaming GPU Demand
Q2 was mixed for AMD’s GPU business: Notebook GPU sales rose annually, but desktop and server GPU sales fell. However, CEO Lisa Su did indicate channel sell-through for desktop GPUs was healthy, and forecast that server GPU demand would improve in the second half of 2020 as cloud design wins ramp and AMD begins shipping the first server GPU based on its new CDNA architecture.
On Wednesday, AMD is hosting an event to unveil the first products for its RX 6000 gaming GPU line, which will rely on a new architecture known as RDNA 2. Ahead of the launch, Nvidia (NVDA) – Get Report has been seeing very strong demand for the first gaming GPUs based on its new Ampere architecture.
5. Potential Chip Supply Constraints
AMD foundry partner Taiwan Semiconductor (TSM) – Get Report continues seeing very strong demand from a slew of major end-markets. And that in turn has often spelled stretched lead times for wafer orders involving advanced TSMC manufacturing processes.
On AMD’s Q2 call, Su admitted that supplies of 7-nanometer (7nm) wafers — now used to make most of AMD’s CPUs and GPUs, including all of its most advanced offerings — are tight, and that AMD is upping its capacity to meet higher customer demand. The company could get a question or two on the call about what the 7nm supply situation currently looks like — TSMC’s aggressive capital spending and the fact that Apple’s A14 Bionic SoC (used within the iPhone 12 line) uses TSMC’s new 5nm process might have opened up some additional 7nm capacity for AMD.
6. Any Xilinx Commentary
As many readers probably know, AMD was reported two weeks ago to be in “advanced talks” to acquire leading FPGA developer Xilinx (XLNX) – Get Report in a potential $30 billion-plus deal. Xilinx’s data center product line complements AMD’s, and the company’s large footprint in end-markets such as mobile infrastructure, automotive and embedded computing could help open up new opportunities for AMD’s existing product lines and IP.
Xilinx pre-emptively said on its earnings call that it won’t comment about any M&A rumors, and it’s possible that AMD does something similar. But if AMD is willing to comment on the reports, it’s certainly worth paying attention.