AMD Q3 2017 Earnings: A Pleasant Surprise

Subject: Editorial | October 25, 2017 - 12:43 PM |
Tagged: Vega, Threadripper, sony, ryzen, Q3, microsoft, EPYC, earnings, amd, 2017

Expectations for AMD’s Q3 earnings were not exactly sky high, but they were trending towards the positive.  It seems that AMD exceeded those expectations.  The company announced revenue of $1.64 billion, up significantly from the expected $1.52 billion that was the consensus on The Street.

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The company also showed a $71 million (GAAP), $110 million (non-GAAP) net for the quarter, which is a 300% increase from a year ago.  The reasons for this strong quarter are pretty obvious.  Ryzen has been performing well on the desktop since its introduction last Spring and sales have been steady with a marked increase in ASPs.  The latest Vega GPUs are competitive in the marketplace, but it does not seem as though AMD has been able to provide as many of these products as they would like.  Add into that the coin mining effect on prices and stocks of these latest AMD graphics units.  Perhaps a bigger boost to the bottom line is the introduction of the Epyc and Threadripper CPUs to the mix.

Part of this good news is the bittersweet royalties from the console manufacturers.  Both Sony and Microsoft have refreshed their consoles in the past year, and Microsoft is about to release the new Xbox One X to consumers shortly.  This has provided a strong boost to AMD’s semi-custom business, but these boosts are also strongly seasonal.  The downside to this boost is of course when orders trail off and royalty checks take a severe beating.  Consoles have a longer ramp up due to system costs and integration as compared to standalone CPUs or video cards.  Microsoft and Sony ordered production of these new parts several quarters ago, so revenue from those royalties typically show up a quarter sooner than when actual product starts shipping.  So the lion’s share of royalties are paid up in Q3 so that there is adequate supply of consoles in the strong Q4/Holiday season.  Since Q1 of the next year is typically the softest quarter, the amount of parts ordered by Sony/Microsoft is slashed significantly to make sure that as much of the Holiday orders are sold and not left in inventory.

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Ryzen continues to be strong due to multiple factors.  It has competitive single and multi-core performance in a large variety of applications as compared to Intel’s latest.  It has a much smaller die size than previous AMD parts such as Bulldozer/Piledriver/Phenom II, so they can fit more chips on a wafer and thereby lower overall costs while maximizing margins.  Their product mix is very good from the Ryzen 3 to the Ryzen 7 parts, but is of course still missing the integrated graphics Ryzen parts that are expected either late this year or early next.  Overall Ryzen has made AMD far more competitive and the marketplace has rewarded the company.

Vega is in an interesting spot.  There have been many rumors about how the manufacturing costs of the chip (GPU and HBM) along with board implementations are actually being sold for a small loss.  I find that hard to believe, but my gut here does not feel like AMD is making good margins on the product either.  This could account for what is generally seen as lower than expected units in the market as well as correspondingly higher prices than expected.  The Vega products are competitive with NVIDIA’s 1070 and 1080 products, but in those products we are finally seeing them start to settle down closer to MSRP with adequate supplies available for purchase.  HBM is an interesting technology with some very acute advantages over standard GDDR-5/X.  However, it seems that both the cost and implementation of HBM at this point in time is still not competitive with having gone the more traditional route with memory.

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There is no doubt that AMD has done very well this quarter due to its wide variety of parts that are available to consumers.  The news is not all great though and AMD expects to see Q4 revenues down around 15%.  This is not exactly unexpected due to the seasonal nature of console sales and the resulting loss of royalties in what should be a strong quarter.  We can still expect AMD to ship plenty of Ryzen parts as well as Vega GPUs.  We can also surmise that we will see a limited impact of the integrated Ryzen/Vega APUs and any potential mobile parts based on those products as well.

 Q3 was a surprise for many, and a pleasant one at that.  While the drop in Q4 is not unexpected, it does sour a bit of the news that AMD has done so well.  The share price of AMD has taken a hit due to this news, but we will start to see a clearer picture of how AMD is competing in their core spaces as well as what kind of uptick we can expect from richer Epyc sales throughout the quarter.  Vega is still a big question for many, but Holiday season demand will likely keep those products limited and higher in price.

AMD’s outlook overall is quite positive and we can expect a refresh of Zen desktop parts sometime in 1H 2018 due to the introduction of GLOBALFOUNDRIES 12nm process which should give a clock and power uplift to the Zen design.  There should be a little bit of cleanup in the Zen design much as Piledriver was optimized from Bulldozer.  Add in the advantages of the new process and we should see AMD more adequately compete with Coffee Lake products from Intel which should be very common by then.

 

Source: AMD

October 25, 2017 | 01:40 PM - Posted by CNote

I bought a 1600 and 1500x, the 1500x ended up being sold to a 74 year old gamer, plus Im one of the idiots who bought a Vega64.

October 25, 2017 | 01:56 PM - Posted by Fasic (not verified)

So ryzen is bad? :(

October 25, 2017 | 02:45 PM - Posted by Power (not verified)

Yes, Ryzen is bad ... for Intel.

October 25, 2017 | 04:38 PM - Posted by CNote

Not at all, sold it on purpose since I'm a small time builder here in Humboldt County.

October 25, 2017 | 02:30 PM - Posted by Josh Walrath

So do you feel that you overpaid for Vega? Are you happy with it overall?

October 25, 2017 | 04:37 PM - Posted by CNote

Actually I'm not mad, I got it on eBay with the 2 games. Happy with it and my 4k freesync monitor. Doesn't get loud, my old 980 ti sounded like a jet trying to push 1440p/4k.
The R5 1600 is great and the only issue I've had was with the motherboard, ASRock x370 killer AC, not allowing for higher than 2966mhz Ram.

October 25, 2017 | 04:44 PM - Posted by Vega56OutOfTheAIBsBoxes (not verified)

If you are not needing Vega 64 for compute then Vega 56 is more of the better gaming focused SKU that has more excess compute removed while still retaining 64 ROPs and Vega 56 has the same number of ROP's than the GTX 1080. So getting the Vega 56 to clock higher will take it closer to the GTX 1080 in performance as Vega 56 has very good Texture/TMU fill rates(329.5 GTexel/s) even compared to the GTX 1080's(277.3 GTexel/s) fill rate.

Vega 56 represents more of an AMD gaming focused GPU SKU even though Vega 56 still has more shaders(3584) than the GTX 1080(2560). So Vega 56 has lower power usage than Vega 64 and when AMD can refresh it at 12nm or even get better bins at the current 14nm process then Vega's performance may supprise. The AIB/partners' Vega 56 variants will be the ones to look at with better dies and more overclocks relative to the refrence Vega 56 cards.

The coin mining tweaks are getting better results on Vega 64 so maybe you can sell the Vega 64 at no loss and get a Vega 56 instead if you are not going to need any compute workloads or non gaming graphics rendering workloads done. Non Gaming Graphics workloads where Vega 64's higher shader counts come in handy for non real time very heavy ray tracing workload acceleration on Blender 3D/Other graphics applications.

Vega 56 has more of a Nvidia type of reduced compute gaming only focused design of a gaming only GPU SKU with Vega 56 having some potential if its clocks where made higher in the firmware. Vega 56 is not really that far behind the GTX 1080 if you factor in the higher clocks that Nvidia offers out of the box so some Vega 56 AIB designs with tweaks will make Vega 56 perform better out of the box.

Then there is always that Vega/AMD Fine-Wine(TM) stuff that happens with drivers and games done up properly on DX12/Vulkan. And this time around there is even more New VEGA IP that has not even been fully utilized on Vega for gaming like rapid packed 16 bit math, the HBCC IP and larger texture sizes in gaming above 1080p like 4K and above, and primitive shaders usage in the gaming/gaming engine ecosystem that may bring Vega even more improvments than any past AMD GPU micro-archs.

I'm waiting for the black Friday Ryzen/Threadripper offerings and even now there are deals starting to appear from the retailers even without AMD's assitance. The miners have sure kept the Vega pricing on the high side, ditto for Polaris but the supply may just be catching up to demand for GPUs. Now it's just a question of Vega Nano, and Vega 11(to Replace Polaris) and any possible Vega 56/64 refreshes at 12nm also.

October 25, 2017 | 03:35 PM - Posted by FibsOfOmissionAreRampantWithRespectToAMD (not verified)

There where a lot of so called financial "Reporters' posting doom and gloom reports regarding AMD's stock prices and the internet reporting channels are relatively unregulated compared to the over the air FCC regulated TV stations of the past. So AMD's share price is being subject to a lot on manipulation and that just adds to AMD's stock volatility even with AMD showing revenue increases over more than enough business quarters. AMD still has not shaken off that investor skittishness as of yet and that's going to take more time as AMD's Epyc market share will be what really moves AMD's share prices higher. AMD already has contracts with 3 of the 7 big cloud services provides and online sales interests in on the Asian markets(Asian Amazon like intrests).

Most of the reporting on AMD is not mentioning AMD's Epyc deals with some very large cloud services customers/online sales Asian online internet customers. There really should be links to AMD's investor relation page and not AMD’s main page with the link leading to the full report that states more than is being reported by most technology news outlets. And part of the reason that AMD's stock price is down is that seasonal Q4 decline in the technology revenues across the entire market and AMD's not qualifying their statement regarding its Q4 revenue declines that always happen in Q4 and is related to consumer markets.

Once AMD's revenues focused around the Epyc/Pro GPUs have more business quarters of sales for the analysts to properly gauge AMD Enterprise market's stability/market share then AMD's stock can become more stable as the Epyc/Pro GPU sales will soon represent more than 50% of AMD’s total Revenues(even without including semi-custom or embedded on those figures).

Reporters mostly missed the fact that the first Epyc sales actually buffered AMD's semi-custom and embedded market declines mostly dew to the console business revenue volatility cycles that are always present in the console markets quarter to quarter. So Epyc sales actually helped offset a decline even though the total Enterprise/Semi-Custom/Embedded markets revenues where flat and are included together as a whole for revenue reporting on AMD’s quarterly balance sheets with the Enterprise revenue market figure not listed individually.

It's should be noted that AMD once had a share price of in the middle to lower 90 dollar range and that was on Opteron Enterprise sales mostly as is was before AMD acquired ATI. AMD’s this year Q4 revenue declines are still going represent a larger amount of total tevenue amount than Q4's of last years with the only decline for the upcoming Q4 revenue figures being relative to this years just reported Q3 revenues and that’s seasonally related. So AMD’s total revenues are still on the upswing as measured on the year to year revenue total growth figures.

AMD’s past is still in the minds of investors and that will take some time to work it’s way out of the overall investor mindset of investors who are mostly not very sophisticated in their thinking with regards to the stock markets and investment and corporate finances compared the few investors that are more knowledgeable and stay away from some of the more sensationalists web based stock reporting sites. So watch out for those under-reporting some very important information mentioned in AMD’s full quarterly reports and articles need to link to the full report and not just AMD’s main website.

P.S the link provided in this article is pointing to ARM and not AMD's investor relations page with the full report.

October 27, 2017 | 01:36 AM - Posted by supositorium (not verified)

I look at the dump right after Q3 and now this one, as two streched in time high-lows. The former down to 11 and now down to 12. It's a climb nevertheless amidst two hard blows, being the latter much harder.

I call them "blows" because of the timming they occurred.

knowing that the Q3 one was mostly the Dubai shareholder and also Global Foundries main player, it made strategic sense taking this step in assuring AMD remains one of its main customer by not having its own fab nor the capital for such. While in the meantime getting his payoff.

This one, we'll see.

I totally agree with you about the shares manipulation.

But hey! AMD is still making an *outstanding constant recovery* even ahead of some analysts expectations.

The set is up for profit hereon.

So, just two high-lows.

Bought stock then. Bought stock now, To hold.

October 25, 2017 | 06:17 PM - Posted by EpycAndVegaProAreThereWithBetterMargins (not verified)

"Vega is in an interesting spot. There have been many rumors about how the manufacturing costs of the chip (GPU and HBM) along with board implementations are actually being sold for a small loss. I find that hard to believe, but my gut here does not feel like AMD is making good margins on the product either. This could account for what is generally seen as lower than expected units in the market as well as correspondingly higher prices than expected."

Well the top binned Vega 10 dies are going into the Radeon Pro WX 9100 and Radeon Instinct MI25's and there are 20 Epyc 32 core CPU SKUs and 80 MI25 GPU SKUs in one Project 47 PetaFlop in a Rack supercomputer SKU. So depending on How many Vega 10 dies are sold in the professional GPU SKUs there will be plenty of higher margins on those Pro Vega sales even if AMD's margins are low on the consumer Vega Variants. So AMD's Professional Vega 10 die based SKUs sales are definitely producing sufficient margins for Vega Pro sales to allow for AMD to amortize Vega's development costs via professional markets while allowing AMD some pricing latitude with the Vega 10 lower binned dies and HBM2 on the consumer market Vega variants.

The HBM2 costs are more of an Samsung is the only supplier sort for the 8Hi HBM2 stacks and SK Hynix needs to get their product to market in larger numbers or SK Hynix will lose out to Samsung for any earily HBM2 sales.

This 15 page writeup(1) for the MarketRealist goes into great detail on both AMD's fundamentals as well as production issues with Vega [See section 6 titled "AMD’s Vega GPU Faced with Production Challenges"]. And AMD's fundamentals are sound if AMD's continues to capture more Epyc/Pro GPU sales and reduces its dependency on only the more fickle consumer markets as a major source of AMD's revenues.

The real potential revenue producer is with the professional markets for AMD, as in the past, and AMD can get the margins necessary to sustain that revenue growth that any consumer only revenue streams may not be able to support year on year and quarter to quarter. One needs only look at the AMD of the best Opteron server market years and see that AMD's stock price was never higher than when Opteron sales made up the majority of AMD's revenues. AMD now has a top end Vega GPU compute micro-arch to complement the Epyc CPU SKUs wherever heavy FP/Infrencing workloads are needed.

AMD Zen/Epyc CPU micro-arch does not necessarly need bigger AVX units as most of the server market workloads do not need heavy AVX and AMD can provide for more FP/infrencing with its Vega professional GPU compute/AI accelerator products for customers that need the FP/Infrencing workloads done.

(1)

"How Have AMD’s New Products Fared in the Market?
By Paige Tanner, Oct 3, 2017 3:00 am EDT "

http://marketrealist.com/2017/10/amd-relies-on-its-new-products-to-drive...

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