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AMD Stock Jumps 10% After Meeting Earnings Expectations

AMD recorded Q4 2018 GAAP revenue of $1.42 billion (analysts were expecting $1.44 billion), net income of $38 million and operating income of $28 million. Diluted earnings per share (EPS) came in at $0.04. During the same quarter in 2017, AMD reported revenue of $1.34 billion, a net loss of 19 million and operating loss of $2 million. Likewise, there was a loss per share of $0.02.

It should be pointed out that revenue was down sequentially in Q4 by 14 percent ($1.42 billion versus $1.65 billion). However, AMD says that $125 million of the revenue that it booked for Q3 came from IP-related transactions.

Dr. Lisa Su, AMD president and CEO said:

“In 2018 we delivered our second straight year of significant revenue growth, market share gains, expanded gross margin and improved profitability based on our high-performance products. Importantly, we more than doubled our EPYC processor shipments sequentially and delivered record GPU datacenter revenue in the quarter.

Despite near-term graphics headwinds, 2019 is shaping up to be another exciting year driven by the launch of our broadest and most competitive product portfolio ever with our next-generation 7nm Ryzen, Radeon, and EPYC products.”

Looking towards Q1 2019, gross margins are expecting to rise to 41 percent and AMD is expecting revenue of $1.25 billion, whereas anaysts were expecting around $1.47 billion. AMD explains this discrepancy, writing:

“The sequential decrease is expected to be primarily driven by continued softness in the graphics channel and seasonality across the business. The year-over-year decrease is expected to be primarily driven by lower graphics sales due to excess channel inventory, the absence of blockchain-related GPU revenue and lower memory sales.

In addition, semi-custom revenue is expected to be lower year-over-year while Ryzen, EPYC and Radeon datacenter GPU product sales are expected to increase.”

Ahead of the results, shares had plunged 5% on Tuesday — one day after rival Nvidia warned that conditions in China had led to an “extraordinary, unusually turbulent” quarter. The chipmaker cut its revenue guidance for the fourth quarter to roughly $2.2 billion, down from about $2.7 billion.

Semiconductor companies are heavily exposed to the Chinese market and are often looked to as a proxy for the overall health of the global economy. The Philadelphia Semiconductor Index (^SOX) has tumbled 15% from its March 13, 2018 high, while AMD has tanked 45% from the high it hit on September 13, 2018.

However, shares of AMD jumped as much as 10 percent in after hours trade following earnings results.

And one Wall Street analyst thought the warning from Nvidia could indicate an earnings miss for AMD. Susquehanna International Group analyst Christoper Rolland wrote:

“While the other shoe has dropped at NVIDIA, we think AMD is further behind in working through its GPU inventory issues. For AMD, we note evidence of continuing retail price declines suggesting its graphics card channel has yet to clear.

Additionally, we note Street expectations for Computing and Graphics in 1Q19 of +3% that are well above typical seasonality (we would not be surprised to see a mid-single digit decline or even worse here). With the additional negative commentary describing a deteriorating macro picture and Chinese gaming at NVIDIA, we continue to believe that AMD is at significant risk of a miss in 4Q18/1Q19.”

It’s important to note that AMD’s portfolio strength is a key catalyst. The company recently unveiled its new Radeon RX 590 graphics card. Notably, AMD also presented its new Radeon Software Adrenalin 2019 Edition. This updated version will feature the WattMan technology and be based on the AMD Radeon Graphics Processing Units (GPUs). This card is ideal for gamers who require superior graphic performance and high-quality visual experiences.

Going forward, AMD launched the much-awaited next generation 7-nanometer (nm) Radeon Vega GPU, AMD Radeon VII.

These launches are likely to provide AMD an edge against the likes of Nvidia and Intel. With these cards, AMD is foraying into the high-end graphics card market. Consequently, AMD’s revenues are poised to benefit significantly if the latest GPU can cater to the rising demand of the users.

The Radeon RX580 GPU has been a popular option for crypto miners and was originally brought to the inventory at AMD for $550 in February. However, it has now been lowered by 67%, bringing it down to $180.

“Following a messy Q3 that saw a material impact from near-term GPU channel sell-in challenges, we believe inventory impacts could linger to start the year, and model Q1 2019 slightly below consensus,” said Matthew Ramsay, Cohen analyst.

AMD Stock Jumps 10% After Meeting Earnings Expectations

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