AMD Earnings Review: Strong Polaris GPU Sales Drives AMD’s Top-Line In Q3’16

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Advanced Micro Devices

AMD (NYSE:AMD) announced its Q3 2016 earnings after market close on Thursday, October 20th 2016. Driven by higher GPU sales, record semi-custom SoC sales and higher mobile APU sales, the company saw its Q3’16 revenue increase by 23% on a year-over-year basis and 27% quarter to quarter. However, AMD’s gross margins significantly declined from 31% in Q2 to 5% in Q3. This was due to a $340 million charge incurred by the company with respect to a five year amendment of its wafer supply agreement with Global Foundries. Nevertheless, the company’s Non-GAAP gross margins remained at 31%.

Furthermore, AMD’s debt declined by $606 million and cash position improved by $101 million in Q3, as the company executed concurrent public offerings of its common stock and convertible senior notes during the quarter. Going forward, this should help the company reduce interest expense payments, and support the investments required for growing its business. The company is already reaping the benefits of the launch of its GPUs based on the 14 nanometer Polaris architecture, which has resulted in higher sales. Going forward, AMD should gain further with the launch of CPUs based on the Zen architecture.

In the table below, we note the key metrics as reported by the company in Q3’16:

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Source: Sec filings

Segment Wise Performance Review:

Computing And Graphics Segment:

  • AMD’s revenue from this segment increased by 9% sequentially and 11% on a year over year basis, primarily because of higher GPU sales, partially offset by lower client desktop processor sales.
  • During the quarter, the company saw some key design wins for its Raedon RX GPUs, which are based on the Polaris architecture, with HP and Alienware. This has likely contributed to incremental revenues for AMD in this segment.
  • Further, AMD’s Polaris GPUs that support virtual reality achieved a meaningful milestone during the quarter, when Oculus announced a limited edition Oculus-ready PC, which will be powered by an AMD FX processor and Radeon RX 470 GPU. This is expected to bring down the cost of a VR ready system to approximately $500 for the first time.
  • Moreover, the company has recently announced a collaboration with Alibaba for deployment of its Raedon PRO server GPUs. This should help AMD compete with Nvidia in the data-center space. It should also be noted that design wins in the data-center space could be margin accretive for the company, and could help improve its bottom-line going forward.
  • However, the segment continued to be at an operating loss for AMD. Nevertheless, the loss was much lower than what the company registered in a year ago period.
  • Going forward, the company believes that with the launch of its Zen based CPUs, it will have a very competitive product offering in the large desktop processor market.

Embedded And Semi-Custom Segment:

  • The company’s revenues from this segment increased by 31% on a year over year basis and 41% sequentially.
  • A design win in the Sony Playstation 4 Pro and updating of FinFet based products on the Xbox One S and Playstation 4, have contributed to the incremental revenues for AMD in this segment.
  • Additionally, the uptick in AMD’s semi-custom processor sales in the quarter likely resulted from the build-up of inventory by game console companies in order to support a higher demand for game consoles during the holiday season.
  • Further, the company’s revenue in this segment also included a $24 million gain from licensing revenues.

All Others Segment:

  • The company attributed the charge incurred from the amendment of its wafer supply agreement with Global Foundries to this segment, resulting in a segment operating loss of $363 million.

See our complete analysis for AMD here

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