AMD has benefited from the Covid-19 pandemic, due to increased sales of gaming consoles and rising data center demand. This is evident from its Q3 2021 earnings, where net sales came in at $4.31 billion, a strong jump from Q3 2020, where revenues stood at $2.8 billion. Operating income jumped more than 2x to $948 million. Despite a higher effective tax rate, net income too, jumped more than 2x, from $390 million to $923 million, driving EPS from $0.33 to $0.76.
Below are key drivers of AMD's value that present opportunities for upside or downside to the current Trefis price estimate for AMD:
For additional details, select a driver above or select a division from the interactive Trefis split for AMD at the top of the page.
AMD manufactures and markets microprocessors used in servers, desktop PCs, and notebook PCs. Microprocessors are a PC's Central Processing Unit (CPU) or the "brain" behind the computer. A microprocessor is the single most important component that drives computer power and performance. Additionally, AMD manufactures Graphics Processor Units (GPUs), which are used in PCs to process information for graphics displays. AMD sells its processors primarily to PC manufacturers such as Dell, HP, Sony, and Toshiba.
AMD also manufacturers embedded processors used in products that require high-to-moderate levels of performance, where key features include low cost, mobility, low power, and small form factor. The company also makes System-on-Chip (SoC) products and technology for game consoles.
We believe that 'Enterprise, Embedded and Semi-Custom', and Computing & Graphics divisions are the two key segments within AMD for the following reasons:
In order to reduce its exposure to the declining traditional PC market, AMD intends to derive an increasing proportion of its revenue from high growth markets, including semi-custom, ultra-low power client, professional graphics, dense server and embedded solutions.
AMD devised a unified gaming strategy in 2014 that addresses its plan to drive the gaming market across consoles, cloud platforms, tablets and PCs. It believes that gaming is one of the key pillars of its semi-custom chip business.
AMD believes that it is effectively positioned to drive the next revolution in gaming and now powers all major next generation consoles including Nintendo Switch, Sony’s PlayStation, and Microsoft’s Xbox One.
AMD has introduced its future road-map for the fast growing embedded computing market. In addition to the new improved x86 processors, the company unveiled its first ARM-technology based processor, extending its ambidextrous strategy to embedded markets. It is now the first company to offer its customers both ARM and x86 architecture based solutions for low-power and high-performance embedded compute designs.
AMD clinched a deal with Google to supply its FirePro S9300 x2 GPU in the latter’s cloud platform. In addition, the company also bagged a deal with Chinese company Alibaba to supply Radeon Pro chips for the latter’s servers. These deals are quite significant for AMD, as most of the big players in the cloud storage market currently use Nvidia’s GPUs.
In 2016, AMD took another major step to expand its presence in the server market. The company licensed its x86 processor and SoC technology to its JV with China based Tianjin Haiguang Advanced Technology Investment Co. The JV will use the technology to develop chips for server systems to be sold only in China. There is a great incentive to develop chips for server systems specific to China, as it is the world’s biggest semiconductor market and the local supply of server chips can help the company accelerate its presence in the market. It is worth noting that AMD has an edge over its competitors in the server market, as it is the only processor provider to bridge the x86 and 64-bit ARM ecosystems.
Server virtualization is essentially server consolidation that enables the running of multiple applications on a single server instead of on multiple servers. Server virtualization is driving a mix shift to higher-end servers, which requires multi-core processor servers that tend to be more complex and more expensive than traditional single core processors.
AMD and Intel have moved away from the idea of integrated graphics. The newer chips pack GPU within the CPU leading to much better graphics performance than one can get from traditional integrated graphics.
This remains a key area that is not yet reasonably explored by both Intel and AMD.
IoT includes all other computing devices apart from PCs, tablets and smartphones. IoT is still at a nascent stage, but it is expanding fast and is considered to be the next big growth driver in the semiconductor industry, after smartphones and tablets.