Stronger GPU And Mobile APU Sales Drove AMD’s Topline In Q4’16; Outlook Remains Strong For FY’17

AMD reported its Q4 2016 earnings on January 31st. The company’s revenue for the quarter grew 15% year to year, driven by GPU sales.  They were down 15% on a sequentially on the seasonality of its customers.  AMD’s growth was led by a strong growth in the computing and graphics segment revenues, due to stronger GPU and mobile APU sales. The double-digit growth in desktop GPU shipments can be attributed to strong adoption of Polaris GPUs. Further, the 7th generation notebook APUs drove notebook share gains for AMD in the quarter.

Though AMD’s bottom line continued to remain negative in the quarter, we can expect it to improve going ahead, as the company expands its market share in the PC, gaming, and data center markets. Lower interest payments, as a result of its recapitalization in Q2’16, will also have a positive impact on the company’s bottom-line. AMD’s weighted average interest rate of term debt is down by 2.9 percentage points because of the capital restructuring. For Q1’17, AMD expects its top-line to increase by 18%.

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Going ahead, AMD’s growth will likely be driven by the following factors:

A) Share gains in the desktop processor market: The company is set to launch the Ryzen processors based on the Zen-Core Architecture towards the end of March. At the CES 2017, AMD showcased its Ryzen desktop processor for notebooks and desktops. Further, the company revealed around 17 “extreme performance” pre-built PCs built on the Ryzen processor. Given that the high end and the enthusiast segments of the PC market are still growing, AMD stands a chance to benefit by catering to these segments of the PC market with its Ryzen processors. Furthermore, the company is likely to see a renewed interest for its processors in the desktop and notebook processor market. This comes from the fact that the Zen core architecture is a major redesign by the company since the long-standing Bulldozer architecture. Further, the Zen architecture is based on 14-nanometer FinFet process, as compared to the Bulldozer architecture which started on the 32nm.

B) Expansion Into the Server Market: In 2016, AMD clinched a deal with Google to make the Raedon GPU technology available for the latter’s cloud platform. In addition, the company also bagged a deal with Chinese company Alibaba to supply Radeon Pro chips for its servers. These deals are quite significant for AMD, as most of the big players in the cloud storage market currently use Nvidia’s GPUs. Furthermore, AMD is set to release its Naples server CPU in Q2’17, which is based on the Zen architecture and is comparable to current high-end server processors by Intel. With a surge in the smart and connected devices going ahead, we can expect a significant increase in the data generated by them. This, in turn, will drive the growth in the data-center market. AMD stands a chance to benefit from this surge with its offering for the server processor market.

C) The launch of Vega GPUs: At the CES’17, AMD also revealed preliminary details about its Vega GPUs. The company claims that its Vega GPUs will address most data and visually-intensive workloads, as it features some of the advanced features such as the memory subsystem, next-generation geometry pipeline, new compute engine and a new pixel engine. In the past year, the company was able to significantly boost its revenues with the introduction of Polaris GPUs. We can expect the company to see a similar demand for Vega GPUs in 2017 as well. AMD plans to start shipping GPUs based on the Vega architecture from Q2’17.

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