After Seeing Strong Growth In Recent Years, AMD’s Revenues Facing A Slowdown In 2019

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AMD’s (NYSE:AMD) revenue growth could slow to mid-single-digits in 2019, as compared to an average growth in the high teens seen between 2016-2018. This can partly be attributed to a slowing Chinese economy. Note China is the largest market for AMD’s products. While the company in Q3 2019 did clock the highest revenues in the last 14 years, the growth rate will be impacted in 2019, owing to the lower blockchain and semi-custom products sales over the last three quarters. Also, AMD benefited from Intel’s shortage of chips, but that issue is likely to be resolved for Intel in the near term, post which Intel may be able to capture back some of the market share it lost to AMD over the recent quarters. In this note we focus on AMD’s revenue sources, its business models, and revenue trajectory. You can look at our interactive dashboard analysis ~ AMD Revenues: How Does AMD Make Money? ~ for more details.

Computing & Graphics Segment, Which Includes Processors For Desktops & Notebooks, Account For Roughly Two-Thirds of AMD’s Total Revenues. Region-Wise China Is The Biggest Market For AMD. 

AMD’s Business Model

  • What Need Does AMD Serve?
    • AMD primarily serves the microprocessor and graphic processor markets for PCs, notebooks, and servers, among others. Microprocessor refers to the central processing unit (CPU), or the brain, behind a computer.
    • A microprocessor is the single most important component that drives a computer’s power and performance. AMD manufactures chipsets used in desktops and notebooks. Graphics Processor Units (GPUs) are used in PCs to process information for graphics displays.
    • 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.
    • The company reports its revenues under two segments: 1. Computing & Graphics, which includes revenue from sales of microprocessors and graphics processors for desktops and notebooks, and 2. Enterprise, Embedded & Semi-Custom, which includes revenue from the sale of embedded processors, semi-custom system-on-chip (SoC) products, development services and technology for game consoles, and server microprocessors.
  • Who Pays To AMD?
    • Original equipment manufacturers (OEMs) and original design manufacturers (ODMs).
    • Individuals building custom PCs or replacing their current desktop microprocessors are also buyers.
    • Game console manufacturers.
    • Server manufacturers such as IBM and HP.
  • What Buyers Care About?
    • Speed & performance
    • Reliability
    • Power efficiency / battery consumption
    • Price (relative to performance)
    • Power consumption and heat (energy efficiency)
    • Compatibility with other hardware
    • Volume discounts
  • Who Are AMD’s Key Competitors?
    • AMD primarily competes with Intel and Nvidia.
  • What Are AMD’s Top Selling Points?
    • AMD’s server processors are energy efficient.
    • AMD’s processors on average are priced lower than the competition’s.

AMD Added $2.5 Billion In Revenues Between 2015 And 2018, And It Could Add Another $2.7 Billion Between 2018 And 2021.

  • AMD’s total revenue grew from $4.0 billion in 2015 to $6.5 billion in 2018.
  • This growth was largely led by its Computing & Graphics segment, which benefited from higher demand for its Ryzen and Radeon product lines.
  • However, as we look forward, the revenues could see slow growth in 2019, followed by double-digit growth in subsequent years, in our view. We discuss the factors that could impact the company’s sales in the following sections.

Computing & Graphics Segment Will Likely Continue To Drive The Revenue Growth For AMD

  • Computing & Graphics segment revenues grew from $1.8 billion in 2015 to $4.1 billion in 2018, and it could grow to $5.8 billion by 20201, led by its Ryzen and Radeon product lines.
  • AMD has been gaining share from Intel in the processors market. AMD’s share fell from 23% in 2014 to 18% in 2016, but it has been on a rise since then to 23% in 2018. In fact, if we look at Q3 2019 numbers, AMD’s share stands at 32%.
  • This can be attributed to a shortage of Intel chips in the recent past, which aided AMD growth as OEMs shifted to AMD processors. Also, AMD’s new product offerings were efficient at a lower price point.
  • Having said that, 2019 will likely end with slower growth for the company, amid trade tensions, and a slowing Chinese economy. Note China is the largest market for AMD products.
  • Looking at Enterprise, Embedded And Semi-Custom segment, revenue grew from $2.2 billion in 2015 to $2.4 billion in 2018, and they could grow to north of $3.0 billion by 2021. This can be attributed to the company’s EPYC processors, which refers to x86 microprocessors based on Zen microarchitecture targeted for server markets. EPYC processors have been gaining demand of late, due to its high performance, at a relatively lower price point from its competitors.

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