AMD Fires At Full Range: Revenue Hits a Record High of $5.9 Billion in Q1, Up 71% Year-Over-Year

Highlights:

• 1AMD reported a record first-quarter revenue of $5.9 billion, the first time in the company's history that quarterly revenue exceeded the threshold of $5 billion, higher than the expected range of $5.01 to $5.5 billion, up 71% year-on-year and 22% sequentially, thanks to the inclusion of some of the revenue after the completion of the Xilinx acquisition.
• In terms of 2 business segments, the Computing and Graphics Division, which includes desktop and notebook processors, recorded revenue of $2.8 billion in the first quarter, higher than market expectations of $2.67 billion, up 33% year-on-year and 8% sequentially.
• 3Xilinx contributed a portion of quarterly revenue of $559 million and operating profit of $233 million. Building on expectations for the entire quarter, Xilinx generated more than $1 billion in revenue, up 22% year-over-year.

After the U.S. stock market on Tuesday, May 3, AMD, a semiconductor "upstart" that has attracted much attention in the past few years due to the sharp rise in stock prices, released its first quarter financial report for fiscal 2021.

The company's revenue, earnings per share, gross margin and revenue of various departments all exceeded expectations, while raising the second quarter of this year and the full year 2022 performance guidance, the after-hours stock price rose more than 4%.

Some analysts believe that AMD's profit prospects will more clearly explain the development direction of the chip industry. Nvidia Shares also rose 1.7 percent after hours, and Intel fell 0.3 percent after hours.

AMD closed up 1.4 percent on Tuesday, but has fallen nearly 37 percent so far this year, outperforming the S&P 500 broader market by more than 12 percent, the NASDAQ down nearly 20 percent and the Philadelphia Semiconductor Index by nearly 23 percent. The representative of blue-chip technology stocks, QQQ, fell by nearly 20% in the same period.

AMD is also mired in a bear market this year, down more than 44 percent from a 52-week high of $164.46 set on Nov. 29 last year, giving back all of its gains since late July last year. In 2021, it has accumulated 57%, and 2018 and 2019 are the largest growth stocks of the S&P 500 for two consecutive years.

But Wall Street is overall bullish on its performance over the next 12 months. Of the 39 analysts Tracked by FactSet, 24 rated "Buy," 14 rated "Hold," and only one rated "Sell." The average price target is $145.20, and there is still 60% room for growth.

AMD's first-quarter revenue, EPS, non-GAAP operating and net profit, operating cash and free cash flow all recorded highs.

AMD's quarterly report can be described as full of firepower, and at present, in 7 quarterly reports, revenue and profit have exceeded market expectations.

First-quarter revenue of $5.9 billion reached a record high, the first time in the company's history that quarterly revenue exceeded the threshold of $5 billion, higher than the expected range of $5.01 billion to $5.5 billion, up 71% year-on-year and 22% sequentially, thanks to the inclusion of some of the revenue after the completion of the Xilinx acquisition.

Excluding some of Xilinx's revenue, AMD's own business recorded total revenue of $5.3 billion in the first quarter, higher than the company's official guidance of $4.9 billion to $5.1 billion, with non-GAAP gross margin increasing to 51% and non-GAAP operating margin of 30%.

Overall adjusted earnings per share of $1.13 were a quarterly high in the company's history and above market expectations of $0.92, double from $0.52 in the first quarter of last year and nearly 23% sequentially from $0.92 in the fourth quarter of last year.

Non-GAAP gross margin for the quarter was 53%, up 7 percentage points year-on-year and 3 percentage points sequentially, and thanks to the incorporation of higher server processor revenue and high-margin Xilinx revenue, the company's original expectations were slightly expanded from 50% in the fourth quarter of last year to 50.5%.

Non-GAAP operating profit reached a record high of $1.8 billion, doubling from $762 million in the year-ago quarter and $1.3 billion in the prior quarter, both driven by higher gross profit year-over-year and sequential growth. Non-GAAP net profit also reached a record high of $1.6 billion, up 149% year-over-year.

Meanwhile, operating cash was a record high of $995 million for the quarter, compared to $898 million in the year-ago quarter and $822 million in the prior quarter. Free cash flow of $924 million was also record, compared to $832 million in the year-ago quarter and $736 million in the prior quarter.

AMD announced that its Board of Directors has approved a new $8 billion share repurchase program, in addition to the announcement of a $4 billion share repurchase program in 2021.

Dr. Zifeng, Chief Executive Officer of AMD, who has just been elected Chairman of AMD. Lisa Su said the first quarter marked an important turning point in AMD's journey to expand and transform:

"We achieved record revenue and completed our strategic acquisition of Xilinx. Driven by the doubling of EPYC server processor revenue for the third consecutive quarter, the company achieved a significant year-on-year increase in double digits in each of its businesses. Demand for our leading products remains strong, and the upward year guidance reflects AMD's higher organic growth rate and growing Xilinx business. ”

Full firepower: Revenue and operating profit of major business units have reached new highs, and the guidance for the second quarter and full year has been raised and better than market expectations

By business, the Computing and Graphics Division, which includes desktop and notebook processors, recorded revenue of $2.8 billion in the first quarter, higher than market expectations of $2.67 billion, up 33% year-over-year and 8% sequentially, driven by sales of Ryzen CPUs and Radeon graphics cards, and the average selling price (ASP) of clients increased year-on-year. Operating profit for the division reached a record high of $723 million, up 49% year-over-year and nearly 28% sequentially.

Enterprise, embedded and semi-custom divisions, which include data center and server processors, semi-custom system-on-chips (SoCs) and video game console chips, also posted a record $2.5 billion in revenue, higher than market expectations of $2.35 billion, up 88% year-over-year and 13% sequentially, continuing to be driven by higher sales growth in EPYC processors and semi-custom products. Operating profit for the division also reached a record high of $881 million, up 218% year-over-year and 15.6% sequentially.

Analysts note that revenue in the Enterprise, Embedded and Semi-Custom segments has grown exponentially over the past year and a half, from $1.3 billion in the first quarter of 2021 to just $300 million in the first quarter of 2020. Many predict that in the future, this division will surpass the Computing and Graphics Division as the company's main source of revenue.

At present, the revenue of this segment accounts for 47.2% of AMD's total revenue (excluding Xilinx revenue), showing a gradual upward trend, accounting for 43.2% in 2021 and 34.1% in 2020. This segment covers business areas where AMD has experienced chip shortages recently due to rising demand, such as cars and game consoles, which are likely to have high growth.

The earnings report also mentioned that Xilinx contributed some quarterly revenue of $559 million and operating profit of $233 million. On a pro-forma basis for the entire quarter, Xilinx generated more than $1 billion in revenue, up 22% year-over-year, with growth in all major end-market categories. AMD's all other operating losses also narrowed to $886 million, up from $100 million a year ago and $121 million last quarter.

The company raised its guidance for the second quarter and full year of this year and continued to beat market expectations. Revenue is expected to be approximately $6.5 billion (up and down$ 200 million) in the second quarter, up about 69% year-over-year, i.e. maintaining a high-speed growth trend, up about 10% sequentially, and is expected to be driven primarily by Xilinx and higher server revenue, with non-GAAP gross margin of approximately 54% in the second quarter. Previously, the market expected revenue of $6.38 billion.

AMD now expects full-year 2022 revenue of about $26.3 billion, which will be about 60 percent higher than in 2021, thanks to the addition of Xilinx and higher server and semi-custom revenue, which previously saw an increase of about 31 percent from the official guidance. Non-GAAP gross margin for the full year is expected to be approximately 54%, compared to approximately 51% previously guided. The market originally expected full-year revenue of $25.15 billion and full-year gross margin of 53.2%.

Pay attention to whether the earnings call mentions the impact details of supply chain restrictions, and the weak global PC demand in the first quarter of this year is a concern

Multi-party analysis pointed out that the main reason why Wall Street is still optimistic despite the deep decline in AMD's stock price during the year before the earnings report is that AMD completed the acquisition of Xilinx, the world's largest programmable logic component factory, in the first quarter (February 14) as scheduled.

AMD also proudly announced in its earnings report that the $35 billion all-stock acquisition is the largest in the history of the semiconductor industry. Wall Street generally believes that AMD can not only expand its business into markets such as 5G communications and automotive electronics to help its custom chip business, but also compete with NVIDIA in the data center field.

The market focused on whether the earnings call provided details of "how supply chain constraints will affect the company's future business" and management's comments on end-market demand. AMD is expected to emphasize the continued strong demand for high-end server chips such as data centers, thereby offsetting the weakness in overall demand for personal computers (PCs).

Market research firm IDC said global PC shipments fell 13% sequentially and 5% year-on-year in the first quarter of this year, beating market expectations for a 3% sequential increase. Gartner, another agency, also expects global PC shipments to fall 6.8 percent year-over-year in the first quarter, following a 10 percent increase in 2021. Intel also cited weak consumer PC demand and macroeconomic uncertainty in its second-quarter guidance released last week.

As mentioned above, some analysts believe that AMD's profit prospects will more clearly explain the development direction of the chip industry. That's because the chip segment has had mixed results so far, with Intel, Texas Instruments, and chip equipment maker Ram Research, KLA and ASML Holding all mentioning that supply chain issues are hampering sales in a high demand environment, even though they are optimistic about 2022 as a whole.

Wall Street is optimistic that "2022 is the year of AMD's server chips", and the acquisition of Pensando will expand the competitiveness of data centers

After collating the Wall Street news, the Wall Street consensus predicts that AMD's data center sales will continue to bring "huge growth momentum" to the company at a time when demand for home PCs and computers in the post-epidemic era is fading, so that AMD will continue to seize market share from Intel. Some even joke that AMD and Intel's earnings reports often go against the grain, that AMD's success is based on Intel's fiasco.

But Christopher Rolland, an analyst at brokerage Susquehanna, also noted that Intel released a new H-series AlderLake mobile CPU processor at CES earlier this year, which is being sold at a "very competitive price", which may in turn cannibalize AMD's market share in PC chips, but this is not to be feared, because "2022 is the year of AMD's servers (processors)":

"Intel's Sapphire Rapids chipset is suffering from performance uncertainty, and early test results favor AMD's Milan chips. As a result, as AMD gains the upper hand in server chips, the company is expected to continue its sales momentum throughout the year, with sales of its server chips likely to reach $5 billion or more in 2022, accounting for nearly half of the company's total organic growth prospects. ”

Raymond James analyst Chris Caso recently upgraded amd ratings from "outperforming" to "strong buys" with a price target of $160. He expects AMD and Nvidia to "become a persistent duopoly" in the PC market:

"Given the potential for slower consumer demand and rising customer inventory levels, we are increasingly concerned about cyclical risks. We favor semiconductor companies with strong long-term drivers, more moderate cyclical risks, and attractive valuations, and AMD seems to be well positioned in these areas, and we are confident in AMD's position and share growth in the data center market. ”

Bank of America securities analyst Vivek Arya also believes that AMD may completely avoid the impact of the decline in PC demand, because most of the disadvantages in PC demand exist in the low-end Chromebook product line that AMD is not involved in, and AMD is not as affected by Apple's self-developed chips as Intel. AMD's Analyst Day on June 9 is expected to give more sales prospects for Xilinx.

Wall Street also continued to follow amd's announcement in April of plans to acquire network and security services provider Pensando Systems for $1.9 billion, which could give AMD a competitive edge in the data center space, a deal expected to close in the second quarter of this year.

AMD said in its earnings report that Pensando's distributed service platform will expand AMD's data center portfolio through high-performance data center processing units (DPUs) and software stacks that have been deployed at scale in cloud and enterprise customers such as Goldman Sachs, IBM Cloud, Microsoft Azure and Oracle Cloud.