Author | U.S. Stock Study Club
After the hours on May 3, AMD released a more than expected 22Q1 financial report and 22Q2 guidance, at the same time, the Fed FOMC hike and shrink the balance sheet in line with expectations, Powell ruled out the possibility of a 75 basis point rate hike in the next few meetings, and the eye-catching earnings report superimposed on the Fed interest rate decision boots landed, pushing the company's stock price up more than 9%.
As of the close of trading on May 4, 222, AMD has risen 56.91% in 21 years and -30.91% in 22 years so far, significantly outperforming the gains of the S&P 500 ETF (SPY: -8.69%), nasdaq 100 ETF (QQQ: -16.42%) and Philadelphia Semiconductor Index (SOXX: -19.13%) in the same period.
01 Detailed financial report: comprehensively exceeded expectations
Overall, THANKS TO THE CONSOLIDATED RESULTS OF THE ACQUISITION OF XILINX, AMD'S EARNINGS COMPREHENSIVELY EXCEEDED EXPECTATIONS: Q1 revenue (including Xilinx) increased by 70.9% year-on-year to 5.887 billion (guidance 4.9-5.1 billion, expected 5.52 billion, excluding Xilinx's revenue, which increased by 55% year-on-year to a record 5.328 billion yuan).
Adjusted gross margin of 53% (guidance of 50.5%, excluding Adjusted Gross Margin of 51% excluding Xilinx results), net income of $786 million (expected 763 million), and adjusted EPS increased 117.3% year-over-year to $1.13 (expected $0.92), benefiting from higher server processor revenue and high margin Xilinx revenue.
Next, let's take a look at the financial report data of the sub-business.
Computing & Graphics, which includes desktop and notebook processors, increased 33.4% year-over-year to $2,802 million (expected$2.67 billion) and operating profit increased 49.1% year-over-year to $723 million. Driven by sales of Ryzen CPUs and Radeon graphics, the average client selling price (ASP) increased year-over-year.
Benefiting from the strong performance of the Radeon 6000, desktop graphics revenue grew nearly 100%. In terms of notebook graphics, the first laptops with Radeon 6000 mobile GPUs will be launched in Q2, and shipments are expected to grow further in the coming quarters. In terms of data center GPUs, due to the release of the Instinct MI210 accelerator, data center graphics card revenue was flat year-on-year, and AMD will continue to expand cooperation with large cloud customers in the future.
On April 5, AMD said that it will launch the 5nm Zen4 architecture 5nm Zen4 architecture Ryzen™ 7000 series processors as scheduled at the end of this year, after rumors that IPC performance will increase by 15-20%, and is expected to regain the throne from Intel's 12th generation Core. According to industry chain news, TSMC announced that its 5nm production capacity will be expanded by about 25%, from the previous 120,000 wafers per month to 150,000 wafers per month, and the increased 30,000 pieces of production capacity are mainly supplied to AMD, Intel and other PC customers, which is good news for AMD's 5nmZen4 launched this year. TSMC's 5nm expansion has also dispelled the market's concerns about AMD's supply capacity to a certain extent (after the 7nm Zen3 processor was listed, various out-of-stock and price increases).
02 Hidden worries: PC demand recedes
On the call, Su Mama expected a high-single-digit decline in the PC market in 2022 and is more cautious about PC sales this year. However, a recent report released by Bank of America suggests that AMD may be able to fully avoid the impact of the decline in PC demand. The first is that AMD is not involved in the low-end Chromebook product line, and the second is that AMD is not affected by Apple's self-developed chips like Intel.
In addition, it can be verified from the following data: AMD's success has little to do with the performance of the entire PC market (mainly due to the rise of data centers, games and other businesses). PC shipments actually fell by more than 20 percent between 2011 and 2020, but AMD's revenue grew 200 percent during that period. In addition, even in the case of declining PC shipments, AMD's market share and ASP are increasing, reflecting the continued strength of AMD+ TSMC's system than Intel.
03 The Year of the Server Chip
Enterprise, Embedded and Semi-Custom Division (Data Center and Server) revenue surged 87.8% year-over-year to $2.526 billion (expected $2.35 billion), driven by sales growth in high-end EPYC processors and semi-custom products, and operating profit increased 218.1% year-over-year to $881 million, a growth rate of more than 200% for four consecutive quarters.
2022 is expected to be the year of AMD's server chips. Server CPU revenue more than doubled year-over-year and double-digit sequentially due to growing demand for AMD EPYC processors from cloud enterprise and HPC customers. At present, as major enterprises have strengthened the deployment of internal infrastructure, Alibaba, Amazon, Baidu Cloud, Microsoft Azure, Google and other companies have launched 70 new AMD-based instances, and cloud revenue has more than doubled year-on-year.
In addition, it is reported that the next generation of server CPU, Genoa, will be launched in the second half of this year, or will become the industry's highest performance general-purpose server CPU. In addition, Bergamo, which has a higher core count optimized for high-throughput cloud workloads, will ship in the first half of 2023.
AmD undoubtedly has a place in the big wave of data center and server development. According to Jefferies & Co. analyst MarkLipacis, about 48 percent of all the new processors installed in these data centers in March were purchased from AMD.
Embedded revenue more than doubled year-over-year, driven by automotive growth, and AMD also won multiple design victories for next-generation security and firewall equipment from Tier 1 network providers. At the same time, due to strong demand for Sony, Microsoft game consoles and Valve's new Steam platform, semi-custom business revenue achieved high double-digit growth year-on-year.
04 Three-legged standing, chasing deer in the Central Plains
On February 14, AMD spent $35 billion to complete the acquisition of FPGA leader Xilinx in an all-stock transaction. Within six weeks of the acquisition, Xilinx contributed $559 million in revenue, including an operating profit of $233 million. On the basis of the pro forma for the entire quarter, Xilinx will create revenue increased by 22% year-on-year to more than $1 billion, achieving a year-on-year growth rate of more than 20% for four consecutive quarters and achieving more than $1 billion in revenue for two consecutive quarters.
On April 4, AMD announced the acquisition of cloud service provider Pensando Systems for a further expansion of its data center business (cloud computing and enterprise customers are increasingly adopting AMD EPYC processors). The acquisition is expected to close in Q2.
AmD now has high-performance CPU, GPU and FPGA chips, and with the acquisition of Pensando, AMD will have the ability to innovate at the chip, software, and platform levels and provide its cloud, enterprise, and edge customers with a broad portfolio of high-performance and adaptive solutions to meet the explosive demand for data center computing power.
Pensando's distributed services platform will expand AMD's data center portfolio with 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.
Through the acquisition of Xilinx, AMD has improved the FPGA layout, improved the DPU layout through the acquisition of Pensando, and the two acquisitions are to strengthen its data center layout, which will form the whole industry chain layout of the data center of CPU + GPU + FPGA + DPU, which can compete with Intel and Nvidia and become a three-legged trend. Looking back, Su Mama's strategic vision is still very poisonous, and she should have seen the grand blueprint of the data center business very early.
05 Conclusion
Looking ahead, management guidance continues to exceed expectations: AMD expects Q2 revenue of $6.3-6.7 billion (expected $6.38 billion), median $6.5 billion, up about 69% year-over-year, to continue its high growth trend, and expect full-year revenue growth of approximately 60% to $26.3 billion in 22 years (previous guidance was $21.5 billion, an increase of about 31%), and full-year adjusted gross margin of about 54% (expected 53.2%, compared with previous guidance of 51%), The adjusted EPS is $1.22 (expected at $0.99).
Finally, look at valuations. The current NTM PE is 23x, which is basically the lowest in 5 years. In the future, AMD will continue to benefit from the expansion of its data center business, and at the same time, the synergy effect after the acquisition of Xilinx (referring to Intel's acquisition of FPGA Dragon II Altera) will gradually appear, the gross profit margin will have room for further improvement, and the future valuation repair space will be large.