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AMD Beats on Q3 Earnings & Revenues, Set to Buy Xilinx

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Advanced Micro Devices (AMD - Free Report) reported third-quarter 2020 non-GAAP earnings of 41 cents per share, which surpassed the Zacks Consensus Estimate by 14%. Notably, the bottom line soared 125% both year over year and sequentially.

Revenues of $2.80 billion outpaced the Zacks Consensus Estimate by 9.5%. The figure surged 56% year over year and 45% sequentially.

This Zacks Rank #2 (Buy) company also announced that it has entered into a definitive agreement to acquire Xilinx (XLNX - Free Report) for $35 billion in an all-stock transaction. The buyout will significantly help in expanding AMD’s data center businessthat has helped the stock return 71.8% year to date. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Quarter Details

Computing and Graphics segment’s revenues of $1.67 billion increased 31% year over year and 22% sequentially. This can be attributed to robust adoption of Ryzen processors.

Advanced Micro Devices, Inc. Price

Client processor average selling price (ASP) was lower year over year owing to a higher mix of mobile processor sales. Sequentially, ASP increased due to higher desktop and mobile processor ASPs.

GPU ASP was lower year-over-year due to product cycle timing. However, it increased sequentially due to favorable product mix.

Enterprise, Embedded and Semi-Custom segment’s revenues of $1.13 billion were up 116% year over year and 101% sequentially. The growth was driven by higher semi-custom product sales and increased EPYC processor sales.

Non-GAAP gross margin expanded 100 basis points (bps) on a year-over-year basis to 44%, driven by strong EPYC and Ryzen processor sales.

Non-GAAP operating expenses increased 31% year over year to $706 million. However, as percentage of revenues non-GAAP operating expenses declined 500 bps.

Non-GAAP operating income jumped 119% year over year to $501 million primarily driven by increase in Ryzen and EPYC processor sales and semi-custom product sales.

Non-GAAP operating margin expanded 600 bps on a year-over-year basis.

Segment wise, Computing and Graphics operating income was $384 million, compared with $179 million reported in the year-ago quarter courtesy of higher Ryzen revenues.

Enterprise, Embedded and Semi-Custom operating income was $141 million compared with $61 million reported in the year-ago quarter.

Key Q3 Developments

AMD introduced the AMD Ryzen 5000 Series desktop processors during the reported quarter.

Moreover, Oracle (ORCL - Free Report) announced plans to offer cloud instances based on next-generation AMD EPYC processors, codenamed “Milan.”

Further, AMD and Apple (AAPL - Free Report) announced the availability of new AMD Radeon Pro 5000 series GPUs for the updated 27-inch iMac.

Balance Sheet & Cash Flow

As of Sep 26, 2020, AMD had cash and cash equivalents (including marketable securities) of $1.77 billion compared with $1.78 billion as of Jun 27, 2020.

As of Sep 26, 2020, total debt (long-term plus short-term) was $373 million, down from $690 million as of Jun 27, 2020.

Operating cash flow was $339 million compared with operating cash flow of $243 million in the second quarter.

Free cash flow was $265 million in the third quarter compared with free cash flow of $152 million in the previous quarter.

Guidance

For fourth-quarter 2020, AMD expects revenues to be roughly $3 billion (+/- $100 million) indicating an increase of approximately 41% year-over-year and 7% sequentially. Non-GAAP gross margin is anticipated to be 45%.

For 2020, AMD now expects 2020 revenues to grow by approximately 41% over 2019, much better than previous expectation of 32% growth. Non-GAAP gross margin is still expected at 45%.

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