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What's in Store for Advanced Micro Devices' (AMD) Q4 Earnings?

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Advanced Micro Devices (AMD - Free Report) is set to release fourth-quarter 2020 results on Jan 26.

The company projects fourth-quarter 2020 revenues to be around $3 billion (+/-$100 million). Continued strength in demand for Ryzen, Radeon and EPYC processors is likely to have driven revenues in the quarter to be reported.

The Zacks Consensus Estimate for revenues is pegged at $3.01 billion, suggesting growth of 41.7% from the year-ago quarter’s reported figure. On a sequential basis, revenues are expected to register an increase of 7.5%.

Meanwhile, the Zacks Consensus Estimate for fourth-quarter earnings is pegged at 47 cents per share. The figure indicates an improvement of 46.9% on a year-over-year basis.

Advanced Micro Devices, Inc. Price and EPS Surprise

 

Advanced Micro Devices, Inc. Price and EPS Surprise

Advanced Micro Devices, Inc. price-eps-surprise | Advanced Micro Devices, Inc. Quote

 

Factors Likely to Have Influenced Q4

AMD’s fourth-quarter 2020 performance is expected to have benefitted from momentum witnessed in the adoption of Ryzen, Radeon and EPYC server processors. These processors are being heavily utilized in the cloud, gaming, HPC, PC, and data center verticals, driven by work-from-home and online schooling trends due to the pandemic.

AMD’s second generation EPYC processors, which are based on its Zen 2 architecture, have been witnessing robust adoption among the cloud computing and data center providers. The strength in its latest EPYC processors might have positively impacted server revenue growth in the to-be-reported quarter.

The company is focused on improving its presence in the domains especially commercial, gaming and education, where it has a relatively lower presence.

AMD expects Semi-custom revenues to benefit on higher production induced by strong demand for Xbox Series X, Xbox Series S and PlayStation 5 gaming consoles. The hardware consoles were released in November 2020.

Markedly, improving PC shipments’ trend in the fourth quarter of 2020, driven by increased demand is expected to have favored AMD’s fourth-quarter performance. Per an IDC report, PC shipments grew 26.1% to 91.6 million units in the fourth quarter of calendar year 2020.

Consistent strength in demand for Ryzen 4000 processors in the mobile domain is expected to have contributed to top-line growth of Computing and Graphics division.

In October 2020, the company launched new Ryzen 5000 Series desktop processor based on its Zen 3 architecture. These processors are aimed at improving gaming and creative workloads’ performance. The company’s top line is likely to have been driven by the launch of these new processors in the to-be-reported quarter.

Ryzen PRO processors are also anticipated to have witnessed incremental adoption across leading OEMs in the fourth quarter.

In the said quarter, AMD’s mobile GPU sales are likely to have benefited from continued strong demand for Radeon Pro 5000 M series GPU, as these power Apple’s (AAPL - Free Report) MacBook Pro device.

Increasing demand for AMD's processor chips augurs well for the top line and instills investors’ confidence in the stock. Notably, shares of the company have rallied 75.2% in the past year compared with the industry’s return of 63.1%. The company currently carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nevertheless, increasing expenses on product development amid intensifying competition from NVIDIA (NVDA - Free Report) and Intel (INTC - Free Report) is likely to limit margin expansion in the to-be-reported quarter.

Some Notable Developments in Q4

In December 2020, AMD announced that Amazon Web Services (“AWS”) is increasing the usage of its offerings. New Amazon Elastic Compute Cloud (Amazon EC2) G4ad instances will be based on AMD's processors. Amazon GameLift game server hosting solution is also utilizing AMD's EPYC processor-powered Amazon EC2 C5a, M5a and R5a instances.

Moreover, AMD unveiled Instinct MI100 accelerator powered by ROCm 4.0 open ecosystem and rolled out EPYC CPUs and Instinct accelerator-based implementations with focus on accelerating HPC applications in the cloud.

Further, the company introduced Ryzen Embedded V2000 Series processors that offer improved performance and security. These processors are based on 7 nm process technology and feature Zen 2 core and AMD Radeon graphics card.

AMD also unveiled Radeon RX 6000 Series graphics cards that offer high performance and immersive gaming experience with advanced visuals as well as engaging features for PC gaming enthusiasts.

In October 2020, AMD announced that its intent to buyout Xilinx for $35 billion in an all-stock transaction. The acquisition will facilitate expansion of AMD’s data center business.

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