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AMD Q4 Earnings In Line, Top Line Aided by Solid Client Growth

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Advanced Micro Devices (AMD - Free Report) reported fourth-quarter 2023 non-GAAP earnings of 77 cents per share, in line with the Zacks Consensus Estimate. The figure jumped 11.6% year over year.

Revenues of $6.17 billion beat the Zacks Consensus Estimate by 0.88% and increased 10.2% year over year.

AMD shares were down roughly 6.8% in pre-market trading, given unimpressive first-quarter guidance. The company expects weakness in the Gaming and Embedded segment to hurt revenues in the current quarter.

Top-Line Details

Data Center revenues surged 38% year over year to $2.28 billion and accounted for 37% of total revenues. Sequentially, revenues increased 43%, driven by the strong adoption of fourth-generation AMD EPYC CPUs and AMD Instinct GPUs.

In cloud, server CPU revenues increased year over year and sequentially as North American hyperscalers expanded fourth Gen EPYC Processor deployments to power their internal workloads and public instances.

Amazon, Alibaba, Google, Microsoft (MSFT - Free Report) and Oracle (ORCL - Free Report) brought more than 55 AMD-powered AI, HPC and general-purpose cloud instances into preview or general availability in the reported quarter. Exiting 2023, AMD had more than 800 EPYC CPU-based public cloud instances available.

In enterprise, sales accelerated by a significant double-digit percentage. AMD closed multiple wins with large financial, energy, automotive, retail, technology and pharmaceutical companies in the reported quarter.

AMD is benefiting from the strong adoption of EPYC CPUs for inferencing workloads for smaller models like Llama 7B, as well as the power head nodes in large training and inference clusters.

Data Center GPU business accelerated significantly in the reported quarter, with revenues exceeding AMD’s $400 million expectations, driven by a faster ramp for MI300X with AI customers.

In December, AMD announced the general availability of AMD Instinct MI300X accelerators with industry-leading memory bandwidth performance for generative AI. It also launched the AMD Instinct MI300A APU, which combines AMD CDNA 3 and Zen 4 chiplets to deliver breakthrough performance for HPC and AI workloads.

Microsoft, Meta, Oracle and other cloud providers announced MI300X deployments in the reported quarter. Dell Technologies, HPE, Lenovo, Supermicro and others announced new AMD Instinct MI300 enterprise and HPC platforms.

The Client segment revenues soared 61.8% year over year to $1.46 billion and accounted for 23.7% of total revenues. Revenues benefited from strong Ryzen 7000 Series CPU sales.

The Gaming segment revenues decreased 16.8% year over year to $1.37 billion and accounted for 22.2% of total revenues. The decline was primarily attributed to lower semi-custom revenues.

The Embedded segment revenues were $1.06 billion, down 24.3% year over year. The segment accounted for 17.1% of total revenues.

Operating Details

Non-GAAP gross margin contracted 30 basis points (bps) on a year-over-year basis to 50.8%, primarily due to lower Embedded segment revenues.

Non-GAAP operating expenses increased 7.8% year over year to $1.73 billion.

Non-GAAP operating margin contracted 40 bps on a year-over-year basis to 22.9% in the fourth quarter.

Balance Sheet & Cash Flow

As of Dec 30, 2023, AMD had cash and cash equivalents (including marketable securities) of $5.77 billion compared with $5.79 billion as of Sep 30, 2023.

As of Dec 30, 2023, total debt was $2.47 billion, unchanged from the figure reported as of Sep 30, 2023.

Operating cash flow was reported at $381 million compared with $421 million in the third quarter of 2023.

Free cash flow was $242 million in the fourth quarter of 2023 compared with $297 million in the third quarter of 2023.


AMD expects first-quarter 2024 revenues to be $5.4 billion (+/-$300 million)..

Sequentially, AMD expects Data Center segment revenues to be flat, with a seasonal decline in server sales offset by a strong Data Center GPU ramp. AMD now expects Data Center GPU revenues to grow sequentially in the first quarter and exceed $3.5 billion in 2024.

Client, Embedded and Gaming segment sales are expected to decline sequentially, with semi-custom revenues expected to decline by a significant double-digit percentage.

Non-GAAP gross margin is anticipated to be roughly 52%. Non-GAAP operating expenses are expected to be approximately $1.73 billion.

For the Gaming segment, AMD expects annual revenues to decline by a significant double-digit percentage year-over-year in 2024. For the Embedded segment, sluggish demand is expected in the first half of 2024 as customers continue to focus on normalizing their inventory levels.

Overall, for 2024, AMD expects the demand environment to remain mixed, with strong growth in its Data Center and Client segments, offset by declines in the Embedded and Gaming segments.

AMD expects to expand its gross margin in 2024. It will continue to invest to address the large AI opportunities while driving operating model leverage to deliver earnings growth faster than top-line revenue growth.

Zacks Rank & A Stock to Consider

Currently, AMD has a Zacks Rank #3 (Hold).

Silicon Motion Technology (SIMO - Free Report) is a better-ranked stock that investors can consider in the broader Zacks Computer & Technology sector, sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Silicon Motion Technology shares have declined 1.4% in the past six-month period. SIMO is set to report its fourth-quarter 2023 results on Feb 6.

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