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Advanced Micro (AMD) Q4 Loss In Line, View Disappoints
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Advanced Micro Devices (AMD - Free Report) reported loss of 4 cents per share in fourth-quarter 2016, which matched the Zacks Consensus Estimate.
Revenues increased 15.4% year over year to $1.11 billion primarily driven by higher GPU sales. However, revenues decreased 15.4% sequentially, primarily due to seasonally soft sales figures for its semi-custom System on Chips (SoCs). Notably, revenues were well above the Zacks Consensus Estimate of $1.07 billion.
AMD’s shares rose 1.2% in after-hour trading. We note that shares have outperformed the Zacks Electronics Semiconductors industry over the last one year. While the industry gave a positive return of 67.2%, AMD gained a whopping 384.6%.
The company benefited from strong demand for its graphics products. However, AMD’s first-quarter 2017 will be impacted by seasonal weakness.
Revenues
Advanced Micro has two reportable segments — Computing and Graphics (focused on the traditional PC market) and Enterprise, Embedded and Semi-Custom (focusing on adjacent high-growth opportunities). The details of these segments are discussed below:
Computing and Graphics includes desktop and notebook processors and chipsets, discrete GPUs and professional graphics. This segment accounted for 54.2% of revenues and was up 27.1% sequentially and 27.7% year over year to $600 million.
Notably, this segment’s revenues grew on an annualized basis for the first time since 2011 as AMD’s increased efforts to strengthen this particular segment paid off.
Also, the segment posted the highest revenue in the last two years. Client revenues were the highest in the last seven quarters. Graphics processor revenues were also the highest in the last 11 quarters.
During the reported quarter, strong adoption of the company’s seventh generation notebook accelerated processing units (APUs) drove growth for the company. While desktop processor sales improved on a sequential basis, it declined on a year-over-year basis.
The company also won a number of high-end design deals with global original equipment manufacturers over its Ryzen desktop processor that is expected to be launched in early Mar 2017.
AMD’s Polaris line of GPUs witnessed increased adoption in the fourth quarter. Also, Radeon Pro 400 mobile GPUs were launched, which are used in Apple’s (AAPL - Free Report) premium segment notebooks.
The Enterprise, Embedded and Semi-Custom segment includes server and embedded processors, dense servers, semi-custom SoC products, engineering services and royalties. This segment brought in the remaining 45.8% of revenues, down 39.4% sequentially but up 3.7% year over year to $506 million.
The year-over-year increase was driven by higher sales of embedded processor sales and game consoles by Microsoft (MSFT - Free Report) and Sony that are powered by AMD’s chips.
The segment witnessed increased adoption in targeted markets. Notably, the company continues to gain traction in Naples, Italy.
Advanced Micro Devices, Inc. Price, Consensus and EPS Surprise
Non-GAAP gross margin (excluding Wafer Supply Agreement (WSA) charges) was 31.7%, which expanded a whopping 494% sequentially but only 24% on a year-over-year basis.
Adjusted operating expenses of $354 million increased 0.6% sequentially and 6.6% year over year.
Non-GAAP operating loss was $3 million compared with a loss of $49 million in the year-ago quarter and loss of $293 million in the previous quarter.
Mentor Graphics Partnership
Advanced Micro’s recent strategic partnership with Mentor Graphics on embedded technology will offer more choice to embedded developers in the x86 architecture high-performance computing segment. As more and more devices become interconnected, Advanced Micro’s efforts to further strengthen its position in the burgeoning embedded markets will reap benefits. (Read: AMD and Mentor Graphics Ink Deal on Embedded Technology).
Google Deal
In November, the company announced that its FirePro server GPUs have been selected by Alphabet (GOOGL - Free Report) to power its cloud platform in 2017. These developments are expected to help the company gain more traction in the GPU space and close in the market share gap with NVIDIA. (Read: AdvancedMicro Scales New Highs, Clinches Deal with Google).
Balance Sheet
Advanced Micro exited the fourth quarter with cash and cash equivalent balance of $1.26 billion, up $6 million from the previous quarter.
During the quarter, the company raised approximately $1.4 billion in cash, before issuance costs, as a result of issuing $690 million of common stock and $700 million of Convertible Notes due 2026.
Inventory was $751 million, up 10.8% on a year-over-year basis but down 2.7% sequentially. Total debt (short term and long term) was $1.43 billion, down $0.2 billion sequentially.
Guidance
Management expects first-quarter 2017 revenues to decrease 11% sequentially (+/- 3%), primarily due to seasonal weakness in semi-custom and graphics products. If the company manages to achieve the mid-point of its guidance, it will translate to 18% growth in revenues on a year-over-year basis.
Gross margin is likely to be 33% while non-GAAP operating expenses are estimated to be $360 million.
On the other hand, interest expense, taxes and others will amount to $30 million. Inventories are expected to remain flat on a sequential basis.
Our Take
The decent fourth-quarter results reflected AMD’s improving position in key markets with the introduction of several APUs and GPUs. Moreover, partnerships with the likes of Google for the supply of Radeon Pro GPUs and FirePro server GPUs are positive in our view.
Notably the company trails NVIDIA as the second-largest manufacturer of graphics chips for high-end computing and is gradually gaining traction in the space.
Additionally, upcoming products like Ryzen and Zen are expected to drive the top line going ahead.
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Advanced Micro (AMD) Q4 Loss In Line, View Disappoints
Advanced Micro Devices (AMD - Free Report) reported loss of 4 cents per share in fourth-quarter 2016, which matched the Zacks Consensus Estimate.
Revenues increased 15.4% year over year to $1.11 billion primarily driven by higher GPU sales. However, revenues decreased 15.4% sequentially, primarily due to seasonally soft sales figures for its semi-custom System on Chips (SoCs). Notably, revenues were well above the Zacks Consensus Estimate of $1.07 billion.
AMD’s shares rose 1.2% in after-hour trading. We note that shares have outperformed the Zacks Electronics Semiconductors industry over the last one year. While the industry gave a positive return of 67.2%, AMD gained a whopping 384.6%.
The company benefited from strong demand for its graphics products. However, AMD’s first-quarter 2017 will be impacted by seasonal weakness.
Revenues
Advanced Micro has two reportable segments — Computing and Graphics (focused on the traditional PC market) and Enterprise, Embedded and Semi-Custom (focusing on adjacent high-growth opportunities). The details of these segments are discussed below:
Computing and Graphics includes desktop and notebook processors and chipsets, discrete GPUs and professional graphics. This segment accounted for 54.2% of revenues and was up 27.1% sequentially and 27.7% year over year to $600 million.
Notably, this segment’s revenues grew on an annualized basis for the first time since 2011 as AMD’s increased efforts to strengthen this particular segment paid off.
Also, the segment posted the highest revenue in the last two years. Client revenues were the highest in the last seven quarters. Graphics processor revenues were also the highest in the last 11 quarters.
During the reported quarter, strong adoption of the company’s seventh generation notebook accelerated processing units (APUs) drove growth for the company. While desktop processor sales improved on a sequential basis, it declined on a year-over-year basis.
The company also won a number of high-end design deals with global original equipment manufacturers over its Ryzen desktop processor that is expected to be launched in early Mar 2017.
AMD’s Polaris line of GPUs witnessed increased adoption in the fourth quarter. Also, Radeon Pro 400 mobile GPUs were launched, which are used in Apple’s (AAPL - Free Report) premium segment notebooks.
The Enterprise, Embedded and Semi-Custom segment includes server and embedded processors, dense servers, semi-custom SoC products, engineering services and royalties. This segment brought in the remaining 45.8% of revenues, down 39.4% sequentially but up 3.7% year over year to $506 million.
The year-over-year increase was driven by higher sales of embedded processor sales and game consoles by Microsoft (MSFT - Free Report) and Sony that are powered by AMD’s chips.
The segment witnessed increased adoption in targeted markets. Notably, the company continues to gain traction in Naples, Italy.
Advanced Micro Devices, Inc. Price, Consensus and EPS Surprise
Advanced Micro Devices, Inc. Price, Consensus and EPS Surprise | Advanced Micro Devices, Inc. Quote
Operating Results
Non-GAAP gross margin (excluding Wafer Supply Agreement (WSA) charges) was 31.7%, which expanded a whopping 494% sequentially but only 24% on a year-over-year basis.
Adjusted operating expenses of $354 million increased 0.6% sequentially and 6.6% year over year.
Non-GAAP operating loss was $3 million compared with a loss of $49 million in the year-ago quarter and loss of $293 million in the previous quarter.
Mentor Graphics Partnership
Advanced Micro’s recent strategic partnership with Mentor Graphics on embedded technology will offer more choice to embedded developers in the x86 architecture high-performance computing segment. As more and more devices become interconnected, Advanced Micro’s efforts to further strengthen its position in the burgeoning embedded markets will reap benefits. (Read: AMD and Mentor Graphics Ink Deal on Embedded Technology).
Google Deal
In November, the company announced that its FirePro server GPUs have been selected by Alphabet (GOOGL - Free Report) to power its cloud platform in 2017. These developments are expected to help the company gain more traction in the GPU space and close in the market share gap with NVIDIA. (Read: AdvancedMicro Scales New Highs, Clinches Deal with Google).
Balance Sheet
Advanced Micro exited the fourth quarter with cash and cash equivalent balance of $1.26 billion, up $6 million from the previous quarter.
During the quarter, the company raised approximately $1.4 billion in cash, before issuance costs, as a result of issuing $690 million of common stock and $700 million of Convertible Notes due 2026.
Inventory was $751 million, up 10.8% on a year-over-year basis but down 2.7% sequentially. Total debt (short term and long term) was $1.43 billion, down $0.2 billion sequentially.
Guidance
Management expects first-quarter 2017 revenues to decrease 11% sequentially (+/- 3%), primarily due to seasonal weakness in semi-custom and graphics products. If the company manages to achieve the mid-point of its guidance, it will translate to 18% growth in revenues on a year-over-year basis.
Gross margin is likely to be 33% while non-GAAP operating expenses are estimated to be $360 million.
On the other hand, interest expense, taxes and others will amount to $30 million. Inventories are expected to remain flat on a sequential basis.
Our Take
The decent fourth-quarter results reflected AMD’s improving position in key markets with the introduction of several APUs and GPUs. Moreover, partnerships with the likes of Google for the supply of Radeon Pro GPUs and FirePro server GPUs are positive in our view.
Notably the company trails NVIDIA as the second-largest manufacturer of graphics chips for high-end computing and is gradually gaining traction in the space.
Additionally, upcoming products like Ryzen and Zen are expected to drive the top line going ahead.
Zacks Rank
Advanced Micro has Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>