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Why Is Advanced Micro (AMD) Up 24.1% Since the Last Earnings Report?
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A month has gone by since the last earnings report for Advanced Micro Devices, Inc. (AMD - Free Report) . Shares have added about 24.1% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Recent Earnings
AMD reported loss of $0.04 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.
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) 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) 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.
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.
Google Deal
In November, the company announced that its FirePro server GPUs have been selected by Alphabet (GOOGL) 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.
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.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter. In the past month, the consensus estimate has shifted 48.81% downward due to these changes.
At this time, Advanced Micro's stock has a great Growth Score of 'A', though it is lagging a lot on the momentum front with an 'F'. Following the exact same course, the stock was allocated also a grade of 'F' on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregte VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for growth based on our styles scores.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.
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Why Is Advanced Micro (AMD) Up 24.1% Since the Last Earnings Report?
A month has gone by since the last earnings report for Advanced Micro Devices, Inc. (AMD - Free Report) . Shares have added about 24.1% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Recent Earnings
AMD reported loss of $0.04 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.
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) 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) 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.
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.
Google Deal
In November, the company announced that its FirePro server GPUs have been selected by Alphabet (GOOGL) 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.
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.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter. In the past month, the consensus estimate has shifted 48.81% downward due to these changes.
Advanced Micro Devices, Inc. Price and Consensus
Advanced Micro Devices, Inc. Price and Consensus | Advanced Micro Devices, Inc. Quote
VGM Scores
At this time, Advanced Micro's stock has a great Growth Score of 'A', though it is lagging a lot on the momentum front with an 'F'. Following the exact same course, the stock was allocated also a grade of 'F' on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregte VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for growth based on our styles scores.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.