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Why Is Advanced Micro (AMD) Down 10.6% 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 lost about 10.6% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Recent Earnings

AMD reported earnings of 2 cents in second-quarter 2017, which was better than the Zacks Consensus Estimate of a break-even. The company had reported loss of 5 cents per share in the year-ago quarter.

Revenues increased 19% year over year to $1.22 billion and exceeded the Zacks Consensus Estimate of $1.15 billion. The year-over-year growth was primarily driven by strong demand for the company’s Graphics Processor Units (GPUs) and expanding customer base.

Quarter Details

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 53.9% of revenues and was up almost 51.5% year over year to $659 million. The year-over-year growth was driven primarily by higher demand for graphics and Ryzen desktop processors. Ryzen-based desktop systems have been adopted by major PC OEMS.

Client average selling price (ASP) increased year over year driven by higher desktop processor ASP owing to the first full quarter of shipments of Ryzen processors. Graphics processor units ASP increased year over year primarily due to strong demand for Radeon RX GPUs.

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 46.1% of revenues, down 4.9% year over year to $563 million. The year-over-year decline can be attributed to lower semi-custom SoC sales.

However, investments in graphics and data center R&D resulted in an increase in operating expenses to $381 million compared with $342 million in the year-ago quarter.

Product Highlights

During the quarter, Advanced Micro launched its new "Zen" architecture-based EPYC 7000 series processors.

The company also introduced its series of Ryzen processors - Ryzen Threadripper for ultra-premium desktop systems, Ryzen PRO for enterprise desktops, Ryzen 3 for desktop CPUs and Ryzen Mobile APUs for the consumer market.

It launched Radeon Vega Frontier Edition, Radeon RX 580 and Radeon RX 570 graphics cards this quarter.

Moreover, Apple announced the new iMac Pro, which will be powered by Radeon Pro Vega product, while its expanded iMac offerings are already being powered by the Radeon Pro 500 Series.

The company’s Radeon Instinct MI25 accelerators were shipped to strategic datacenter customers in the quarter.

Balance Sheet

Cash, cash equivalents & marketable securities were $844 million at the end of the second-quarter 2017, compared with $943 million at the end of the previous quarter. Payables to related parties were $374 million in the quarter.

Long-term debt at the end of the quarter was $1.38 billion, down from $1.41 billion in the previous quarter, primarily attributable to debt reduction activities.

Guidance

For third-quarter 2017, Advanced Micro expects revenues to increase 23% sequentially (+/- 3%). At mid-point, this reflects 15% growth on a year-over-year basis.

Gross margin is likely to be 34% while non-GAAP operating expenses are estimated to be $400 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter compared to three lower.

Advanced Micro Devices, Inc. Price and Consensus

VGM Scores

At this time, Advanced Micro's stock has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the last quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.

Outlook

While estimates have been broadly trending upward for the stock, the magnitude of these revisions has been net zero. The stock has a Zacks Rank #2 (Buy). We are looking for an above average return from the stock in the next few months




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