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Will GPU Product Rollouts & Tie-Ups Aid AMD's Q3 Earnings?

Zacks Equity Research

Advanced Micro Devices AMD is set to report third-quarter 2019 results on Oct 29.

The company’s third-quarter results are likely reflect robust demand of graphic processor units (GPUs), which are now widely utilized in industries like gaming, automotive and blockchain.

Notably, lower GPU and client processor sales more than offset accelerated sales of Ryzen desktop and mobile processors in the second quarter, a trend that is likely to have continued in the third quarter. This is likely to have affected AMD’s computing and Graphics (CG) segment revenues in the to-be-reported quarter. Notably, the segmental revenues decreased 13% year over year and came in at $940 million in the last reported quarter.

Click here to know how the company’s overall Q3 performance is expected to be.

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Advanced Micro Devices, Inc. Price and Consensus

 

Advanced Micro Devices, Inc. Price and Consensus
Advanced Micro Devices, Inc. Price and Consensus

Advanced Micro Devices, Inc. price-consensus-chart | Advanced Micro Devices, Inc. Quote

CG & ESC Segment in Spotlight

Improving overall GPU revenues on strong adoption of new products is likely to get reflected in the third quarter performance.. Moreover, AMD introduced first 7-nanometer Navi gaming GPUs in the third quarter.

In the quarter under review, AMD rolled out Radeon RX 5500 Series designed to deliver smooth gameplay in 1080p. With these cards, AMD is foraying into the high-end graphics card market. Consequently, AMD’s revenues are likely to have benefited significantly if the latest GPU can cater to the rising demand of users.

We believe AMD’s portfolio strength is likely to have boosted customer base and consequently the top line in the third quarter.

Non-GAAP gross margin in the third quarter is anticipated to be 43%, driven by higher sales from Ryzen, EPYC and datacenter GPU processor sales.

However, the company is likely to have encountered weakness in graphics channel in the third quarter thanks to seasonality. It is also likely to have faced lower graphics sales in the third quarter owing to absence of blockchain related GPU revenue and lower memory sales. These factors are likely to get reflected in the to-be-reported quarter results.

The Zacks Consensus Estimate for computing and graphics segment for the third quarter is pegged at $1.218 billion, up from $938 million reported in the year-ago quarter.

Enterprise, Embedded and Semi-Custom segment revenues are anticipated to reflect decline in the third quarter, primarily owing to lower semi-custom product. However, higher EPYC datacenter processor sales are likely to have partially offset this impact.

Moreover, Sony’s upcoming gaming console will be powered by a custom AMD chip based on the “Zen 2” CPU and “Navi” GPU architectures. Strong adoption of EPYC server processors has been gaining traction, a trend that is likely to have continued in the third quarter.

To mention, Enterprise, Embedded and Semi-Custom segment (ESC) revenues declined 12% year over year in the last reported quarter. The Zacks Consensus Estimate for Enterprise, Embedded and Semi-Custom segment for the third quarter is pegged at $587 million, down from $715 million reported in the year-ago quarter.

Key Development

During the quarter under review, Amazon’s AMZN cloud arm, Amazon Web Services (AWS), announced broader availability of the AMD EPYC processor-based service. AWS launched three new EPYC processor-powered EC2 instance families, including the first T3-series instances.

Zacks Rank & Other Key Picks

AMD currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader technology sector are Vonage Holdings Corp. VG and Taiwan Semiconductor Manufacturing Company Ltd. TSM. Each of the stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Vonage and Taiwan Semiconductor is currently pegged at 5% and 10.4%, respectively.

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