AMD Q1 2020 Earnings

{ "callDetails": { "callTitle": "Advanced Micro Devices Q1 2020 Earnings Call", "dateTime": "April 28, 2020 at 9:30 PM UTC", "managementTeam": [ { "name": "Lisa Su", "title": "President and Chief Executive Officer" }, { "name": "Devinder Kumar", "title": "Senior Vice President, Chief Financial Officer and Treasurer" }, { "name": "Ruth", "title": "Senior Vice President, Worldwide Market, Human Resources, and Investor Relations" } ] }, "callSummary": { "sections": [ { "title": "Financial Performance", "importance": "major", "bullets": [ "Total GAAP revenue was $1.79B in Q1 2020, up 40% year-over-year and down 16% sequentially.", "GAAP gross margin was 46% in Q1 2020, an increase of 490 basis points year-over-year.", "Operating income for the quarter was $236M, up $152M year-over-year, and operating margin increased to 13% versus 7% a year ago.", "Net income was $222M in the quarter, compared to $62M a year ago, and diluted EPS was $0.18 versus $0.06 a year ago.", "Computing and Graphics segment revenue was $1.44B, up 73% year-over-year, with segment operating income of $262M or 18% of revenue.", "Enterprise, Embedded & Semi-Custom (EESC) revenue was $348M, down 21% year-over-year, and the EESC segment reported an operating loss of $26M versus operating income of $68M a year ago that included a $60M licensing gain.", "Cash, cash equivalents and marketable securities totaled $1.4B at quarter end, and inventory was $1.1B, up 8% sequentially.", "Trailing 12-month adjusted EBITDA was $1.2B, yielding gross leverage of 0.5 times, and free cash flow was negative $120M in Q1, an improvement of $155M year-over-year." ] }, { "title": "Guidance", "importance": "major", "bullets": [ "Q2 2020 revenue is expected to be approximately $1.85B, plus or minus $100M, which implies roughly 21% year-over-year growth and about 4% sequential growth.", "Q2 2020 non-GAAP gross margin is expected to be approximately 44% due to higher semi-custom revenue in the quarter.", "Q2 2020 non-GAAP operating expenses are expected to be approximately $600M.", "Q2 2020 non-GAAP interest, taxes and other are expected to be approximately $20M and diluted share count is expected to be approximately 1.23B shares.", "Full year 2020 revenue growth is expected to be approximately 25% plus or minus 5 percentage points versus prior guidance.", "Full year 2020 non-GAAP gross margin is expected to be approximately 45%, unchanged from prior guidance, and non-GAAP operating expenses are expected to be approximately 29% of revenue." ] }, { "title": "Capital Allocation", "importance": "minor", "bullets": [ "AMD held $1.4B in cash, cash equivalents and marketable securities as of quarter end.", "AMD drew $200M from its $500M revolving credit facility in early April as a precautionary liquidity step.", "Inventory increased to $1.1B, representing an 8% sequential rise versus the prior quarter.", "Free cash flow was negative $120M in Q1 2020, improving $155M year-over-year, and cash flow from operations was negative $65M, improving $148M year-over-year.", "Trailing 12-month adjusted EBITDA of $1.2B resulted in gross leverage of 0.5 times." ] }, { "title": "Design Wins & Pipeline", "importance": "minor", "bullets": [ "AMD expects more than 135 new Ryzen-powered consumer and commercial notebooks from partners including Acer, Asus, Dell, HP, and Lenovo over coming quarters.", "Initial consumer notebooks with Ryzen Mobile 4000 launched to strong demand and drove a record quarterly notebook processor revenue.", "Sony and Microsoft reduced semi-custom inventory in Q1 ahead of next-generation console launches, and AMD expects semi-custom revenue to ramp in Q2 and be heavily weighted to the second half to support PlayStation 5 and Xbox Series X holiday launches.", "Lawrence Livermore National Laboratory selected next-generation EPYC CPUs and Radeon Instinct GPUs for the El Capitan supercomputer, and two of three publicly announced U.S. exascale systems will exclusively use AMD CPUs and GPUs.", "Microsoft Azure, Google, and IBM announced new instances powered by second-generation EPYC processors and Microsoft introduced new virtual machines combining EPYC CPUs and Radeon Instinct GPUs." ] }, { "title": "Capacity & Supply Chain", "importance": "minor", "bullets": [ "AMD reported it navigated pockets of supply chain disruption in Q1 while maintaining customer supply.", "Semi-custom revenue was negligible in Q1 due to Sony and Microsoft reducing inventories ahead of console launches.", "AMD expects semi-custom production to ramp in Q2 and be concentrated in the second half of 2020 to meet holiday console demand.", "Inventory increased 8% sequentially to $1.1B, and AMD drew $200M from its revolver as a precautionary step in April.", "AMD reported the majority of its employee base of more than 12,000 has transitioned to working from home while operations continued." ] }, { "title": "Competitive Positioning", "importance": "minor", "bullets": [ "AMD reported it gained client unit market share for the 10th straight quarter based on strong Ryzen processor demand.", "AMD stated Ryzen desktop families had more than 50% share of premium processor sales at many top global e-tailers.", "AMD claimed performance leadership in servers with second-gen EPYC offering both highest performance per core and performance per socket processors in the industry.", "AMD reported RDNA2 GPUs are on track for a late-2020 launch with a targeted 50% performance-per-watt improvement versus current offerings.", "AMD positions itself as an exascale computing leader based on CPU and GPU wins and software capabilities." ] } ] }, "notableQuotes": [ { "quote": "Revenue increased 40% year over year to $1.79 billion.", "speakerName": "Lisa Su" }, { "quote": "Gross margin was 46%, up 490 basis points from a year ago.", "speakerName": "Devinder Kumar" }, { "quote": "Computing and graphics segment revenue was $1.44 billion, up 73% year-over-year.", "speakerName": "Devinder Kumar" }, { "quote": "Enterprise, embedded and semi-custom segment revenue was $348 million, down 21% year over year.", "speakerName": "Devinder Kumar" }, { "quote": "We expect revenue to be approximately $1.85 billion, plus or minus $100 million, an increase of approximately 21% year-over-year and an increase of approximately 4% sequentially.", "speakerName": "Devinder Kumar" }, { "quote": "For the full year 2020, we expect annual revenue growth of approximately 25% plus or minus 5 percentage points.", "speakerName": "Devinder Kumar" }, { "quote": "We are on track to launch our next generation gaming GPUs later this year, with a 50% performance per watt increase compared to our current offerings.", "speakerName": "Lisa Su" }, { "quote": "We are on track to launch our next generation Zen 3 CPUs and RDNA2 GPUs in late 2020.", "speakerName": "Lisa Su" }, { "quote": "One of our large cloud customers was able to deploy 10,000 second-gen EPYC servers in less than 10 days.", "speakerName": "Lisa Su" }, { "quote": "We have transitioned the vast majority of our more than 12,000 employees worldwide to working from home.", "speakerName": "Lisa Su" } ], "qaSummary": [ { "question": { "analystName": "Matt Ramsay", "firm": "TD Cowen", "summary": "Asked how EPYC/server business is tracking toward the mid-year 10% share target and asked for Milan timing." }, "answers": [ { "executiveName": "Lisa Su", "executiveTitle": "President and Chief Executive Officer", "quality": "Direct", "newInfo": "No", "guidance": "Yes", "summary": "Lisa stated the server business accelerated in Q1 with further ramp expected in Q2 and reiterated the 10% share target trajectory. She confirmed Milan (Zen 3) is expected to launch at the end of 2020 but provided no additional technical or schedule detail beyond prior commentary." } ] }, { "question": { "analystName": "Matt Ramsay", "firm": "TD Cowen", "summary": "Asked to quantify China weakness in PC and AIB channels and whether China trends improved into Q2." }, "answers": [ { "executiveName": "Lisa Su", "executiveTitle": "President and Chief Executive Officer", "quality": "Direct", "newInfo": "Partial", "guidance": "No", "summary": "Lisa said PC weakness in Q1 was concentrated in offline channels in China due to shutdowns in February and early March, while rest-of-world PC demand was strong and April showed pickup in China. She quantified the dynamic qualitatively but did not provide numeric split between China and rest-of-world." } ] }, { "question": { "analystName": "Joseph Moore", "firm": "Morgan Stanley", "summary": "Asked how AMD is thinking about forecasting beyond Q2 given limited visibility and asked for progress on data center GPU workloads pre-CDNA." }, "answers": [ { "executiveName": "Lisa Su", "executiveTitle": "President and Chief Executive Officer", "quality": "Direct", "newInfo": "Partial", "guidance": "No", "summary": "Lisa emphasized positives with data center platform ramps, console launches, and notebook momentum as the basis for full-year guidance, while noting PC market shape remains the primary uncertainty. She said data center GPUs are progressing with wins in cloud gaming and VDI, and that CDNA will target HPC workloads, but provided no timetable or revenue expectations for GPU-specific penetration before CDNA." } ] }, { "question": { "analystName": "Zech Aria", "firm": "Bank of America Securities", "summary": "Asked about server ASP trajectory given a cloud-heavy mix and asked whether current demand outlook differs from 90 days ago." }, "answers": [ { "executiveName": "Lisa Su", "executiveTitle": "President and Chief Executive Officer", "quality": "Direct", "newInfo": "No", "guidance": "No", "summary": "Lisa confirmed a cloud-weighted mix in Q1 lowered ASPs relative to prior quarters but said ASPs remain healthy and within the company's model. She stated demand versus 90 days ago is 'pretty similar' with cloud remaining strong and enterprise pipeline continuing to grow." }, { "executiveName": "Devinder Kumar", "executiveTitle": "Senior Vice President, Chief Financial Officer and Treasurer", "quality": "Direct", "newInfo": "No", "guidance": "Yes", "summary": "Devinder reiterated that Q2 gross margin is expected near 44% and that semi-custom ramp in the back half will pressure near-term margins but is offset by higher-margin data center revenue to meet the 45% full-year gross margin target." } ] }, { "question": { "analystName": "Mark Lipacis", "firm": "Jefferies", "summary": "Asked about the split between consumer and commercial on the notebook side and margin impact as commercial grows." }, "answers": [ { "executiveName": "Lisa Su", "executiveTitle": "President and Chief Executive Officer", "quality": "Direct", "newInfo": "No", "guidance": "No", "summary": "Lisa said the PC business remains consumer-weighted but commercial is growing and expected to continue gaining share. She noted a heavier commercial mix is positive for PC gross margins while strong education demand could offset some margin benefit, and she provided no numeric split." } ] }, { "question": { "analystName": "Stacy Rasgon", "firm": "Bernstein", "summary": "Questioned why increased cloud mix in Q1 would lower ASPs given prior cloud weighting and asked for data center revenue percentage and sequential revenue change." }, "answers": [ { "executiveName": "Lisa Su", "executiveTitle": "President and Chief Executive Officer", "quality": "Partial", "newInfo": "Partial", "guidance": "No", "summary": "Lisa explained the Q4-to-Q1 shift included a significant step-up in cloud deployments that lowered ASPs despite cloud being the historical mix, and she reported data center revenue was in the high teens percentage of company revenue in Q1. She confirmed data center revenue was up sequentially but did not provide a detailed CPU versus GPU dollar split." } ] }, { "question": { "analystName": "Toshiya Hari", "firm": "Goldman Sachs", "summary": "Asked whether the lowered midpoint of full-year guidance is driven primarily by PCs and whether competitive behavior or capacity changes have shifted in last 90 days." }, "answers": [ { "executiveName": "Lisa Su", "executiveTitle": "President and Chief Executive Officer", "quality": "Direct", "newInfo": "No", "guidance": "No", "summary": "Lisa said the primary driver of the wider and lower full-year midpoint is PC demand uncertainty, especially consumer PC spending, while consoles and data center are in line with expectations. She stated she has not observed material changes in competitor capacity or marketing that alter AMD's go-to-market assumptions." } ] }, { "question": { "analystName": "Ross Seymore", "firm": "Deutsche Bank", "summary": "Asked why server growth appears steady but not exceeding expectations despite a strong market and requested computing & graphics outlook for Q2 and H2 dynamics." }, "answers": [ { "executiveName": "Lisa Su", "executiveTitle": "President and Chief Executive Officer", "quality": "Direct", "newInfo": "No", "guidance": "Yes", "summary": "Lisa characterized the EPYC ramp as a platform-driven steady progression with platform qualifications and ramps each quarter, and reiterated confidence in continued share gains while declining to provide an upside to prior published expectations. She said computing and graphics is expected to be down sequentially in Q2 with notebooks up strongly, desktops down, and graphics down, reflecting seasonal channel patterns." } ] }, { "question": { "analystName": "John Pitzer", "firm": "Credit Suisse", "summary": "Asked how shelter-in-place affects new customer/workload engagements and whether material server wins are already secured versus dependent on future engagements.", }, "answers": [ { "executiveName": "Lisa Su", "executiveTitle": "President and Chief Executive Officer", "quality": "Direct", "newInfo": "Partial", "guidance": "No", "summary": "Lisa said many engagements are already in progress and typical ramp cycles can be six to nine months, and she reported high activity levels with cloud and large enterprise continuing to engage despite shelter-in-place. She noted transactional SMB demand may slow, but large cloud and enterprise pipelines remain active and visible." }, { "executiveName": "Devinder Kumar", "executiveTitle": "Senior Vice President, Chief Financial Officer and Treasurer", "quality": "Direct", "newInfo": "Partial", "guidance": "Yes", "summary": "Devinder explained the sequential gross margin decline from 46% to an expected ~44% in Q2 is primarily due to the initial ramp of semi-custom (console) revenue, and confirmed margins for the rest of the portfolio would be higher if semi-custom were excluded." } ] }, { "question": { "analystName": "Timothy Arcuri", "firm": "UBS", "summary": "Asked for a CPU versus GPU split within data center revenue and whether China cybersecurity rules could impact demand or revenue exposure." }, "answers": [ { "executiveName": "Devinder Kumar", "executiveTitle": "Senior Vice President, Chief Financial Officer and Treasurer", "quality": "Direct", "newInfo": "No", "guidance": "No", "summary": "Devinder said Q1 data center revenue was in the high teens percent of company revenue and was primarily weighted toward CPUs, and he did not provide a numeric CPU/GPU revenue split. He provided no additional GPU-specific revenue assumptions for Q2." }, { "executiveName": "Lisa Su", "executiveTitle": "President and Chief Executive Officer", "quality": "Partial", "newInfo": "No", "guidance": "No", "summary": "Lisa said AMD is reviewing the new China cybersecurity regulation and did not have specifics to share, and she characterized the majority of AMD's China business as consumer and consumer-related cloud without quantifying China revenue share." } ] }, { "question": { "analystName": "Mitch Steeves", "firm": "RBC Capital Markets", "summary": "Asked whether bookings or backlog have changed versus a quarter ago and whether Chinese companies are pre-buying semiconductors ahead of geopolitical risk." }, "answers": [ { "executiveName": "Lisa Su", "executiveTitle": "President and Chief Executive Officer", "quality": "Direct", "newInfo": "Yes", "guidance": "No", "summary": "Lisa said AMD has better visibility a month into the quarter than 90 days ago and that backlog/bookings are improved going into Q2. She stated AMD does not see broad abnormal inventory buildup in China from its own telemetry and that AMD does not have material exposure to the specific customers referenced by the analyst." } ] }, { "question": { "analystName": "Blayne Curtis", "firm": "Barclays", "summary": "Asked how computing & graphics trends compare first half to second half and whether work-from-home driven server demand could reverse into a headwind later in the year." }, "answers": [ { "executiveName": "Lisa Su", "executiveTitle": "President and Chief Executive Officer", "quality": "Direct", "newInfo": "No", "guidance": "No", "summary": "Lisa reiterated the full-year revenue range carries multiple outcomes where computing and graphics could be up or flat depending on consumer demand, and she said continued platform ramps in data center and consoles support second-half growth. She acknowledged COVID-19 introduces uncertainty about whether work-from-home driven demand will persist but noted current