AMD reported $1.8 B of revenue and $0.18 of non-GAAP EPS. Gross margin was 43%. This was exactly how much AMD had guided three months earlier. With all the news of how well Ryzen and Rome were selling, I had hoped for a beat. As it turned out, AMD admitted that the ban put in place against selling to the Entity List and Huawei in particular did in fact cause some shortfall. In other words, AMD was able to overcome the China trade war headwind and meet their earlier projection.
Most importantly, AMD guided Q4 revenue to be $2.1 B. This was lower than the $2.2 B previously implied, since H2 was supposed to be $4.0 B. This initially was somewhat disappointing. However, remember that many analysts were skeptical of AMD’s H2 guidance, the so-called hockey stick increase over H1 in revenue. So it is actually quite reassuring that AMD is promising to deliver $3.9 B for H2. AMD also stated that the game console drop off is the main reason for this differential. Since we know that both Sony PS5 and MS XBox will launch in holiday 2020, this factor will no longer be a problem next year.
Another way of looking at this Q4 guidance is to remember Q4 2018 revenue was merely $1.42 B. It was so low because the crypto boom GPU sales were gone, plus the consoles were on their last leg. Now for 2019 Q4, there is still no crypto boom, and if anything else, the consoles sale should be even lower, yet AMD is guiding for an increase revenue of $700 M! All that sales must be coming from Epyc Rome, Ryzen 3rd gen, and RX 5700 etc etc, all 7nm higher margin SKUs.
Looking ahead, Q1 2019 revenue was only $1.27 B. If we add all the Epyc, Ryzen, TR3, Ryzen mobile, RX 5700, RX 5500 to the mix, the guidance for Q1 may be close to $2.0 B! In other words, we will be looking at incredible % increase YOY for the next several quarters. By January 2020, I think AMD will need to update their guidance for the entire 2020. Revenue should be in the range of $9.5-10 B. With GM higher than 45%, EPS could more than double over 2019!
As a result, AMD share price actually increased steadily after ER. It has breached 37, an all time high, and as of today settled above 36.
Here are some of the reactions from various media.
Market Watch: “AMD looks like a bright star in a darkened chip sector.”
The Street’s Real Money: “World series aside, AMD’s Lisa Su is the real ace.”
Tom’s Hardware: “AMD sees highest quarterly revenue since 2005 with 7 nm Ryzen, Radeon and Epyc.”
CRN.com: “Epyc sales grew 50 percent after Rome’s launch.”
The Next Platform: “AMD’s datacenter business breaks through $1 Billion run rate.”
AMD was actually higher than 34 after Rome launch in August. It got knocked down for nearly three months, and now has justifiably recovered and breached the 2018 high of 35. I had sold puts back in July and August, strike 34 to 36, expiry on October 18. I had figured that by ER late October share price should be around 35-36, if not higher. Well, because of the downturn, my puts were all assigned. Alas, now those shares are all above water. So I had made around $5 premium, which I would not have made if I only do “buy and hold”. So the “short-term speculative options” portion of my holdings did well for this time period. My “buy and hold” portion still makes up 75% of my entire AMD portfolio. AMD’s long term prospect is brighter than ever!
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