AMD Earnings: Second-Gen RDNA in 2020, Quarterly Revenue up 50% and 50% debt reduction in 2019

[Torand]

Original article:

 

https://www.tomshardware.com/news/amd-announces-4q19-earnings-second-gen-rdna-in-2020-quarterly-revenue-up-50-percent

 

Quote

AMD announced its fourth quarter 2019 and full-year earnings results today, with top-line numbers including record quarterly revenue of $2.13 billion, a 50% gain over the prior quarter. AMD also notched a record $6.73 billion in revenue in 2019, a 4% increase over the prior year. 

This is excellent news! And will hopefully spur continued innovation.

 

Quote

AMD also reduced its debt by 50% during 2019 and has $1.5 billion in net cash on hand, the highest since 2016. That's a massive change from its $4.5 billion in debt ten years ago. 

 

This is also amazing news, hopefully they will have more cash on hand now to address their GPU division...

 

Quote

AMD also made solid progress on the margin front as it enhances its profitability. Gross margins increased from 38% in 2018 to 43% in 2019, including a record 45% margin for the fourth quarter. AMD generated $170 million in profits during the quarter, a sharp increase over $45 million a year ago, and a total of $341 million during 2019. 

...

For 2020, AMD projects a 45% gross margin and a 30% increase in revenue. AMD said that, removing its semi-custom products from the mix, its other businesses grew over 20% during 2019 (including EPYC), and the company expects the same trend for 2020.

I mean this stuff speaks for itself, well done AMD.

 

This is a win for everyone, as hopefully this puts ever more clout behind their Ryzen and Epyc division to keep the competition fueled.

Edited January 29, 2020 by Othyn
Title formatting, hyperlink adjustments and more quote additions

[Syfes]

24 minutes ago, Tedny said:

Just don't build factory, like last time 

And don't buy a company billions in debt like ATI. 

[Brooksie359]

3 hours ago, Syfes said:

And don't buy a company billions in debt like ATI. 

In fairness their GPU division helped keep them afloat while their CPU division was struggling because of their design decisions for the FX series. 

[RejZoR]

51 minutes ago, Brooksie359 said:

In fairness their GPU division helped keep them afloat while their CPU division was struggling because of their design decisions for the FX series. 

And now CPU division is keeping them up, although GPU division isn't really struggling. Sure they don't have top end cards, but they still move quite some low and mid end. Polaris series were widely popular and new Navi series are also very competitive cards.

[schwellmo92]

It’s funny how places spin this earnings as good news when in reality it didn’t meet market expectations and future guidance is also below expectations. Just take a look at the price movement for today.

[Doobeedoo]

They're doing very good, this year will be quite important too. Aside from new CPUs and APUs as well as mobile side, highly anticipated Big Navi is to come. There are also upcoming consoles, big year indeed. 

[Bombastinator]

45% margin?! That’s insane.  2% margin is common in many businesses

[Bombastinator]

18 minutes ago, schwellmo92 said:

It’s funny how places spin this earnings as good news when in reality it didn’t meet market expectations and future guidance is also below expectations. Just take a look at the price movement for today.

Makes one wonder why expectations were higher?

[porina]

13 minutes ago, schwellmo92 said:

It’s funny how places spin this earnings as good news when in reality it didn’t meet market expectations and future guidance is also below expectations. Just take a look at the price movement for today.

People in the finance world seem to work on a different mindset than the rest of us. One part is that share prices are an indication of how well they think you will do in future, not what you have done in the past. Part of the job of AMD's CFO would be to try and manage those expectations from the market to avoid big swings in share price.

 

9 minutes ago, Bombastinator said:

45% margin?! That’s insane.  2% margin is common in many businesses

45% gross margin doesn't sound unreasonable. I work for a US HQ, global presence company making technology products. The company's target GM is also around 45%. It fluctuates around that. Note margin only refers to part of the finance equation, relating your revenue to cost of goods. This doesn't include other factors, like R&D which would have to be covered by that.

 

Unless you're thinking of profit margin, which does take into considerations all costs. That could be much lower. 

 

Just for fun, AMD's market cap is about 40x bigger than where I work.

 

 

[Bombastinator]

1 minute ago, gabrielcarvfer said:

Not in the semiconductor industry:
Samsung Electronics: ~46%  
NXP Semiconductor: ~52%

Qualcomm: ~64%

Mediatek: ~41%

Broadcom: ~55%

TSMC: ~45%

Intel: ~58%

SK Hynix: ~41%

Nvidia: ~59%

Texas Instruments: ~63%

 

 

 

Yeah.  It’s the old stuff That’s low margin.  Food, clothing, shelter.  

[Bombastinator]

2 minutes ago, porina said:

People in the finance world seem to work on a different mindset than the rest of us. One part is that share prices are an indication of how well they think you will do in future, not what you have done in the past. Part of the job of AMD's CFO would be to try and manage those expectations from the market to avoid big swings in share price.

 

45% gross margin doesn't sound unreasonable. I work for a US HQ, global presence company making technology products. The company's target GM is also around 45%. It fluctuates around that. Note margin only refers to part of the finance equation, relating your revenue to cost of goods. This doesn't include other factors, like R&D which would have to be covered by that.

 

Unless you're thinking of profit margin, which does take into considerations all costs. That could be much lower. 

 

Just for fun, AMD's market cap is about 40x bigger than where I work.

 

 

Ah. “Gross margin”. Yeah, that’s different.  Year end profits I don’t think are gross margin though.

[rockking1379]

29 minutes ago, schwellmo92 said:

It’s funny how places spin this earnings as good news when in reality it didn’t meet market expectations and future guidance is also below expectations. Just take a look at the price movement for today.

I think Wall Street sets their expectations way to high most of the time anyway

[TechyBen]

30 minutes ago, rockking1379 said:

I think Wall Street sets their expectations way to high most of the time anyway

Yeah, the market price drop could even be because they DID pay off debt. Which means less easy turnaround from investors trying to pump/dump/swap their shares. Hhahahahaha.

[rockking1379]

3 minutes ago, TechyBen said:

Yeah, the market price drop could even be because they DID pay off debt. Which means less easy turnaround from investors trying to pump/dump/swap their shares. Hhahahahaha.

I would rather see a company have no debt at all. I’m glad they paid down so much of it. Maybe by end of this year they can have it all gone. Greatly reduces chances of going bankrupt when you have fewer expenses. 

[thorhammerz]

23 minutes ago, rockking1379 said:

I would rather see a company have no debt at all.

So long as the debt is serviceable (preferably positive & growing net operating profits), it is quite good (and arguably a necessity) for a company that needs to grow / scale in any reasonable amount of time. The key sticking point is whether the shareholder value generated from growth can exceed the cost of capital within a reasonable time-frame.

 

In short, you need to spend money (inventory doesn't appear out of thin air for free, salaries don't pay themselves, etc.) to make money.

[Tristerin]

MAKES MOST MONEY, FLUBS RX 5600 XT RELEASE BEYOND BELIEF.  Its almost like the enjoy the struggle.

[RejZoR]

13 minutes ago, Tristerin said:

MAKES MOST MONEY, FLUBS RX 5600 XT RELEASE BEYOND BELIEF.  Its almost like the enjoy the struggle.

RX 5600 XT isn't a bad card, if you're enthusiast who doesn't mind flashing the card and knows what you're getting into. It's a really poor launch from perspective of a casual user. The card itself, with new BIOS is actually pretty damn good.

[Devin92]

2 hours ago, schwellmo92 said:

It’s funny how places spin this earnings as good news when in reality it didn’t meet market expectations and future guidance is also below expectations. Just take a look at the price movement for today.

form what i have read, they have weak data center business forecast and did not meet the wall street expectations. And wall street is really looking for a strong data center guidance (which intel gives them and see their stock raises ). This is quiet weird for me to understand: AMD's high-core count CPUs are much cheaper than intel's but somehow the data centers are not adopting very fast. Maybe they need more time for the adoption?

[justpoet]

6 minutes ago, Devin92 said:

form what i have read, they have weak data center business forecast and did not meet the wall street expectations. And wall street is really looking for a strong data center guidance (which intel gives them and see their stock raises ). This is quiet weird for me to understand: AMD's high-core count CPUs are much cheaper than intel's but somehow the data centers are not adopting very fast. Maybe they need more time for the adoption?

Data centers are super slow for adoption of anything.  Many will see AMD as a good product to keep an eye on, but when adding 50 new CPUs to increase load handling, they'll simply stick with as close to what they have already for 1000's of other CPUs in order to keep support costs down and their same volume discount purchase plans in place and active while using the same models of everything else (for example, tons of places have only 2 or 3 SKUs from HP or Dell that have been validated as orderable to put into a rack).

 

If Intel products in the data center were horribly BROKEN rather than just more expensive for most types of performance, that would be different.  But, for the most part, they all work fine, so unless you're ramping up a NEW data center or completely separate project from anything else, those customers are still unlikely to jump on AMD just yet.  Once we see the next Zen architecture happen though, if intel doesn't have a proper answer and update by then, it'll probably start to be big enough to force wholesale moves, especially since more of the big named server product companies are now working with AMD, and it won't be first gen AMD products from them anymore either.

[Devin92]

11 minutes ago, justpoet said:

Data centers are super slow for adoption of anything.  Many will see AMD as a good product to keep an eye on, but when adding 50 new CPUs to increase load handling, they'll simply stick with as close to what they have already for 1000's of other CPUs in order to keep support costs down and their same volume discount purchase plans in place and active while using the same models of everything else (for example, tons of places have only 2 or 3 SKUs from HP or Dell that have been validated as orderable to put into a rack).

 

 

make sense. well then are those wall street guys just ignorant on this very simple logic?

[RejZoR]

39 minutes ago, comander said:

They paid almost 2x what ATi was worth. They took multiple Goodwill impairments. ATi's profits didn't cover the debt payments AMD needed to take on. 

 

AMD paid 5.6Bn of which 3.2Bn was "Goodwill" - think reputation and "synergy". At a 10% marginal cost of capital, that means AMD would've needed 320M profit from graphics to cover the gap. Even with tax write-offs on $2Bn or so that only reduced the lost cash to around $2.6Bn. ATi's profit before the merger was $15M and there were a number of years where AMD+ATi combined had a lower market cap than ATi alone had in 2005. 

 

https://www.google.com/amp/s/www.cbc.ca/amp/1.641782

 

For the record I might have a few figures off but I'm directionally correct. I'm not a financial engineer or investment banker but I can at least keep up with one of they talked about their field. 

 

---------

 

For the money wasted, they could've weathered FX and accelerated Ryzen's development by a few years (by starting earlier and having multiple teams), though "Ryzen" might've looked more like K7 on steroids. 

 

 

 

It's not all so white and black though. Buying ATi was a long term investment and a very smart one. Controlling two massive compute segments is the ultimate way of making sure your company is secured. You need to screw up really badly for both to perform badly. With just one, AMD would struggle and I don't think Ryzen would've come any quicker if it was just AMD without any debt from ATi purchase burdening them. And I don't think they'd have full console control and strong APU presence on low/mid end systems if they were AMD only. Also they wouldn't have any GPU's for compute clusters. I very much doubt AMD was capable in doing it themselves at any point as in developing GPU's on their own. It's why they needed ATi back then.

[Brooksie359]

3 hours ago, comander said:

They paid almost 2x what ATi was worth. They took multiple Goodwill impairments. ATi's profits didn't cover the debt payments AMD needed to take on. 

 

AMD paid 5.6Bn of which 3.2Bn was "Goodwill" - think reputation and "synergy". At a 10% marginal cost of capital, that means AMD would've needed 320M profit from graphics to cover the gap. Even with tax write-offs on $2Bn or so that only reduced the lost cash to around $2.6Bn. ATi's profit before the merger was $15M and there were a number of years where AMD+ATi combined had a lower market cap than ATi alone had in 2005. 

 

https://www.google.com/amp/s/www.cbc.ca/amp/1.641782

 

For the record I might have a few figures off but I'm directionally correct. I'm not a financial engineer or investment banker but I can at least keep up with one of they talked about their field. 

 

---------

 

For the money wasted, they could've weathered FX and accelerated Ryzen's development by a few years (by starting earlier and having multiple teams), though "Ryzen" might've looked more like K7 on steroids. 

 

 

 

That's not really how things work. They would likely have invested the money regardless and depending on the investment they wouldn't have been able to recover after the fx series debacle. Also to my knowledge they did start working on ryzen immediately after the fx series it just took a significant amount of time to develop a new architecture from scratch. Also they never would have been so successful in the console market if it wasn't for them having the ability to provide both the CPU and GPU together for relatively cheap. You can criticize their purchase but honestly they have made a significant amount of money from that purchase. 

[mr moose]

People need to remember that much of the market expectation is derived from consumer analytics compared with company provided data including their own expectations and press releases.   

 

Also people need to be careful they don't confuse quarterly results with the yearly results.   Don't get me wrong both are good.  just easy to confuse when they are both presented in the one article. 

 

 

[Belgarathian]

7 hours ago, Bombastinator said:

45% margin?! That’s insane.  2% margin is common in many businesses

Gross, not net. 

[Brooksie359]

1 hour ago, comander said:

For some perspective, I've done lunch with the CEO of a Fortune 100 company and straight up had an engineering SVP from that company call me and offer me a raise/promotion when I resigned to join my current company (FAANG/Unicorn). I know enough finance to be dangerous, have been actively reading about the tech industry presumably about as long as you've been alive and currently work in a space that draws from this knowledge. I'm NOT a somebody (just an above average cog in a massive machine) but I have a feel for how things work behind the scenes. 

If I wanted to, I could probably pass the CFA L1+L2 exams with minimal effort, and I'm one class away from being able to get a CPA (I had a minor in accounting in addition to A LOT of STEM classes)

I've also mentored a few small business owners and seen how pride, ego and hubris coupled with being cash strapped can lead to GROSS inefficiencies and lost potential from the ground level. Being close to bankruptcy creates an environment where clever financial engineering matters more than executing on sound strategy. It's hard to invest for the future when you're trying to keep the lights on and that's what took up most of the focus at AMD for a while (sold off Glofo, spun off business units, sold their corporate headquarters and leased it back). They were doing EVERYTHING they could to not default on upcoming debts (which would've made further financing near impossible). This is NOT efficient/effective.

 

Let's say, hypothetically, AMD had invested the 5BN in the S&P 500 in 2006. From 2006-2016 that would've gone from 5BN to 10BN.
AMD's market cap from 2006-2016 went from 18BN to 1.6BN. The success of Ryzen raised AMD's market cap by around 40BN (in otherwords, Zen/Zen+/Zen2 was worth around 20x all the graphics stuff, conservatively). 


AMD+ATi combined did not have 5BN of gross profits during that time span. 

Well... it sort of did, the mobile graphics division of ATi had profits around that level. AMD was so cash starved they sold it for $65M in 2009. Let me reemphasize BUYING ATi ALMOST KILLED AMD AND THEY SOLD ASSETS AT DISCOUNT PRICES TO AVOID COMPLETE BANKRUPTCY. Imageon became Qualcomm's Adreno. Every time you read ADRENO, realize that it's what a separate and independant ATi could've had. It's arguable that Adreno alone is worth more than AMD's entire graphics division right now. 
https://arstechnica.com/gadgets/2009/01/amd-unloads-mobile-gpu-technology-to-qualcomm/
https://en.wikipedia.org/wiki/Adreno


Their "success in the console market" was NOT worth 10BN - the margins on those sales are low. It was not worth being so cash starved that they couldn't compete in the data center either. 

Again, buying ATi almost killed AMD. If Ryzen were a flop, AMD would likely be in bankruptcy proceedings right now. ATi was a huge risk. It did NOT pay off and the entire industry is worse off because of the hubris of Hector Ruiz, the man who inherited a winning Athlon 64 design and who oversaw the development of Phenom and Bulldozer.

 

 

The only winners from the AMD+ATi deal were Qualcomm, nVidia and Intel.

AMD lost 10 years of competitiveness in the CPU/server/datacenter (which is something like 10-100x as profitable as consoles), ATi lost the entire mobile GPU market which their technology CURRENTLY IS THE LEADING PLAYER IN, etc. It would've been cheaper for AMD to make GPUs in house and/or to keep nVidia as a partner who integrated graphics into a northbridge/PCH (with a dash of onboard cache).

Again with the ifs and buts. The fact is that their bulldozer cpu launch put them in a tough position because they had a CPU that was not competitive in the slightest meaning they had nothing going for them in the CPU space until they came out with a new architecture. Luckily they had their GPU division to counter balance this while they developed ryzen. You can say that if they saved money or invested it in A or B it would have been better but hindsight is always 20/20 and there is no guarantee they wouldn't have invested in something else that didn't pan out and end up in the same position but without a GPU division to make money while their cpu flops. The main point is that their GPU division helped them alot during the time when bulldozer was a flop.