AMD reaps big profits from Ryzen and Radeon, but PC sales remain a question mark
AMD reported very strong earnings for the first quarter of 2020, though AMD executives acknowledged that lower consumer spending may offset the strong demand for its Ryzen CPUs and Radeon GPUs as the year progresses.
AMD provided important context into how the coronavirus pandemic is affecting the technology industry, providing a counterpoint to rival Intel’s earnings last week. Chief executive Lisa Su said that AMD has already seen strong demand in the work-from-home category, specifically notebooks. It’s unclear, however, whether that demand will slow if the global economy continues to be hit hard.
Nevertheless, AMD still recorded a strong quarter. AMD reported $162 million in net income during the first quarter, about 10 times the $16 million it recorded for the same period a year ago. AMD also reported $1.79 billion in revenue, up 40% from the same period. Revenue did fall by 16% from the prior quarter, however, as AMD weathered pockets of supply chain disruption caused by the coronavirus.
The company forecasts that second-quarter revenue will be approximately $1.85 billion, plus or minus $100 million, an increase of approximately 21% year-on-year, and 4% sequentially. For the year, it expects 2020 revenue to grow by about 25%, compared to 2019. By contrast, Intel declined to offer that level of detail.
The big question mark: The PC market
During a conference call, AMD’s Su didn’t indicate that the coronavirus would impact the company’s development cycle. “We remain on track to launch our Zen 3 CPUs and RDNA2 GPUs in late 2020,” Su said, confirming the company’s timetable that it released before the sweep of the global pandemic.
AMD said that the average selling price of its Ryzen processors rose compared to a year ago because of higher Ryzen processor sales. GPU prices fell during the same period, however, due to a cheaper product mix. AMD said it expects over 135 new Ryzen consumer and commercial notebooks from PC makers “in the coming quarters”.
AMD’s primary source of revenue, the computing and graphics segment, recorded revenue of $1.44 billion, up 73% from a year ago, due to strong Ryzen and Radeon channel sales, AMD said. Sales fell 13% from the prior quarter due to lower GPU sales, the company added.
The big question? The shape of the PC market. “Our confidence in notebooks being a strong growth driver for us as we go through this year is good,” Su said.
But some of the Chinese offline retailers who used to sell AMD’s processors in Asia shuttered due to the virus, Su said. Drew Prairie, director of communications for AMD, added that the company believes those factors are unique to the Chinese market. AMD has “reasonably good visibility into Q2” that has allowed the company to predict that those factors won’t affect AMD’s success in the rest of the world.
“The two forces are there,” Su said. “One is, there is a pull, with the strong work from home trend, and there’s also the view that from a macro standpoint, we’ll be weaker in the second half of the year. That’s the primary variance in our model: What happens to the PC market.”
AMD didn’t fare as well in the enterprise, embedded, and semi-custom segment, though AMD is currently wallowing in the trough before the launch of the Microsoft Xbox Series X and the upcoming Sony PlayStation 5, both expected by the end of the year. In this segment, AMD reported revenue of $348 million, down 21% year-on-year. Epyc enterprise processor sales were up. The segment reported an operating loss of $26 million.
Su said that she expects the very first build plans for those consoles to begin in the second quarter, growing through the second half of the year until the eventual launch.
AMD slashed its debt by $606 million to $488 million, while raising its cash and equivalents reserves by $191 million to $1.385 billion.
IDG News Service