AMD’s earnings today kicked off with big news – the company agreed to purchase Xilinx for a whopping $35 billion in an all-stock transaction. Still, that big news shouldn’t overshadow the company’s stellar performance during its third quarter as the company posted record revenue. While Intel struggles with an unexpected shift to lower-end products for its desktop PC chip sales, punishing its bottom line and margins, AMD continues to chew away market share and notched record client processor revenue and unit shipments. That certainly throws Intel’s relatively poor quarter in desktop processor sales into stark relief.
Intel is struggling with lower processor average selling prices (ASPs) as it engages in a price war with AMD, and that’s exacerbated by an unexpected shift in its product mix to low-end lower-margin processors. Meanwhile, AMD’s processor ASPs continue to climb and the company posted record quarterly consumer processor revenue, signaling that Intel’s sudden shift to selling more low-end chips comes at the expense of AMD’s high-performance Ryzen models snapping up more of Intel’s potential sales.
For now, Intel blames its flagging desktop PC sales, which dropped 18% YoY last quarter and are down 12% for the year, on a mixture of factors, like the pandemic and the shift to the work-from-home environment. The cratering PC processor sales led Intel to post a 17% decline in revenue from client chips. However, those factors don’t seem to be impeding AMD’s progress as it chugs along in the consumer PC market. In terms of whether or not AMD is impacting its sales, Intel’s official line is that the company isn’t seeing any more competition than it expected. Still, Intel hasn’t defined just how much competition it expected, so that’s a bit of a hollow statement.
AMD is also on the cusp of launching its Ryzen 5000 processors next month, which the company says brings an amazing 19% improvement in IPC and takes the lead in gaming performance, so we should see AMD’s gains accelerate in the near future. Intel’s response will come in the form of Rocket Lake, but we won’t see those chips until the latter portion of Q1 2021, meaning AMD should own the holiday season for client processor sales.
Overall, AMD is firing on nearly all cylinders, with company revenue skyrocketing to $2.8 billion, an increase of 56% year-over-year (YoY), and 45% quarter-over-quarter (QoQ). The stellar results stem from strong Ryzen and EPYC processor sales. AMD is also doing well at maintaining (and even slightly improving) its profitability: The company reported a gross margin of 44%, a 1% YoY increase. That yielded a gross profit of $1.23 billion during the quarter.
AMD raked in $1.67 billion in the client computing and graphics segment, which covers both consumer CPUs and GPUs (an increase of 31% YoY and 22% QoQ). Strong Ryzen sales drove those gains, but slow graphics sales dragged on revenue. That isn’t surprising in the wake of Nvidia’s Ampere launch, though AMD expects that to change with the release of its RDNA2 Big Navi graphics cards that it will announce later this week.
Meanwhile, AMD has pulled the covers off its Zen 3-based Ryzen 5000 processors, and sales begin November 5, so its already-stellar desktop PC sales should accelerate further. On that note, AMD reported that both it’s desktop PC and notebook processor ASPs increased, OEM sell-through in notebooks doubled YoY, and the number of notebooks designs also doubled. Meanwhile, Intel’s notebook ASPs plunged last quarter, which it chalks up to having greater availability of its lower-end chips as it looks to recover market share in the low-end. Still, AMD’s Ryzen 4000 notebook processors continue to churn out big design wins, so Intel is likely facing pricing pressure on its Tiger Lake chips, too. Tiger Lake also comes with Intel’s 10nm SuperFin process, which costs more to produce than Intel’s 14nm, impacting margins.
AMD CEO Lisa Su said the company believes it gained more share in the client segment for the 12th straight quarter. Operating income of $384 for the client segment was up $205 million YoY and $184 million QoQ, indicating AMD is executing well on the client side of the house.
Moving on to the enterprise, embedded, and semi-custom segment, which produces server CPUs and chips for game consoles, AMD posted revenue of $1.13 billion *(up 116% YoY and 101% QoQ). That comes on the back of increased EPYC server processor sales, with revenue more than doubling YoY driven by cloud and enterprise adoption. In response, Intel has already had to cut pricing for Xeon chips, which has also hurt Intel’s margins last quarter.
That growth comes before the release of AMD’s next-gen EPYC Milan chips, which come with the powerful Zen 3 architecture, which begin shipping en masse to OEMs in Q1 2021. In the interim, AMD plans to begin shipping Milan chips to cloud and select HPC customers in 4Q 2020. AMD also has chips for the Playstation 5 and Xbox Series X in production, and sales ramps of those consoles over the holidays should further lift this segment through the tail end of the year.
AMD has suffered sporadic shortages of some of its client chips this year, which is largely thought to be a byproduct of limited production capacity at TSMC. Su said that supply has improved, helping the company bolster sales in the quarter, and the company doesn’t see any significant supply shortages in the near future.
Things look good for the remainder of the year, too. AMD guides for $3 billion in revenue for the fourth quarter, a 41% YoY increase. As one would expect, AMD says those gains will come at the hands of increased Ryzen 5000 and EPYC Milan server CPU sales. AMD expects revenue to increase by 41% YoY and gross margins to weigh in at 45% for the full year, setting the stage for yet more growth in 2021.
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