AMD earnings report exceeds analyst expectations with strong growth in data center and server business segments.
Advanced Micro Devices Inc beat Wall Street estimates for quarterly revenue and profit on Tuesday, selling more chips used in data centers and servers, and sending its shares up 6 percent in after-market trading. The results underscored AMD's success in bolstering its datacenter and server sales with new launches in the Ryzen and EPYC line of chips for desktops and servers. In contrast, larger rival Intel Corp last week reported a drop in first-quarter data center sales as customers worked through stockpiles of chips bought last year against the backdrop of the U.S.-China trade war. AMD also forecast second-quarter revenue of about $1.52 billion, plus or minus $50 million, in line with analysts' expectations.
AMD's first-quarter revenue fell 22.7 percent to $1.27 billion, but beat analysts' average estimate of $1.26 billion, according to IBES data from Refinitiv. Revenue at the company's enterprise, embedded and semi-custom segment dropped 17 percent to $441 million, but beat analysts' estimate of $410.2 million, according to FactSet. Net income fell to $16 million, or a penny per share, in the three months ended March 30, from $81 million, or 8 cents per share, a year earlier. Excluding items, the company earned 6 cents per share, above Wall Street expectations of 5 cents. The company's shares were last up 3.3 percent at $28.54, having gained about 50 percent this year through Tuesday's close.
Massive channel inventory of graphics cards that built up with the crash in prices of cryptocurrencies last year improved in the first-quarter and will get better through the year as next generation 7 nanometer chips are launched, AMD's Chief Executive Officer Lisa Su said on a call with analysts. Su said the 7nm gaming GPU Navi is on track for a third quarter introduction and will help grow GPU revenue in the second half of 2019. AMD said it expects to start shipping its 7nm EPYC server chips in mid-2019, potentially positioning it to win more market share from rival Intel, which expects to ship its 10nm server chips early next year. The company will continue ramping up its server market share over the next four to six quarters with the goal of reaching double-digit market percentage share. AMD's gross margins improved in the quarter to 41 percent as its datacenter GPU, Ryzen and EPYC processor sales ramped up. Chief Financial Officer Devinder Kumar reiterated expectations of adjusted gross margins at 41 percent and revenue growth of a high-single-digit percentage in 2019.
Kevin Cassidy, an analyst with Stifel Nicolaus and Co, said: "AMD's in-line results and guidance is very positive. Particularly compared with Intel's poor guidance last week. We think AMD is gaining market share in PC CPUs, GPUs and server CPUs." Kin Ngai Chan, an analyst with Summit Insights Group, added: "We believe investors are clearly expecting more growth and market share gains in 2H19 with its upcoming 7nm client and datacenter CPUs along with 7nm Gaming GPU." The positive results, which followed dour comments on the semiconductor downturn and weak China demand from several chipmakers, also boosted shares of rivals such as Nvidia Corp, which rose over 1 percent.