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Ahead of AMD's Q4 Earnings: EPYC & Semi-Custom Products in Focus

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Zacks Equity Research
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Advanced Micro Devices AMD is scheduled to report fourth-quarter 2020 results on Jan 26.

The ongoing momentum in EPYC (especially second-generation EPYC processors) and Semi-Custom products’ sales is likely to have contributed to AMD’s revenues in the to-be-reported quarter.

However, higher investments on product development and platform to retain its competitive stance is likely to have affected profitability in the to-be-reported quarter.

Advanced Micro Devices, Inc. Price and EPS Surprise


Advanced Micro Devices, Inc. Price and EPS Surprise
Advanced Micro Devices, Inc. Price and EPS Surprise

Advanced Micro Devices, Inc. price-eps-surprise | Advanced Micro Devices, Inc. Quote

Click here to know how the company’s overall Q4 performance is expected to be.


Strong Demand For Semi-Custom Solutions

AMD expects Semi-Custom revenues in the fourth quarter to benefit from strong demand for Xbox Series X, Xbox Series S and PlayStation 5 gaming consoles. The latest generation hardware consoles were launched in November 2020.

Further, ongoing momentum witnessed in uptake of EPYC processors is anticipated to have boosted server revenues in the to-be-reported quarter.

The company is clinching new deal wins for its second generation EPYC processors from data centers as well as major enterprise and cloud companies across high-performance computing (HPC) domains. These processors have been witnessing adoption by leading cloud players including Amazon’s AMZN Amazon Web Services (“AWS”), Alphabet GOOGL Google Cloud, and Microsoft’s MSFT Azure.

In December 2020, AMD revealed that AWS is increasing the usage of its offerings. New Amazon Elastic Compute Cloud (Amazon EC2) G4ad instances will be based on AMD's processors. Amazon GameLift game server hosting solution is also utilizing AMD's EPYC processor-powered Amazon EC2 C5a, M5a and R5a instances.

In the quarter under review, AMD also unveiled Instinct MI100 accelerator powered by ROCm 4.0 open ecosystem and rolled out EPYC CPUs as well as Instinct accelerator-based implementations with focus on ramping up HPC applications in the cloud.

Higher EPYC server processor sales and momentum in deals wins are expected to have contributed to Enterprise, Embedded and Semi-Custom revenues in the fourth quarter.

The Zacks Consensus Estimate for Enterprise, Embedded and Semi-Custom segment for the third quarter is pegged at $1.187 million, which represents an increase of 155.3% from the prior-year quarter’s figure. 

A Look at Computing and Graphics Segment Growth Drivers

AMD is expected to have witnessed steady demand for Ryzen PRO processors in the fourth quarter owing to continuation in work from home trend. These processors enhance remote work capabilities of the commercial notebooks and facilitate advanced computing performance to boost business productivity.

Incremental adoption of new processors is likely to have driven Computing and Graphics revenues in the fourth quarter.

In October 2020, the company launched new Ryzen 5000 Series desktop processor based on its Zen 3 architecture. These processors are aimed at improving gaming and creative workloads’ performance. The segment’s top line is likely to have been driven by the launch of these new processors in the to-be-reported quarter.

Further, AMD also unveiled Radeon RX 6000 Series graphics cards that offer high performance and immersive gaming experience with advanced visuals as well as engaging features for PC gaming.

In November 2020, the company introduced Ryzen Embedded V2000 Series processors which are based on 7 nm process technology as well as feature Zen 2 core and AMD Radeon graphics card.

Moreover, higher PC shipments in the fourth quarter, driven by increased demand is anticipated to have favored the segment’s performance. Per Gartner report, PC sales were up 10.7% year over year to 79.4 million units during the December-end quarter.

The consensus mark for Computing and Graphics segment for the fourth quarter is pegged at $1.82 billion, which indicates an increase of 9.5% on a year-over-year basis.

Shares of AMD, which carries a Zacks Rank #3 (Hold), have rallied 73.8% in the past year compared with the industry’s surge of 62.6%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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