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AMD Earnings Saw Decline: Why is the Stock Up?

Daniel Laboe

Earnings

Advanced Micro Devices AMD posts earnings and revenue beats on conservative EPS estimates. AMD reports revenues down 23% Y/Y and down 10% Q/Q. Earnings in Q1 were down significantly to only $0.01 from the $0.08 reported one year previous. The one positive signal that this earnings release illustrated was the increase in gross margin to 41% up from the 36% in Q1 last year. AMD jumped 3.5% in after-hours trading.

Management Sentiment & Outlook

Management is very optimistic about their performance this quarter and quarters to come. “We delivered solid first quarter results with significant gross margin expansion as Ryzen and EPYC processor and datacenter GPU revenue more than doubled year-over-year,” said Dr. Lisa Su, AMD president and CEO. “We look forward to the upcoming launches of our next-generation 7nm PC, gaming and datacenter products which we expect to drive further market share gains and financial growth.”

AMD was able to permeate some lucrative deals with Google’s GOOGL gaming platform, Stadia which will be using “AMD Radeon data center GPUS and AMD software developer tools”. AWS AMZN announced it would be using some of AMD’s cloud computing products moving forward. Sony will be using AMD chips on their next-generation gaming consoles. Apple AAPL will be using AMD’s “Radeon Pro Vega” graphics card in its updated iMacs. OEMs like HP HPQ and Lenovo LNVGY will be using AMD processors and graphics cards in some of their upcoming computers.

AMD expected a drop in revenues this quarter because of the cyclical properties of semiconductor uses. They have been able to open up a number of new revenue channels in Q1 which is likely to provide a significant amount of revenue with growing margins moving forward. AMD is anticipating that most of its full-year growth will be coming in the second half of the year as its customers’ new products are launched. This stock will probably see upwardly adjusted EPS and should push AMD into a Zacks Rank #1-2 (Buy) this week.

Tomorrow is AMD’s 50th anniversary. They have driven innovation in high-performance computing, graphics and visualization technologies - the building blocks for gaming, immersive platforms and the data center for 50 years now. Most of this company’s growth has come over the last 3 years as semiconductors have become a requirement for all tech products and AMD has been able to be a leader in its category. AMD (blue) is up 153% in the past 52-weeks vs. the S&P 500 (red) which only saw 13% returns in the same time frame.

 

Semiconductor Outlook

The semiconductor industry is expected to be in decline in 2019 with new chips not being a significant necessity as product innovations slow. UBS estimates that the semiconductor industry will lose 4.3% in revenues Y/Y.

Intel INTC released its earnings last week beating estimates but adjusting full-year revenue guidance down. This space is becoming increasingly competitive and Intel is assessing its 5G mobile phone market as well as 5G modem being unsure if these avenues would be a profitable investment for them. INTC has dropped 13% since its earnings announcement.

NXP Semiconductors NXPI beat earnings yesterday by 37% with revenues in line with expectations. This firm also saw year over year drops in revenue and earnings as expected, but like AMD they are are anticpating to perform well the remainder of the year. NXPI is up over 8% since this release and could continue to rally. Earnings guidance has adjusted up since this report and NXPI is now a Zacks Rank #2 (Buy).

Qualcomm QCOM is releasing its Q1 earnings after market close tomorrow. They are expected to report earnings of $0.54 representing a 19% drop Y/Y. Revenues are estimated at $4.8 billion, an 8.7% Y/Y decrease. Qualcomm is the first semiconductor company to implement 5G technology into smartphones giving them a distinct competitive advantage in a slowing semi environment. QCOM is up 53% this year so far and I expect that this earnings report tomorrow will push this stock even further with a positive outlook.

 

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