Advanced Micro (AMD) Tops Q2 Earnings and Revenue Estimates

Advanced Micro Devices, Inc. AMD delivered non-GAAP earnings of 14 cents per share for second-quarter 2018, surpassing the Zacks Consensus Estimate by a couple of cents. Non-GAAP Earnings also increased year over year.

Revenues surged 53% year over year to $1.76 billion and marginally exceeded the Zacks Consensus Estimate of $1.72 billion. The year-over-year increase was primarily due to better-than-expected growth in both the Computing and Graphics and Enterprise, Embedded and Semi-Custom business segments.

Further, the accelerated adoption of the company's products in the PC, gaming and data center industries primarily led to its impressive performance.

We believe that the launch of the new graphics cards will aid AMD increase its market share further, going forward. Notably, AMD's stock has returned 13.7% year over year, against the industry 's decline of 3.3%.


Advanced Micro has two reportable segments - Computing and Graphics (focused on the traditional PC market) and Enterprise, Embedded and Semi-Custom (focusing on adjacent high-growth opportunities).

Computing and Graphics

Computing and Graphics segment revenues witnessed year-over-year increase of 64% to $1.09 billion. The increase can be attributed to accelerated sales of Radeon graphics and Ryzen desktop processors.

Operating income for this segment was $117 million compared with $7 million in the year-ago quarter, primarily driven by higher revenues.

Notably, AMD exhibited its next generation CPU and GPU products at Computex, 2018. The chipmaker demonstrated its new 7nm AMD Radeon Vega GPU products, which are set to launch at some point in 2018. The company also showcased second-generation Threadripper CPU powered by Ryzen technology. 12nm Zen+ architecture will support the Ryzen second-generation based Threadripper 2. The chip features a whopping 32 cores and 64 threads, per PC Gamer.

Recently, the company also discussed its Tencent cloud services partnership for its EPYC processors. Furthermore, AMD announced that its AMD EPYC 7000 series processor will power Hewlett Packard Enterprise's HPE ProLiant DL325 Gen10 server.

In another impressive partnership, AMD touched on details about its first Cisco CSCO UCS server platform. Cisco UCS server platform is leveraging AMD products to offer 20% more storage capacity per rack, 128% more cores and 50% more servers.

One of AMD's more easily accessible deals will see the chipmaker help bring ultrawide 4K gaming to Samsung big screen TVs. These contracts are helping AMD rapidly penetrate the server market.

AMD and Microsoft MSFT had also collaborated for providing support to Radeon FreeSync technology in Microsoft's Xbox One S and Xbox One X consoles.

Enterprise, Embedded and Semi-Custom

Segment revenues amounted to $670 million, up 37% year over year due to higher semi-custom and server revenues.

Operating income for the segment was $69 million compared with $16 million recorded in the year-ago quarter. The increase was due to higher revenue base.

Yahoo Japan Corporation and Packet were added to its list of clients. Additionally, Cray announced the addition of "EPYC processors to its Cray CS500 line of HPC offerings."

Further, Dell EMC launched "three new PowerEdge platforms powered by AMD EPYC 7000 series server processors."


Non-GAAP gross margin increased 300 basis points (bps) to 37% year over year driven by higher percentage of revenues from new products.

Non-GAAP operating margin during the quarter came in at 10.6% compared with 2% reported in the year-ago quarter. The year-over-year expansion can primarily be attributed to higher operating income from the Computing and Graphics segment driven by higher revenues.

Adjusted EBITDA amounted to $228 million compared with $58 million in the year-ago quarter.

Balance Sheet & Cash Flow

AMD ended the second quarter with cash and cash equivalents of $948 million compared with $1.04 billion in the previous quarter. Total debt (including current portion) was $1.393 billion.

Free cash flow during the quarter came in at ($88) million, primarily due to working capital requirements in support of recent revenue growth.


For third-quarter 2018, management expects revenues to be roughly $1.7 billion (+/-$50 million). The Zacks Consensus Estimate for revenues is pegged at $1.58 billion.

Non-GAAP gross margin is anticipated to be 38%, backed by better-than-expected growth in Ryzen and EPYC products.

Zacks Rank

AMD currently carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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