Today AMD has released their Q2 results for 2018 and they have fallen in line with previous estimates. The company reported revenue of $1.76B, up $110M from last quarter’s $1.65B. Their net income is $116M which is again up significantly from last quarter’s $81M. These results dwarf Q2 2017’s $1.15B in revenue and a loss of $42M. AMD has shown steady and solid growth since the release of the Ryzen processors and their continuing evolution of the RX series of graphics cards.
The computing group which includes CPUs and GPUs showed a small drop in revenue due to multiple factors. CPU ASPs are steadily dropping for AMD since the original introduction of the Ryzen processors. The top end R7 1800X was introduced at $499 and has slowly dropped in price as the year wore on. This year AMD released the successor to the 1800X in the R7 2700X, but it was released at a $329 price point. We can see that the pricing mix of these CPUs is not as rich as they were on Ryzen’s initial release. The play here seems to be AMD improving efficiency of production as well as a willingness to sacrifice ASPs to gain any kind of marketshare.
GPUs have suffered as well due to the drop off in mining based purchases due to cryptocurrency dropping in value as well as the continued introduction of specialized ASICs performing better in those particular workloads. AMD claims a fairly palatable drop of only around 4% in sales due to the decrease in mining demand. It is likely that partners are feeling more of a pinch in this instance as the selling prices of these cards are finally reaching introductory MSRP levels as well as seeing reasonable availability. We do not know the specifics of AMD’s GPU sales to partners, but it seems like that price has been stable since introduction with the partners and resellers profiting to a greater degree than AMD.
The bright spot for this quarter was that of Enterprise and Semi-Custom. AMD switched around accounting on how it handles Semi-Custom so that accounted for some of the positive gains this quarter saw. AMD also started its collaboration with the Chinese for their own version of a Zen CPU. AMD continues to provide console makers with SoCs in two of the three major product lines out there. AMD is also likely currently contracted by both Sony and Microsoft for the next generation of consoles which will be released in the next two years, though none of the parties involved in such speculation has verified that information. I have a hard time considering that both Sony and Microsoft would abandon what has been a very beneficial partnership to create cutting edge products for their marketplace.
The Enterprise group has also seen sales increase on the EPYC processors. EPYC was released last year, but it was not until this year that actual sales occured. While AMD did not provide specific numbers or guidance here, reading between the lines it looks as if EPYC is starting to gain traction and is shipping in more significant numbers. AMD was very careful in talking about this, as EPYC still has a long ways to go before it can claim to have gained significant marketshare. Lisa Su mentioned earlier that the real ramp for EPYC should occur in 2H 2018. This makes quite a bit of sense as the hardware and software environment for enterprise level products is tremendously different from when AMD was last competitive there. Validation of parts and platforms takes more time, and there are more complex software components involved that have to be updated to work effectively and efficiently on the new Zen architecture and EPYC chips. In the year since EPYC was launched a lot of work has been going on in the background by AMD, their hardware partners, and the software vendors to make sure that when EPYC hits volume production that most of the kinks will be worked out and it is truly enterprise production ready. This isn’t wishful thinking or excuse making. This is simply how a modern enterprise platform evolves and why product cycles are elongated as compared to what we see on the desktop and mobile spaces.
Guidance for next quarter will be disappointing for some investors and readers. AMD claims it will be flat between Q2 and Q3. This is not entirely surprising. Gaining desktop CPU marketshare has not been a slam dunk for AMD with Ryzen. The product stack has made it competitive with Intel and its offerings, and has in fact provided excellent value in terms of IPC and core count. Ryzen is not an Athlon 64. Ryzen was merely competitive with what Intel currently offers as compared to Athlon 64, which was head and shoulders more advanced than what Intel offered at the time with the Pentium 4. AMD is finding advances in marketshare in both desktop and mobile to be slow, but steady. Each quarter since Ryzen was released and the mobile parts being introduced earlier this year, the results have been trending in a positive direction even though ASPs on desktop parts have dropped (though mobile ASPs have increased).
AMD obviously does not expect big gains this next quarter, and are in fact a little behind the ball when it comes to graphics. NVIDIA is poised to release a new generation of products within the next few months addressing the upper midrange and high end offerings that will erode AMD’s effectiveness with their Vega parts. So while EPYC products will increase in sales, AMD looks like it will be shipping fewer GPUs, at least in the high end. We probably will see Polaris based products have price drops applied to them to keep the meat of the market satisfied with AMD product, but do not expect next generation desktop graphics from AMD until 2019.
This was a productive and solid quarter for AMD. It is hard to argue against that. Their financial house is in far greater order and a solid revenue stream heading towards the company. They are keeping costs under control while aggressively pursuing the markets they have a strong history in. They have continued to leverage their IP with the Semi-Custom group and that provides a steady income from both historical partners and new ones. AMD is not seeing a breakaway quarter or year, but they are building a much more solid foundation and executing on their primary markets while competing effectively with Intel. This is certainly not 2003/2004, but it is a new chapter for AMD as they continue to provide new and interesting products to a market that continues to expand.