What To Expect From AMD Earnings

Shares of semiconductor manufacturer Advanced Micro Devices Inc. (AMD) have rocketed upwards by 79.9% year-to-date in 2019, through the close on July 12. By comparison, the S&P Index (SPX) has gained 20.2% and the PHLX Semiconductor Index (SOX) has surged by 30.2%. Investors are betting heavily on a big future sales boost from a pipeline of cutting edge chip designs.

Weak sales in 1Q 2019 were attributed to the uncertainty among buyers created by the U.S.-China trade conflict, a sharp decline in capital spending by data center operators, and falling enthusiasm for cryptocurrency mining, the Wall Street Journal reports. Investors will focus on whether these negatives continued to weigh on AMD results in 2Q 2019.

Macro concerns for investors include global economic growth trends, the industrywide outlook for semiconductor demand, and the U.S.-China trade conflict. Investors also will want to see how sales of AMD products are faring against key competitors, such as Intel Corp. (INTC). AMD is expected to report earnings on July 23, per Yahoo Finance.

The consensus estimate for 2Q 2019, as of July 12, calls for EPS to fall by 42.9% year-over-over (YOY) but to be up by 33.3% from 1Q 2019, per Yahoo Finance. The consensus anticipates that 2Q 2019 revenue will be down by 13.0% YOY, but up by 20.5% from a recent quarterly low in 1Q 2019.

AMD has reduced its exposure to U.S. tariffs on imports from China by adjusting its supply chain. The company shifted production from China to Taiwan, and sent backend manufacturing, testing, and assembly to Malaysia, per an AMD presentation at the Bank of America Lynch 2019 Global Technology Conference, as cited by Market Realist. The U.S. ban on sales to Chinese tech giant Huawei, recently suspended, reportedly had a minor impact.

In 1Q 2019, AMD's Computing and Graphics segment, which contributed 65% of total revenue, saw sales plunge by 26% YOY, Yahoo Finance reports. “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," CEO Lisa Su said in a statement about 1Q results.

After its newest PC and graphics processors were unveiled in late May at the Computex trade show in Taiwan, AMD stock jumped by more than 11%, per the Journal. A similar jump occurred in January on news that AMD is in a cloud gaming project with the Google division of Alphabet Inc. (GOOGL).

"We think that the new CPUs...will help AMD sustain its desktop processor market share momentum, driving unit market share,” as David Wong, an analyst with Nomura, wrote in report quoted by Barron's. “AMD’s high revenue growth and rapidly improving profitability justify what we consider to be an elevated [valuation] multiple," he added. However, these new processors will not affect 2Q results, since they are being rolled out in 3Q 2019.

By market cap, Intel is more than 6 times larger than AMD, while Nvidia Corp. (NVDA) is almost 3 times bigger. Intel spends nearly 10 times as much on R&D, while Nvidia spends about 70% more. Nonetheless, AMD is bringing 7nm chips to market in 3Q 2019, while Intel is due to begin selling less powerful 10nm processors late in 4Q 2019. Meanwhile, AMD chips for the fast-growing computer gaming market are outperforming Nvidia's offerings, and sell at lower prices, per another report in Yahoo Finance.

In an extensive interview with Barron's, CEO Lisa Su of AMD said: "In tech, what’s really important is that we make bets far out in time. The decisions that we made in that 2015 to 2016 timeframe were very important technology bets that are now playing out in the roadmap in 2018 and 2019...And, frankly, it was as important to decide what we were not going to invest in."

AMD has a trailing P/E of 133.7 and a forward P/E of 32.6, suggesting that the market anticipates a quadrupling of EPS in the next 12 months. This may be a tall order, and 2Q 2019 results should indicate whether AMD is on that path.

Source: Investopedia.com

Powered by NewsAPI.org

Keywords:

Advanced Micro Devices • Share (finance) • Semiconductor industry • Advanced Micro Devices • Advanced Micro Devices • Standard & Poor's • Stock market index • S&P 500 Index • Philadelphia Stock Exchange • Semiconductor • Stock market index • Investment • Pipeline transport • Sales • Uncertainty • Economy of China • Data center • Cryptocurrency • The Wall Street Journal • Investor • Advanced Micro Devices • Macroeconomics • Investor • World economy • Economic growth • Market trend • Semiconductor • Demand • Economy of China • Investor • Sales • Advanced Micro Devices • Product (business) • Competition • Intel • Intel • Advanced Micro Devices • Yahoo! Finance • Consensus estimate • Earnings per share • Yahoo! Finance • Revenue • Fiscal year • Advanced Micro Devices • United States dollar • Tariff • Import • China • Supply chain • Company • Manufacturing • China • Taiwan • Manufacturing • Manufacturing • Malaysia • Advanced Micro Devices • Bank of America • Terrace (agriculture) • Globalization • Technology • Marketing • Philosophical realism • China • Technology • Huawei • Advanced Micro Devices • Yahoo! Finance • PC game • Product (business) • Market share • Chief executive officer • Lisa Su • Personal computer • Graphics processing unit • Computex Taipei • Trade fair • Taiwan • Advanced Micro Devices • Advanced Micro Devices • Cloud gaming • Google • Division (business) • Alphabet Inc. • Alexion Pharmaceuticals • Advanced Micro Devices • Desktop computer • Central processing unit • Market share • Market share • David Wong (writer) • Nomura Holdings • Barron's (newspaper) • Advanced Micro Devices • Revenue • Profit (accounting) • Valuation (finance) • Market capitalization • Intel • Advanced Micro Devices • Nvidia • Nvidia • Intel • Research and development • Advanced Micro Devices • Integrated circuit • Intel • Central processing unit • Advanced Micro Devices • Integrated circuit • Marketing • Nvidia • Sales • Yahoo! Finance • Barron's (newspaper) • Chief executive officer • Lisa Su • Advanced Micro Devices • Technology • Technology • Advanced Micro Devices • Advanced Micro Devices •