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How AMD performed in Q4 2018
Advanced Micro Devices reported $1.42 billion in fourth-quarter 2018 revenue, up 6% from Q4 2017 but down 14% from Q3 2018. The year-over-year comparison was positive; the sequential comparison was not. AMD attributed the quarter-to-quarter decline mainly to lower Enterprise, Embedded and Semi-Custom revenue. Q3 also included approximately $125 million in IP-related revenue, making the sequential comparison less like-for-like. AMD’s January 29, 2019 results release provides the reported figures and explanation.
For the full year, revenue was $6.48 billion, up 23% from 2017. AMD CEO Lisa Su said the company had delivered its second straight year of significant revenue growth, market-share gains, expanded gross margin and improved profitability. That management characterization reflects the annual trend, not the sequential Q4 slowdown.
Which businesses drove the quarter?
| Q4 2018 segment | Revenue | Change | What AMD said |
|---|---|---|---|
| Computing and Graphics | $986 million | Up 9% year over year; up 5% sequentially | Ryzen sales drove growth; Ryzen and record data-center GPU revenue offset lower GPU sales. |
| Enterprise, Embedded and Semi-Custom | $433 million | Flat year over year; down 39% sequentially | The sequential decline reflected lower semi-custom sales, as expected. |
AMD’s earnings presentation reported $115 million of operating income for Computing and Graphics. It also said client processor unit shipments grew more than 50% year over year and Ryzen represented over 80% of client sales. These figures help explain how processor strength could coexist with weakness in graphics sales. The business’s historical growth was associated in part with Ryzen processors; this earnings report is not a recommendation about current products.
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In Enterprise, Embedded and Semi-Custom, AMD said EPYC unit shipments more than doubled sequentially and cited customer announcements involving AWS EC2 and Microsoft Azure. The segment’s flat year-over-year revenue contrasted with its sharp sequential fall, which AMD linked to semi-custom sales. Segment revenue figures and operating details appear in AMD’s Q4 and FY 2018 earnings presentation.
What the margin and profit figures mean
AMD reported Q4 GAAP gross margin of 38%, compared with 34% in Q4 2017 and 40% in Q3 2018. The Q4 GAAP figure included a $45 million charge related to older technology licenses that AMD no longer used. On a non-GAAP basis, Q4 gross margin was 41%, versus 34% in Q4 2017 and 40% in Q3 2018. GAAP and non-GAAP figures use different accounting treatments, so they should not be mixed in a comparison.
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Across 2018, GAAP gross margin was 38%, compared with 34% in 2017; non-GAAP gross margin was 39%, also compared with 34%. AMD reported full-year GAAP operating income of $451 million and net income of $337 million, versus $127 million in operating income and a $33 million net loss in 2017. Full-year non-GAAP net income was $514 million, compared with $103 million a year earlier. These are different measures: GAAP results follow generally accepted accounting principles, while non-GAAP results exclude specified items.
AMD’s full-year free cash flow was negative $129 million. The company attributed this to higher inventory related to new products and the timing of collections. That cash-flow figure is not the same as a net loss; AMD reported positive full-year net income under both its GAAP and non-GAAP presentations.
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What AMD meant by the crypto-related “hangover”
AMD’s October 2018 Q3 release said Q4 2017 revenue had included blockchain-related GPU sales equal to approximately a low double-digit percentage of overall AMD revenue. That was AMD’s estimate at the time, and it describes a component of the prior-year revenue comparison—not a measurement of total cryptocurrency demand or a precise estimate of crypto’s share of Q4 2018 sales. AMD’s October 24, 2018 release also set the context for its next-quarter guidance.
In January, AMD said it expected a year-over-year revenue decline in Q1 2019, driven primarily by lower graphics sales due to excess channel inventory, the absence of blockchain-related GPU revenue and lower memory sales. The company therefore described both a demand-normalization effect and inventory pressure. The disclosure does not quantify the whole GPU market, establish that crypto caused every graphics decline, or imply that all AMD revenue depended on mining.
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AMD’s January 2019 outlook—and what it did not establish
AMD forecast Q1 2019 revenue of approximately $1.25 billion, plus or minus $50 million. That would represent an expected decline of about 12% sequentially and 24% year over year. The company expected Q1 non-GAAP gross margin of around 41%. These were management forecasts made in January 2019, not reported results.
For full-year 2019, AMD forecast high-single-digit percentage revenue growth, driven by Ryzen, EPYC and Radeon data-center GPU sales as it ramped 7nm products. The guidance captures the tension in the Q4 report: annual growth and stronger processor sales provided a positive base, while excess graphics inventory and the loss of blockchain-related GPU revenue were expected to weigh on the next quarter. The company’s earnings release reports results and outlook; it does not establish a stock-price reaction after the announcement.
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