AMD reported Q2/2018 earnings last week and it was a big one as it announced its biggest net income quarter in seven years which drove the stock to a ten-year high. The company announced a 53% increase in revenue driving a $154M increase in operating income leading to a $158 improvement in net income from the year-ago quarter. Based on financial analyst comments, financial trade press articles and the stock price increase, you got the feeling investors believe AMD has staying power. I had the chance to talk with AMD CEO Lisa Su last week on the prior quarter and wanted to share some of her thoughts. But let’s start out with AMD’s performance.
I believe it was a multitude of factors that got people excited. Overall, the company showed continued revenue growth up 53% and increased gross margins 3% percentage points, YoY. Ryzen units grew by a double-digit percentage and Ryzen mobile doubled sequentially. I think this 100% aligns with what I am seeing with the big OEMs and the channel. ASP was down but I expected that given the popularization and ramp of its integrated desktop part which sells for a lower price. Cryptocurrency impact was exactly what the company had forecasted, a paltry 4% decline, from 10% of its sales to 6% of its revenue. Datacenter was strong, too. Epyc units and revenue grew by more than 50% and Epyc sales to hyper-scalers doubled sequentially. This makes sense, too, as the large public cloud datacenters ramped first, before the big OEMs and enterprise datacenters. 7nm “Rome”, Epyc follow-on with new Zen2 core was considered “healthy” and sampling now to customers. This was compared a lot to Intel shipping its 10nm datacenter silicon in 2020. There were many things for investors to get excited about.
The financial press reacted quite favorably to all this information. Here is just a sampling of the positive headlines:
- Bloomberg: “AMD Reports Best Quarterly Profit in Seven Years on New Products”
- MarketWatch: “If you didn’t believe in the AMD turnaround before, these earnings should convince you”
- ExtremeTech: “AMD Crushes Q2 2018 Earnings as Ryzen, Epyc Sales Strengthen”
- CNBC: “AMD stock soars more than 14% on strong earnings”
- MarketWatch: “AMD stock closes at highest price in over a decade after best earnings in 7 years”
While I believe Wall Street is usually out of touch with AMD, they finally caught on that the company’s performance isn’t a fluke. I have been saying this when the stock was at $2.
I had the chance to talk with AMD CEO Lisa Su after earnings and she was very bullish about Epyc’s future more now than ever. She is happy to see cloud deployments accelerating this quarter and is expecting the cloud giants to increase their Epyc compute instances over the coming quarters. While Su is happy with the progress with Baidu, Azure, and Tencent, she feels “great” about getting a few more in the second half. Su told me that the competitive situation is helping, specifically, Intel’s 10nm datacenter push to 2020. She says she has had many more strategy conversations with customers over the last 60 days, not just about what AMD can do in the next year, but what it can do over the next three years.
Su is happy with progress in the public cloud datacenter, but is pragmatic on the enterprise datacenter as customers take longer to do just about everything. “The sales cycle takes a while and we are building out our GTM (go-to-market) with our OEMs. We’re hiring BDEs (business development executives) like crazy.” What AMD needs to watch is creating enough demand quickly enough. Based on my experience, OEMs better fulfill demand versus create it. This area is where Intel has a distinct advantage, with thousands of BDEs globally, who have been in enterprise accounts for decades, not to mention the mountain of cash to market its wares. AMD is intelligently focusing its GTM resources on verticals and workloads where it performs well, namely the HPC (high-performance computing) market, tier 2 CSPs and big data/analytics workloads, and workloads where VM per dollar matter. AMD has some advantages here with its high-performance FPU and its high-bandwidth, single socket design.
Su highlighted a large, multinational auto manufacturer that first evaluated Epyc given their strong needs around memory bandwidth. She said that the enterprise’s benchmarking showed that at scale, two servers of EPYC outperformed three Skylake servers for crash test simulations. Su continued, explaining, that evaluation clusters were then turned over to their corporate IT teams and there was a significant performance per dollar value shown and AMD won the deployment. Su ended by saying her teams have many of these examples.
Overall, AMD appears to have hit another stage of its impressive comeback trail with its Q2 earnings. I believe the market is looking for alternatives to PC and server CPUs and datacenter GPUs for ML and DL training. From here, there is no downhill for AMD. It faces fierce, entrenched competitors, Intel and Nvidia, who will not go gently into the night. While I don’t think Intel or Nvidia take AMD very seriously long-term, maybe this quarter’s performance changes that.