Before the proverbial “you know what” hit the fan with COVID-19, AMD hosted the company’s 2020 Financial Analyst Day at its headquarters in Sunnyvale, California. I am ridiculously tardy in getting this out, but to be honest, I don’t know too many who would have read it.
Historically, the event has been used to recap AMD’s financial growth, communicate financial targets, and explain to investors and analysts what innovative technologies and business growth strategies are going to drive the company to achieve those targets.
Over the past 5 years, AMD has made big commitments and has been consistently delivering on them. While I don’t think Wall Street are the sharpest knives in the drawer, sometimes it gets it right, albeit late. This was true for AMD. The company has been the best performing stock in the S&P 500 in back to back years in 2018 and 2019. This is an exciting time for AMD and the bar has been set high.
Financially, AMD committed to rapid financial growth which includes a five-year compound annual growth rate of 20% for revenue, >50% gross margin, mid-20% operating margin and >15% free cash flow. AMD is setting itself as a growth play, which is awesome.
The company has been in execution mode and come a long way in the last 5 years. Continuing the success story of AMD is plausible but it’s not going to happen overnight. This Financial Analyst Day laid the foundation of expectations for the coming years.
Lisa Su kicks off FAD 2020
Lisa Su kicked off the event with a quick recap of the company’s recent success and gave the audience a look into what the next 3 years might look like for AMD. Su presented with a similar cadence of what is coming to be expected from AMD: a commitment to High-Performance Compute Leadership, Strong and Predictable Growth, and an increased focus around Disruptive Solutions Combining CPUs and GPUs. The markets that are set in AMD’s crosshairs are large and growing and combine for a $79B TAM consisting of:
- Data Center ($35B TAM)
- PCs ($32B TAM)
- Gaming ($12B TAM)
To take share in these markets means a long-term commitment to multiple generations of products, tremendous confidence of OEM and ODM partners and the ability to execute consistently. Su was very pointed that it respects the competition and isn’t planning for its major competitors to fail to achieve the targets. Lisa Su expressed confidence that AMD’s computing and graphics roadmap will accelerate growth and deliver strong shareholder returns over the coming years and reach that 20% annual growth rate for revenue.
Big Technology Bets For The Long Haul
CTO Mark Papermaster took the stage after Lisa to dive deeper into the AMD technology that will be the foundation of the business over the next 3 years. Building on AMD’s previous success, Papermaster touched on the 260 million “Zen” x86 cores that have been shipped to date across the Ryzen and EPYC product lines. The next-generation CPU core coming in late 2020 will be called “Zen 3” and will be built on 7nm process technology. It will be followed up by the in development “Zen 4” core built on 5nm process. We have come to know that the secret sauce of a CPUs performance doesn’t lie solely on the process technology. Better designed packaging and interconnect are equally responsible for performance uplifts. With Moore’s law slowing down AMD is looking at new ways to package and interconnect CPU’s to continue strong performance uplift gen over gen. Papermaster explained AMD’s plan to continue investing in their chiplet and die stacking process. The process will include a new “X3D” packaging that combines chiplets and hybrid 2.5D and 3D die stacking with the hope of delivering more than a 10x increase in bandwidth density. I was getting a bit worried that AMD was ceding 3D to Intel as AMD wasn’t talking about it but now it is.
Mark Papermaster also announced the next-generation AMD RDNA 2 architecture. The RDNA 2 architecture was designed specifically for gaming. The AMD RDNA architecture is currently available in the AMD Radeon™ RX 5000 series GPUs. The new architecture is forecasting a 50% performance-per-watt improvement over the first-generation and will support hardware-accelerated ray tracing, variable-rate shading (VRS) and other features. The first product equipped with AMD RDNA 2 is set to launch later in 2020. AMD also announced its new AMD Compute DNA (CDNA) graphics architecture for the Data Center. The architecture is designed to accelerate Data Center computing workloads and is optimized for machine learning and high-performance computing applications. The architecture will also include 2nd Generation AMD Infinity Architecture to enhance GPU to GPU connectivity. The first generation of CDNA will launch later this year. Not to mention, these architectures will be supported in AMD’s biggest supercomputer projects: Frontier and El Capitan.
While I’m sure AMD would like to have had two architectures before, it simply couldn’t afford it. But now it can.
PC & gaming market update
Rick Bergman, EVP of Computing and Graphics Business at AMD, took the stage to explain AMD’s growth strategy in PC’s and gaming segments. Bergman took a few minutes to recap the success that AMD has had in these markets over the last few years. Since 2017, AMD has nearly doubled both client unit shipments and market share closing last year at 17% market share up from 13% at the start of 2019, increasing PC CPU average selling prices by 14%, and growing commercial market share from 8% to 11%.
These gains have been made on the back of the Ryzen product line that brought 7nm processors to the desktop, high-end desktop (HEDT) and mobile markets all in the last year. AMD is positioned well to take more market share but will need to keep winning the confidence of OEM and ODM partners to sell more Ryzen processors. Not to say that AMD had it “easy” competing with Intel’s DIY consumer desktop offerings, this space is the least brand loyal, is 98% driven by price/performance. The notebook and commercial markets still care about those attributes, but just less and are more brand loyal.
AMD’s gaming business also has a tremendous opportunity in front of it with 2.5 billion gamers gaming across the world on mobile phones, consoles and PCs. AMD’s Radeon Graphics IP to addresses of all these markets and with a new gaming architecture on the horizon AMD could be a compelling choice for gamers. Also, AMD has won the confidence of Microsoft and Sony while partnering to build their next generation gaming consoles. The PC gamer can look forward to AMD’s plans to deliver a full stack of high-performance GPUs built on RDNA 2 architecture. AMD RDNA 2-based “Navi 2X” GPUs are targeted to game at 4K resolutions and will support hardware-accelerated ray tracing, variable-rate shading (VRS) and other features. I believe AMD’s client and graphics products support the statement often muttered by Lisa Su, “AMD loves gamers.”
The more relevant gaming question is if AMD can deliver the goods competitively at the premium side or market decidedly differently. I believe AMD’s Frank Azor is one of its secret weapons and a game changer, and I hope the company fully supports his initiatives.
Data center market update
AMD has had some success in the Data Center market since the launch of first-generation EPYC in 2017. The CPUs in some instances gave users the computing power of a dual-socket server in a single socket solution, and more customers are warming up to this. 2nd Generation EPYC was even better from a competitive positioning standpoint and gave users the ability to run 80% of their enterprise, cloud and HPC workloads on the platform while reducing total cost of ownership.
Forrest Norrod, GM of AMD’s Data Center and Embedded Solutions Group confirmed that 3rd Gen EPYC codenamed “Milan” will be able to address 100% of enterprise, cloud and HPC workloads and will start shipping late in 2020. Data Center is a crucial growth market for the long-term success of AMD.
Revenue from the Data Center represented just 15% of AMD’s revenue in 2019. CFO Devinder Kumar forecasted that >30% of AMD’s revenue in 2023 will be made in the Data Center market. As a result, AMD could see a much more balanced financial model and be more strategically important to its large OEMs and cloud service providers. Norrod guided that AMD will likely hit double-digit server CPU market share in Q2 of this year. Now is the time for AMD to invest heavily in expanding the EPYC ecosystem within server and supercomputer systems.
Ironically, I think AMD’s degree of success in the datacenter will have as much to do with its sales and marketing than it will with its technology. AMD’s competitors are deeply embedded in enterprises and CSPS around the globe and have been for decades. AMD has not. Datacenter sales and marketing is a current question mark for me and I look forward to learning more this year.
I came away from AMD’s 2020 Financial Analyst Day very encouraged by the company’s long-term commitments and strategy. I believe that AMD is making the right bets and attacking large, growing markets but there is plenty of competition and execution that lays ahead of them. To sustain the type of growth we are getting accustomed to seeing from AMD, it is going to take multi-generations of well-executed product launches as well as building out a world-class sales and marketing team while the company is in a great competitive position. Despite the challenges that lie ahead of AMD, I know Lisa Su and her leadership team are up to the task.