Earnings season is in full swing—both AMD and Intel announced 4th quarter (and annual) results recently. Both companies claimed strong quarters with robust growth. The following few paragraphs will attempt to dissect those numbers in a little more detail and provide some guidance on what these numbers say about the 2020 business outlook.
AMD EESC – strong results, lots of EPYC activity
Trying to pull actual EPYC numbers from AMD’s reporting is tricky as they are grouped with the company’s embedded and semicustom businesses, which tend to be much higher volume and much lower margin.
At first glance, these numbers can seem a little mixed. Net revenue numbers look fairly flat to down across the board, while operating income looks pretty strong year over year. What this says to me is that the embedded and semi-custom business was soft, while EPYC continues to ramp in the enterprise. Consider this: Y/Y segment revenue was down 14%, while operating income was up 61%. And when looking at Q4 19 versus Q4 18, revenue was up only 7% while operating income rose 850%.
In addition to these numbers, AMD showed strength in building market momentum for EPYC with over 100 EPYC-based server platforms in market. Perhaps the strongest indicator of EPYC’s momentum is this line from AMD’s presentation: “Dell (EMC) began shipping full portfolio of servers powered by EPYC processors…” Why is this so significant? One of Dell EMC’s strengths is its pragmatism. Fully embracing AMD as a server silicon partner and having that manifest in a full suite of platforms is an indication that customers are asking again and again.
As difficult as it is to discern AMD’s EPYC results for the past quarter, it’s near impossible to look at its 2020 guidance as an indicator for continued EPYC ramp. I can only go on what I hear from the industry. Demand continues to build in the enterprise market, and the addition of ex-Intel executive Dan McNamara should help in the go-to-market (GTM) drive. So expect to see EPYC continue to gain traction in the enterprise and for the numbers to (indirectly) reflect this growth.
A continued focus on building a strong channel presence is critical for EPYC’s long term success. Channel programs are more than MDF and campaign budget. It’s about the people, relationships and joint strategic planning that drive meaningful revenue and a run rate transactional business.
Intel DCG – cloud growth is staggering – enterprise and government down
Intel’s Data Center Group (DCG) had a killer quarter. There’s no other way to describe its performance after looking at the numbers. The company had a strong showing in platform (Xeon), and strong growth in adjacencies. The company saw especially strong growth in the cloud service provider (CSP) space, seeing a 48% YoY jump, accompanied by a healthy 14% growth in the comms space (no doubt buoyed by 5G rollouts).
In addition to this strong growth and record revenue, the company continued to ramp its 10nm part, codenamed “Cascade Lake.” It’s important for the company to show a strong rollout with performance and power efficiency numbers that stand against AMD’s 7nm “Rome” CPU. It’s fending off arguably the stiffest competition it has ever faced in the datacenter.
Intel’s Q4 DCG numbers, along with the Q3, can indicate a couple of things. The server market contraction is reversing, and the cloud providers have resumed their buying trends. Secondly, the comms providers have resumed infrastructure acquisitions in support of 5G rollouts. And finally, the impact of cloud is being felt in the rollout of servers at enterprise and government. This trend is nothing new to anybody who has been following the server market, but the chart below clearly shows the correlation.
One question that pops out from looking at the above chart is whether Intel is facing pricing pressures from AMD. ASP has tracked strong relative to unit volume (UV) and has generally mapped to cloud and comms growth. However, Q4 showed a slight dip in ASP, while Cloud showed very strong growth alongside a healthy comms quarter. There could be a number of reasons for this. Still, it is an interesting break in the ASP trend given the fact that it follows the quarter in which AMD’s “Rome” hit the market. Perhaps Intel is using pricing to hold off a competitive AMD? This could be especially interesting in the comms space, where “Rome” should be a good fit without the customizations required by the large cloud providers. Regardless, Intel’s numbers look impressive and its guidance for DCG in 2020 is high single digit growth.
What does all of this say?
While Xeon obviously had a strong quarter, digging into the numbers shows that EPYC also had a solid quarter of growth. Further, the partnerships and activities that help build a solid run rate business seem to be there for AMD, as demonstrated by Dell EMC’s strong EPYC portfolio.
For those looking for spikes in AMD’s EESC numbers as evidence of EPYC ramp, be patient. Pardon the pun, but Rome was not built in a day. The qualification and deployment cycle of servers in the enterprise market is slow. It will take another quarter or two to see the strength of EPYC’s ramp, and that will be seen through the numbers and announced “wins.”
Expect to see Intel’s continued growth in cloud and for it to find new opportunities as the AI space begins to heat up. Additionally, “Cascade Lake” should bolster the company’s prospects for the year. Also, watch for continued EPYC growth in 2020. Methinks AMD may be a little conservative in its guidance.