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Advanced Micro Devices Earnings: What Happened

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Key Takeaways

  • Adjusted EPS was $0.18 vs the $0.16 analysts anticipated.
  • Gross margin rose according to expectations.
  • Income additionally matched expectations as AMD grew regardless of international financial troubles.

What Happened

AMD introduced its Q2 2020 earnings on July 28, 2020, and reported barely higher-than-expected earnings. Whereas its income and gross margin matched what analysts anticipated, what makes AMD stand out amongst different corporations reporting this quarter is that its earnings, margin, and gross sales had been considerably increased, not decrease, than final 12 months. One other factor we’ve not heard a lot of this 12 months is that AMD is elevating its full-year income steering. All of this got here on prime of the information that its rival, Intel, stated it will be delaying the discharge of its chips with 7-nanometer transistors till 2022 or 2023, a sort of product AMD already sells.

(Beneath is Investopedia’s unique earnings preview, printed July 22, 2020)

What to Look For

Advanced Micro Devices Inc. (AMD) has dramatically outperformed the inventory market amid the coronavirus pandemic, rebounding greater than 50% for the reason that inventory’s March lows and approaching its file excessive earlier this 12 months. A key driver of this efficiency has been robust gross sales and new merchandise in latest quarters.

Traders will probably be taking a look at whether or not AMD can preserve that development within the face of a steep and protracted international financial downturn when the corporate studies earnings on July 28 for Q2 FY 2020. For the quarter, analysts count on AMD’s adjusted earnings per share (EPS) to double amid robust, however decelerating income development.

Traders are also prone to focus closely on a key AMD metric, its gross revenue margin, which exhibits how effectively the corporate is working in good instances and dangerous. Analysts count on AMD to report a wholesome enhance it its gross margin, though the scale of that enhance will probably be smaller than in most quarters previously two years. The massive threat is that demand for AMD processors and different merchandise might falter as the worldwide economic system shrinks, badly squeezing margins.

AMD’s robust development in earnings, income and gross margins could also be why the inventory has considerably outperformed the broader market over the previous 12 months, posting a complete return of 74.9% in comparison with simply 8.9% for the S&P 500.

Supply: TradingView.

AMD shares rose sharply within the days following its Q1 FY 2020 earnings report launched April 28 that met analysts’ expectations. Adjusted EPS grew 220% on a 40.4% enhance in income in comparison with Q1 FY 2019. This marked the third consecutive quarter of rising earnings and income following two consecutive quarters during which each the highest and backside traces fell.

After rising in the course of the month following its Q1 earnings launch, AMD’s inventory drifted downward between Could 20 and Jun 26, erasing most of its post-earnings features. Since then, traders have proven indicators of regaining confidence, with the inventory rebounding about 15% between June 26 and July 20.

Trying ahead to AMD’s Q2 FY 2020 report, analysts estimate adjusted EPS rose 103.9% on a 22.1% acquire year-over-year (YOY). These Q2 estimates look robust in comparison with a 12 months earlier in Q2 FY 2019, when earnings and income fell. However in addition they signify a big deceleration in development in comparison with the newest quarter, Q1 FY 2020.

Even with this anticipated deceleration in its key metrics, analysts are optimistic that AMD can prosper amid the fierce headwinds introduced by the contracting international economic system. They estimate that adjusted EPS will rise 64.9% for all of fiscal 2020, quicker than a 12 months earlier, whereas posting the strongest income development in 5 years because it will increase 25.5%.

AMD Key Metrics
  Estimate for Q2 2020 (FY) Precise for Q2 2019 (FY) Precise for Q2 2018 (FY)
Adjusted Earnings Per Share ($) 0.16 0.08 0.14
Income ($B) 1.9 1.5 1.8
Gross Margin (%) 43.8 40.7 37.2

Supply: Seen Alpha

Though semiconductor chips are advanced, they’re so frequent at the moment in merchandise worldwide that they now are thought to be a commodity, with their worth primarily based extra on their intrinsic properties than on the model identify of the corporate promoting them. For that reason, semiconductor corporations like AMD should be sure that their operations are run effectively in an effort to stay aggressive. To measure this, traders typically concentrate on gross margin, which is whole income minus value of products offered (COGS). Dividing that determine by whole income provides a measure of gross margin in share phrases, enabling traders to match the effectivity of 1 firm versus one other.

AMD lately has constantly raised its gross revenue margin in every quarter YOY. The corporate reported gross margins of 45.9% in Q1 FY 2020, marking a rise of practically 4.9 share factors in comparison with Q1 FY 2019. The corporate stated the development in gross margin was primarily pushed by the continued rollout of its Ryzen and EPYC product traces, that are a part of a brand new era of 7-nanometer processors.

Analysts count on a 43.8% gross revenue margin in Q2 2020. If true, this could signify the very best margin that the corporate has achieved throughout a Q2 reporting interval in at the least 4 years, and the third-highest margin it has achieved in any quarter in the course of the previous 14 quarters.

AMD’s 43.8% gross margin represents a robust enhance of three.1 share factors from a 12 months earlier, but it surely nonetheless additionally represents a smaller acquire in effectivity than in each quarter previously two years. Most significantly, analysts’ estimates exhibiting AMD’s slowing gross margin development additionally replicate their outlook for slowing earnings and income development within the brief time period. The query is whether or not this deceleration is solely a one-quarter blip, or the beginning of an extended pattern.

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