AMD’s Computing and Graphics segment
Advanced Micro Devices (AMD) turned its years of losses to profits with the launch of Ryzen CPUs (central processing units) and Vega GPUs (graphics processing units) in 2017. The business segment that benefited the most from this launch was its CG (Computing and Graphics) unit, which serves the personal computer market.
These new products helped AMD gain market share from Intel (INTC) in the desktop CPU market and from NVIDIA (NVDA) in the discrete GPU market. AMD doesn’t report revenues from CPUs and GPUs separately, but we can get some idea by looking at Intel’s CPU revenues reported in its Client Computing Group (or CCG) and NVIDIA’s GPU revenues in the gaming sector.
CG segment’s seasonality
As we can see from the chart above, 1Q and 2Q are seasonally weak quarters for the PC market. Plus, 3Q and 4Q are seasonally strong quarters as the back-to-school and holiday seasons are in full swing. However, this situation could change for AMD in 1Q18, as the quarter includes sales of its new high-end Ryzen Pro processors and Ryzen Mobile APUs (accelerated processing units). These new processors would help AMD offset the seasonal weakness in the PC space.
However, this scenario wouldn’t apply to Intel, which was hit by the Spectre and Meltdown chip design flaws. The disclosure of these flaws in January 2018 might delay consumer purchases of new PCs until the flaws are fixed. AMD also faces the Spectre design flaw, but these losses would be offset by strong GPU sales.
In 1Q18, AMD and NVIDIA witnessed strong GPU demand from cryptocurrency miners who use these graphics cards for that process. This created a GPU supply shortage as miners consumed all inventory.
When the cryptocurrency trend slowed in March 2018, the GPU supply normalized. This trend helped GPU makers meet the demand from gamers who couldn’t access GPUs in 4Q17 and early 2017.
CG earnings estimate for 1Q18
Based on the above factors, we expect AMD’s CG segment to break its seasonal trend and report mid-single-digit sequential revenue growth in 1Q18. We believe AMD’s CG segment could hit the $1.0 billion revenue mark in 1Q18.
We expect NVIDIA’s gaming GPU revenues to rise 1.0% sequentially in 1Q18. On the other hand, we expect Intel’s CCG revenues to fall in the mid-teens percentage range in 1Q18, slightly higher than its seasonal decline of a low-teens percentage due to Spectre and Meltdown.
AMD’s CG profits may increase as the share of higher-end Ryzen Pro and Ryzen Mobile increases in the total product mix. We expect CG’s operating margin to rise above 9.0% in 1Q18. The company is expected to focus on premium products in 2018 and set out a product roadmap for Ryzen. We’ll look into this topic next.
Check out all the data we have added to our quote pages. Now you can get a valuation snapshot, earnings and revenue estimates, and historical data as well as dividend info. Take a look!