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A Look at the Current State of AMD’s Graphics Business

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AMD’s graphics business

Advanced Micro Devices’ (AMD) overall revenue fell sequentially in the third quarter, largely because of declines in crypto GPU (graphics processing unit) sales. Its graphics business has faced challenges this year as its GPU head, Raja Koduri, has exited to join Intel (INTC). Its Vega GPU failed to beat NVIDIA’s (NVDA) high-end GeForce GTX 1080 GPUs, which saw a slow pickup among gamers. Vega gained traction among crypto miners, PC OEMs (original equipment manufacturers), and data center customers, but as the crypto bubble burst, channel GPU sales fell more than expected, thereby mitigating the gains in OEM and data center sales.

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Channel

Crypto-related sales reached ~$126 million in the third quarter of 2017, accounting for a high single-digit percentage of AMD’s revenue. These sales vanished in the third quarter of this year, and channel inventories rose to unexpected levels, resulting in a YoY (year-over-year) decline in channel GPU sales. This high inventory also impacted rival NVIDIA, which reported a 3.6% sequential decline in its third-quarter gaming revenue. Both AMD and NVIDIA expect the channel inventory to clear in the next two quarters, meaning first-quarter graphics sales could also be weak.

OEMs

While channel sales fell, AMD’s OEM GPU sales marked strong double-digit YoY growth in the third quarter as its Vega GPUs were used by Apple (AAPL) in new higher-end MacBooks launched in November. AMD’s Vega GPUs are also being used by Intel in some of its gaming notebook platforms, which could drive AMD’s OEM GPU sales.

Data centers

AMD also reported double-digit YoY growth in data center and workstation GPU sales in the third quarter. The quarter included sales of its new Radeon Pro WX 8200 GPU for workstations. NVIDIA reported 58% YoY growth in data center GPU sales and 28% YoY growth in professional GPU sales. AMD doesn’t break down its GPU sales, but CEO Lisa Su, responding to an analyst’s question during AMD’s third-quarter earnings call, stated that the data center GPU revenue was above $20 million. Next, we’ll see how the crypto bubble burst could impact AMD’s revenue.

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