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AMD’s Enterprise Growth Offsets Semi-Custom Declines

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AMD’s Enterprise, Embedded, and Semi-Custom business

Over the last two years, Advanced Micro Devices (AMD) has focused on computing and graphics via its launch of its Ryzen CPUs (central processing unit) and its Polaris and Vega GPUs (graphics processing unit).

The growing adoption of these products has helped the company make its Computing and Graphics segment profitable once again.

AMD launched its EPYC server CPUs in 2017, but because data center CPUs have a longer qualification cycle, their adoption took more time. Last year saw the growing adoption of EPYC processors, but the rise failed to offset declines from semi-custom processors, which power game consoles. Sony’s PlayStation 4 and Microsoft’s Xbox One both entered their seventh year of production, when sales fall significantly. The game console makers are currently developing their next-generation consoles, which they plan to launch next year. The new consoles could revive AMD’s semi-custom revenue.

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EESC earnings

In the fourth quarter, AMD’s EESC (Enterprise, Embedded, and Semi-Custom) revenue was flat YoY (year-over-year) but down 39.4% sequentially to $433 million as the strength in the data center was more than offset by seasonal declines in the semi-custom space. AMD’s data center revenue grew faster than Intel’s (INTC) data center revenue, which rose 9% YoY as the former gained market share from the latter.

EESC’s fourth-quarter operating loss reduced to $6 million from $13 million in the previous year’s quarter. The profit it earned from its rising data center ASP (average selling price) was more than offset by the high go-to-market cost of server CPUs and a higher mix of lower-margin semi-custom chips. However, the segment’s profit is expected to grow as more and more cloud customers adopt EPYC processors.

In the first quarter of 2019, AMD’s EESC revenue is expected to fall 2.3% YoY but rise 20% sequentially to $520 million. The YoY decline is expected to come from falling semi-custom sales, whereas the sequential rise is expected to be driven by growing revenue from EPYC processors. We expect the segment to report a profit of $10 million or higher in the first quarter of 2019.

Next, we’ll look at AMD’s enterprise business.

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