Over the last two years, Advanced Micro Devices (AMD) has emerged from multiple years of losses and is now well-positioned to withstand a semiconductor downturn. AMD designs and supplies PC and server CPUs (central processing units) and GPUs (graphics processing units) as well as semi-custom APUs (accelerated processing units) for game consoles. The company’s success is a result of strong product implementation and its go-to-market strategy.
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AMD’s chips lag behind Intel’s and NVIDIA’s chips in terms of performance. Thus, it aims to capture a higher unit market share by offering a better performance at a lower price than its competitors. AMD is trying to mitigate the impact of the economic downturn by gaining market share.
The company earns revenue by selling its products to OEMs (original equipment manufacturers), AIB (add-in-board) partners, data centers, and game console makers. It also licenses some of its technology for a royalty fee. It has been looking to improve its revenue and profit by increasing the mix of higher-end products.
AMD’s business segments
The way AMD segments its business is kind of confusing and does not give a clear picture of any of its products. Its CG (Computing and Graphics) segment includes PC CPUs and GPUs and data center GPUs. Its EESC (Enterprise, Embedded, and Semi-Custom) segment includes data center CPUs and semi-custom chips for game console and IoT (Internet-of-Things) devices.
Computing and Graphics
CG has been AMD’s key revenue driver in the last three years growing in the strong double digits. In 2016, Polaris consumer GPU drove revenue growth. In 2017, Ryzen CPU drove revenue growth. And in 2018, data center GPU and crypto-related Vega GPU drove revenue growth.
However, the crypto boom faded in the fourth quarter of 2018, which slowed CG’s YoY revenue growth to high single digits. In the first quarter, CG’s revenue fell 25.5% YoY as consumer GPU demand fell significantly due to excess inventory in the channel. AMD expects consumer GPU demand to improve slightly in the second quarter and is, therefore, expecting a 9% YoY revenue decline in CG.
CG reported low operating profit in the first half of a year, as the company spends a huge sum on bringing new products to the market. CG’s operating margin fell to 1.9% in the first quarter from 12.4% last year as the impact of the crypto boom vanished and the company spent on the next-generation 7-nm (nanometer) products.
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It remains to be seen to what extent manufacturing node and security advantages will help AMD gain market share from Intel in the PC CPU space.
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