AMD in the server CPU market
Advanced Micro Devices (AMD) is the best-performing chip stock of 2019 so far, growing 55% YTD (year-to-date) at a time when the VanEck Vectors Semiconductor ETF has risen 22% and the SPDR S&P 500 ETF has risen 17.5%. AMD’s growth is being driven by its 7 nm (nanometer) product launches. The biggest excitement is around its 7 nm Rome server CPU, which AMD believes will help it gain a 10% server CPU (central processing unit) market share by June 2020.
In May, AMD announced its entry in the supercomputing world with an order win for its Frontier supercomputer. AMD also has a THATIC (Tianjin Haiguang Advanced Technology Investment Company) joint venture with China to license x86 Core IP (intellectual property) to develop server CPUs for the Chinese market. In an interview after E3, AMD CEO Lisa Su stated that the joint venture was only for a single-generation Zen Core and that the IP had already been shared. The joint venture will not have access to the 7 nm Zen 2 Core.
AMD and the US ban on Chinese supercomputing
The latest US ban on five Chinese supercomputing companies includes two companies from the THATIC joint venture: Hygon and Chengdu Haiguang Microelectronics Technology. AMD has a 51% stake in the latter. One thing is certain: the latest ban will impact AMD’s THATIC joint venture, but it’s not clear how.
It’s also not clear whether AMD’s supercomputing ban will affect its sales of EPYC CPU and data center graphics processing units. The company earned 39% of its revenue from China in 2018, including revenue from PC, semi-custom, and server processors and the THATIC joint venture. It’s unclear how much of a financial impact the supercomputing ban will have on AMD.
AMD will provide some clarity about the impact of the Huawei ban, the supercomputing ban, and higher tariffs on Chinese imports in its second-quarter earnings, which are due to release by the end of July. We expect AMD to lower its full-year revenue guidance moderately in light of the current developments.