AMD EPYC Rome Launch Could Help Investor Optimism


Aug. 7 2019, Updated 1:15 p.m. ET

Advanced Micro Devices (AMD) investors are set for some good news after a series of bad news last week. The company is set to launch its most-awaited 7nm (nanometer) second-generation EPYC Rome server CPU (central processing unit). AMD’s EPYC Rome will launch on Wednesday.

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Investors prepare for AMD’s EPYC Rome launch

During the second-quarter earnings call on July 30, AMD’s CEO, Lisa Su, discussed EPYC Rome. She highlighted that the EPYC Rome pre-launch with some cloud and OEM (original equipment manufacturers) customers was a success despite weak demand.

On July 7, when AMD launched its 7nm Ryzen PC CPU and Navi GPU (graphics processing unit), its stock rose 7.3% in three days. We expect the stock to rise by mid-single-digits on Wednesday after EPYC Rome launches. Why are we more bullish on Rome than 7nm Ryzen? First, we’ll discuss why server CPUs are important for AMD. We’ll also discuss Su’s commentary on the earnings call.

Server CPUs are important for AMD

Server CPUs command a high price and have a longer adoption cycle. The company has to secure design wins. The server CPU market has long been governed by Intel (INTC) with more than 99% market share. The last time AMD had a competitive server CPU, Opteron, was in 2006. However, AMD started losing market share to Intel as it fell behind in terms of technology. After 11 years, AMD re-entered the space with a competitive server CPU. The company’s first-generation EPYC Naples server CPU took longer to win back customers’ confidence and gain some market share.

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AMD’s second-quarter earnings reflect the results of EPYC Naples sales. The company’s enterprise, embedded, and semi-custom operating income rose 29% YoY (year-over-year) even though its revenues fell 11.8%. The operating income rose due to a higher mix of EPYC Naples server CPUs. Meanwhile, the revenues fell due to weaker-than-expected semi-custom sales. The earnings show that server CPUs are very important for AMD’s profitability.

AMD’s server CPU sales rose, while Intel’s sales fell 10% YoY in the second quarter. Intel’s data center business suffered from US trade bans on China and weak demand in the overall market. These factors impacted AMD as well, but its server CPU sales rose. Notably, AMD gained some market share from Intel.

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AMD banks on EPYC Rome to gain server CPU market share

Positive earnings and the market share outcome from EPYC Naples built enthusiasm among customers and investors for EPYC Rome. The 7nm EPYC Rome server CPU is even more relevant. The server CPU will put AMD ahead of Intel in the process technology space. Intel’s competing 10nm server CPUs aren’t due for another year or so, which gives AMD a technology lead. The year is crucial for AMD to gain server CPU market share from Intel.

The last time AMD stock crossed the $40 mark was in 2006 when Opteron gained more than a 20% server CPU market share from Intel. We’ll have to see if EPYC Rome can repeat history and put AMD in the same position as it was in 2006 in terms of market share and stock price. The initial uptake of EPYC Rome looks promising.

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What did Su say about EPYC Rome?

AMD started early shipments of EPYC Rome to some of its leading cloud and OEM customers ahead of the launch on August 7. During the earnings call, Su stated that the initial Rome shipments drove the company’s server CPU revenues in the second quarter. She compared Rome to Naples. Su said:

  • Rome has “more than twice the number of platforms in development with a larger set of partners.”
  • EPYC Rome has “four times more enterprise and cloud customers actively engaged on deployments prior to launch.”
  • Rome is “delivering leadership performance and TCO (total cost of ownership) across a significantly expanded number of cloud and enterprise workloads.”

Su stated that AMD secured several designs wins from the cloud, HPC (high-performance computing), and enterprise customers. She didn’t provide pricing details. However, she said that the pricing would be competitive.

Earlier, Su’s target was to gain a double-digit market share by mid-2020 with the help of EPYC Rome. She hasn’t updated her target due to current developments in the data center space. She will update the target after seeing EPYC Rome’s initial sales. Currently, Su thinks her previous target seems achievable.

Investors should watch the launch event on Wednesday. Su will share more details about the EPYC Rome CPU.


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