AMD’s Computing Success Reflects in Earnings

The semiconductor sector saw some mixed earnings in the third quarter. Intel (INTC) and Advanced Micro Devices (AMD) reported their strongest quarterly earnings in a while. And Intel’s and AMD’s Computing segments reported strong growth because of an uptick in PC demand in the third quarter.

It remains to be seen if NVIDIA (NVDA) can continue this momentum in its upcoming third-quarter earnings. It’s due to report on November 15.

AMD’s Computing and Graphics business

AMD is the only chip supplier that designs CPUs (central processing units) as well as GPUs (graphics processing units) for both PCs and servers. However, Intel is looking to enter the GPU sector next year with its discrete Xe GPU. Now that’s a different story. For now, let’s return to AMD. The financial performance of its CPUs and GPUs is clear in its CG (Computing and Graphics) business.

In the business’s name, “Computing” stands for CPU computing for PCs and laptops. “Graphics” means GPUs for PCs and data centers. Since AMD doesn’t provide any breakdown of the two product lines, it’s hard to compare its earnings with Intel and NVIDIA.

AMD’s Computing Success Reflects in Earnings

CG was at the center of AMD’s revolutionary turnaround from near bankruptcy to profit. If I had to explain AMD’s turnaround in three words, they would be “Ryzen, Radeon, EPYC.” Two of these three products are part of AMD’s CG business, which grew 170% in the last three years. CG revenue rose from just $472 million to $1.28 billion between the third quarter of 2016 and 2019. Higher revenue pulled CG from losses to profit as well. Its operating margin rose from -14% to 14% during the same period. Volume shipments and a richer product mix drove CG to profitability.

The third quarter of 2019 was the strongest for CG in terms of sequential growth. Its revenue rose 36%, and its operating income rose over 700%. This growth was thanks to AMD’s 7nm (nanometer) Ryzen desktop CPUs and Navi GPUs, which boosted CG’s volume and ASP (average selling price). However, this growth was partially offset by weak demand in data center GPUs. Let’s see what factors played into AMD’s Computing success.

Factors behind AMD’s Computing success

AMD’s Computing portfolio comprises low-, mid-, and higher-end Ryzen desktop and mobile CPUs for retail and commercial systems. The company doesn’t provide a breakdown of its Computing and Graphics revenue.

But CEO Lisa Su, on the third-quarter earnings call, stated that Ryzen 3000 desktop CPUs and mobile CPUs were the “primary driver of these sales.” Between desktop and mobile, the former reported higher growth. Su stressed that AMD’s third-quarter Computing sales reached their highest level since 2011.

7nm Ryzen 3000 series drives AMD’s desktops

Revenue is a product of volume, and ASP and AMD’s Computing business benefitted on both fronts. Its ASP rose both sequentially and year-over-year due to strong demand for high-end Ryzen 9 and 7 desktop CPUs for mainstream users. AMD’s ASP will rise further in the fourth quarter as the company launches its premium Ryzen 9 3950X and Ryzen Threadripper CPUs for enthusiasts.

On the other hand, Intel’s third-quarter desktop ASP fell 2% sequentially but rose 3% year-over-year. As Intel is falling behind AMD in terms of process technology, it’s looking to compete on price.

Unlike Intel—whose desktop CPU volumes fell 11% year-over-year due to a supply shortage—AMD’s Ryzen desktop CPU volumes rose year-over-year and sequentially. Lisa Su said Ryzen 3000 and 2000 series CPUs “are consistently among the top sellers at leading e-tailers and retailers globally.”

One such retailer was Germany’s Mindfactory.de. Imgur released CPU sales data of the retailer. The data shows that AMD topped the charts accounting for over 75% of its CPU volumes and over 70% of its CPU revenue in the third quarter. The data also showed that demand was strong for Ryzen 9 and 7. This same trend continued in October—indicating another strong Computing quarter for AMD.

AMD also saw strong adoption for its Ryzen PRO 3000 desktop CPUs for commercial systems by HP and Lenovo.

AMD sees success in the notebook CPU market

Lisa Su stated that another factor behind CG’s sequential growth in ASP was its richer product mix of Ryzen Mobile. In the third quarter, Ryzen Mobile CPU revenue rose strong double-digit driven by strong momentum in commercial and consumer markets. The number of laptops using AMD CPUs rose by over 50%.

She stated that it wasn’t only the quantity but also the quality of laptop models that improved. Several premium notebooks—like Microsoft’s flagship 15-inch Surface laptop 3—adopted AMD processors. In the commercial space, Lenovo used AMD’s processor in its premium product ThinkPad. On the other hand, Intel’s notebook platform ASP rose 4% year-over-year. But its volume fell 10% year-over-year due to the supply shortage.

Lisa Su expects Ryzen Mobile’s revenue to grow further next year, especially in the commercial segment. This growth will be driven by the launch of AMD’s third-generation 7nm mobile processors.

AMD’s Computing story—the best is yet to come 

In an interview with VentureBeat after the third-quarter earnings results, Lisa Su hinted about AMD’s 2020 product launches will include next-generation Ryzen Mobile and Zen 3 architecture. Her comments confirmed that the rumored fourth-generation Ryzen APU (accelerated processing unit) codenamed “Renoir” will be unveiled at CES 2020 (Consumer Electronics Show), according to PCGamesN. The website also stated that the Renoir APU could pack an eight-core Zen 2-based CPU and a Vega GPU. The Renoir APU will target mobility products like notebooks and gaming laptops.

However, Wccftech senior editor Usman Pirzada released an exclusive article about AMD’s next-generation Ryzen Mobile in early October. According to this article, the new Ryzen Mobile will be a 7nm six-core CPU. The gaming laptop variant will be a Ryzen 5 six-core CPU embedded with discrete GPU, probably Radeon RX 5300M/5500M. Identifying an unnamed source, he stated that the above Renoir APU could reduce gaming laptop price to $699.

AMD’s Computing Success Reflects in Earnings

AMD CPU market share

Lisa Su highlighted that AMD gained market share in the PC CPU market for eight consecutive quarters. According to Mercury Research data reported by Tom’s Hardware, AMD has increased its x86 desktop CPU market share from 12.0% in Q4 2017 to 18.0% in Q3 2019. Its notebook CPU market share rose from 8% in Q1 2017 to 14.7% in Q3 2019. AMD’s Ryzen 3000 series will accelerate its PC CPU market share gains in the second half.