To keep this momentum going, the CPU and GPU developer might need to both top Q4 estimates and issue strong guidance on Tuesday afternoon. Currently, the consensus among analysts polled by FactSet is for revenue of $2.11 billion (up 48% annually) and non-GAAP EPS of $0.31 for seasonally strong Q4.
AMD’s reports tend to be accompanied by quarterly and full-year revenue guidance. For Q1, which features pretty easy annual comparisons due to a big year-ago drop in GPU sales, the revenue consensus is at $1.86 billion (up 47%). For the whole of 2020 -- a year during which AMD’s CPU and console processor sales are both expected to grow strongly -- the consensus stands at $8.62 billion (up 28% relative to the 2019 revenue consensus).
Here are some things to keep an eye on as AMD reports after the bell on Tuesday and hosts an earnings call at 5:30 P.M. Eastern Time.
1. Server CPU Momentum
On AMD’s Q3 call, CEO Lisa Su guided for her company’s server CPU sales to grow by a strong double-digit percentage sequentially in Q4. And certainly, the fact that Intel (INTC) - Get Report reported much stronger-than-expected Q4 numbers last week for its server CPU division thanks to a 48% annual increase in the division’s sales to cloud service providers has done nothing to lessen expectations for AMD’s server CPU business, which counts several U.S. and Chinese Internet/cloud giants among its clients.
In a recent interview, SVP Forrest Norrod said that AMD -- aided by the mid-2019 launch of its very competitive second-gen Epyc server CPU line -- now has a high-single digit server CPU share, up from a mid-single digit share in early 2019. He added that AMD is on track to achieve a 10% share in Q2 2020, and expects its share to top 20% over the long-term.
AMD’s server CPU sales are included with Enterprise, Embedded & Semi-Custom segment, which also covers (among other things) console processor sales. The segment’s revenue is expected to be up 39% annually to $604 million in Q4 and 35% in Q1 to $597 million, in spite of a headwind from declining console processor sales ahead of Microsoft (MSFT) - Get Report and Sony’s (SNE) - Get Report expected late-2020 console refreshes.
2. PC CPU Growth
Su forecast in October that AMD’s PC CPU sales would follow up on a strong Q3 by growing sequentially in Q4, albeit without saying by how much. A strong reception among consumers and enthusiasts for AMD’s third-gen Ryzen desktop CPUs has given PC CPU sales a lift over the last six months, and so has solid design win activity for AMD’s second-gen Ryzen Mobile processors.
Going forward, PC CPU sales should get a boost from the rollouts of AMD’s third-gen Ryzen Mobile processors, which were unveiled this month at CES. And though AMD has downplayed their impact before, Intel PC CPU shortages, which are now expected to last well into 2020, might also be providing a lift.
3. GPU Sales
Like Nvidia (NVDA) - Get Report, AMD been seeing rebounding PC GPU sales following late-2018 and early-2019 tumbles caused by major channel inventory corrections. AMD’s PC GPU sales have also gotten a boost from the rollout of its mid-range, Navi-architecture, gaming GPUs (some new Navi products were unveiled at CES), while its server GPU sales have benefited some from cloud gaming and virtual desktop engagements.
The consensus is for AMD’s Computing & Graphics segment, which covers both GPU and PC CPU sales, to see revenue grow 52% annually in Q4 and Q1 to $1.5 billion and $1.26 billion, respectively.
4. Margin Expansion
AMD’s non-GAAP gross margin (GM) rose by 3 percentage points annually in Q3 to 43%, and the company has guided for its GM to be up by 3 points in Q4 to 44%. Strong demand for third-gen Ryzen desktop CPUs and second-gen Epyc CPUs featuring relatively high average selling prices (ASPs) has been a margin tailwind.
AMD’s Q1 and full-year GM guidance will be closely watched. Currently, the consensus is for a Q1 GM of 44% and (with higher console processor sales potentially weighing on margins) a full-year GM of 42%.
5. Comments About 7-Nanometer Chip Supplies
Taiwan Semiconductor has reportedly been seeing stretched lead times for the 7-nanometer (7nm) manufacturing process node that much of AMD’s product line now relies on. In addition to strong demand from AMD, TSMC has seen big 7nm orders from the likes of Apple (AAPL) - Get Report, Qualcomm (QCOM) - Get Report and Huawei’s HiSilicon chip unit.
Su and other AMD execs have downplayed concerns about 7nm lead times, insisting that AMD’s 7nm supplies are adequate and noting that TSMC views AMD as an important strategic partner. At the same time, AMD has noted that it has to place orders with TSMC months in advance, and that it previously underestimated how strong demand would be for some of its most powerful third-gen Ryzen desktop CPUs.
6. Comments About 2020 Product Launches
AMD is expected to launch next-gen desktop and server CPU lines during the second half of 2020. In addition, Su recently indicated that a high-end Navi gaming GPU (i.e., Big Navi) will be launched at some point this year.
Look for AMD to get a question or two on the call about its CPU and GPU roadmaps for 2020, and -- with TSMC set to begin volume production for its 5nm process node within a few months -- perhaps also about its manufacturing technology plans for 2020 and 2021.