AMD finished 2018 with revenue growth for both the fourth quarter and the full year, but the quarter was weaker than Q3 and the company warned that excess graphics-channel inventory and the absence of blockchain-related GPU revenue would pressure early 2019. The distinction matters: Q4 revenue rose year over year, while AMD’s next-quarter outlook pointed down.
How did AMD perform in Q4 2018?
AMD reported $1.42 billion in Q4 2018 revenue, up 6% from Q4 2017 but down 14% from Q3 2018. The sequential decline reflected lower Enterprise, Embedded and Semi-Custom revenue; Q3 had included approximately $125 million in IP-related revenue. AMD also cited typical seasonal patterns as context for its outlook. AMD’s January 29, 2019 results release gives the reported figures and management’s explanation.
Q4 GAAP gross margin was 38%, compared with 34% in Q4 2017 and 40% in Q3 2018. A $45 million charge for older technology licenses AMD no longer used affected the GAAP result. On a non-GAAP basis, gross margin was 41%, versus 34% a year earlier and 40% in Q3. These are separate accounting measures, so the basis matters when comparing the percentages.
Which business lines grew, and which fell?
Computing and Graphics
Computing and Graphics generated $986 million in Q4 revenue, up 9% year over year and 5% sequentially, with operating income of $115 million. AMD attributed the segment’s growth principally to strong Ryzen processor sales: Ryzen and record data-center GPU revenue offset lower GPU sales. The company’s earnings presentation also reported client processor unit shipments up more than 50% year over year and Ryzen at over 80% of client sales. Those are AMD-reported figures, not independent market measurements. AMD’s Q4 and FY 2018 presentation provides the segment details.
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For historical context, Ryzen processors were central to AMD’s explanation of the quarter’s segment growth; the results do not establish how any particular current product performs.
Enterprise, Embedded and Semi-Custom
This segment generated $433 million, flat year over year and down 39% sequentially. AMD said lower semi-custom sales drove the quarter-on-quarter decline, as expected. The company also reported that EPYC unit shipments more than doubled sequentially and highlighted customer announcements involving AWS EC2 and Microsoft Azure.
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What did AMD mean by the crypto-related headwind?
AMD’s warning was about its own sales comparisons and channel conditions, not a measurement of the entire cryptocurrency market. Its October 2018 Q3 release said Q4 2017 blockchain-related GPU sales represented approximately a low double-digit percentage of AMD’s overall revenue. That was AMD’s estimate at the time; it does not quantify cryptocurrency demand across the industry or specify the share of Q4 2018 revenue. The October 24, 2018 release states the comparison basis.
In January, AMD said it expected Q1 2019 revenue to decline year over year primarily because of lower graphics sales amid excess channel inventory, the absence of blockchain-related GPU revenue, and lower memory sales. The company’s release does not establish that crypto alone caused every graphics decline, or that AMD’s business as a whole depended on mining demand. In Q4 2018, total company revenue still increased year over year.
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How strong was AMD’s full year?
AMD reported 2018 revenue of $6.48 billion, up 23% from 2017. Full-year GAAP gross margin was 38%, compared with 34% in 2017; non-GAAP gross margin was 39%, also compared with 34% in 2017. GAAP operating income rose to $451 million from $127 million, and GAAP net income was $337 million versus a $33 million net loss in 2017. Non-GAAP net income was $514 million, compared with $103 million.
Free cash flow was negative $129 million. AMD attributed that to higher inventory related to new products and the timing of collections. CEO Lisa Su characterized 2018 as a second straight year of significant revenue growth, market-share gains, expanded gross margin and improved profitability, based on the company’s high-performance products. That management summary sits alongside the weaker sequential Q4 revenue and the cautious near-term outlook.
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What did AMD forecast for 2019?
In its January 2019 release, AMD expected Q1 revenue of approximately $1.25 billion, plus or minus $50 million—about 12% lower sequentially and 24% lower year over year. The company expected Q1 non-GAAP gross margin around 41%. These were forecasts, not reported outcomes.
For full-year 2019, AMD forecast high-single-digit percentage revenue growth, driven by Ryzen, EPYC and Radeon data-center GPU sales as it ramped 7nm products. That outlook reflected management’s expectations at the time and should not be read as a statement of what later occurred.
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