After last week's hope of a PC industry demand revival brought by old rival Intel, U.S. chip giant AMD also exceeded expectations in Q2, predicting a significant Q3 increase in PC-related business sales. This gives further credence to the improvement of the PC market.
Before the earnings report, AMD's shares increased by 2.8% on Tuesday. Post-report, AMD stock rose in U.S. after-hours trading, not only quickly reversing the trend but at one point soaring over 5%.
Q2 Revenues Drop by 18% Year-on-Year, Still Above Market Expectations
On August 2, Eastern time, AMD announced after the close of U.S. trading that both revenue and profit fell by double digits in Q2 of this year, but not as much as Wall Street expected:
Non-GAAP adjusted Q2 operating revenue was approximately $5.359 billion, down 18% year-on-year and declined for two consecutive quarters. This figure, however, remains above the company's guided median of $5.3 billion and above analysts' expectation of $5.32 billion.
Adjusted earnings per share (EPS) in Q2 was $0.58, a 45% YoY decrease, still slightly above the analysts' expectation of $0.57. Adjusted operating profit margin for Q2 was 20%, down 10 percentage points YoY and 1 percentage point QoQ, still higher than the analysts' expectation of 19.5%. Adjusted gross margin for Q2 was 50%, down 4 percentage points YoY and level with Q1.
The adjusted operating profit of $1.068 billion for Q2 met analysts' expectations, down 46% YoY, and 3% QoQ. Adjusted net profit was $948 million, down 44% YoY, and down 2% QoQ. AMD's CEO, Lisa Su, attributed the strong Q2 performance to a significant increase in sales of 4th generation EPYC CPUs in the data center business and Ryzen 7000 CPUs related to PC business.
Q3 Revenue Guidance Median Below Expectations; Data Center and PC Businesses Expected to Grow by Double Digits
For guidance, AMD expects Q3 revenue to be around $5.7 billion, fluctuating by $300 million, i.e., the range is $5.4 billion to $6 billion. This is lower than the analysts' expectation of $5.84 billion.
On a non-GAAP basis, after excluding production costs, AMD expects the Q3 gross margin to be about 51%, slightly higher than Q2's 50%, and in line with analysts' expectation of 51.2%.
Nvidia's CFO, Jean Hu, indicated that the company expects both the data center and PC market-related client businesses to record double-digit percentage growth QoQ in Q3, driven by the growth in demand for EPYC and Ryzen processors.
AMD expects its data center and embedded businesses to grow YoY for the entire fiscal year.
CEO Lisa Su said in the earnings call that she expects the data center business to grow significantly in the second half of the year, especially in Q4, predicting a 50% increase in the performance of this business in the second half of the year.
Q2 PC Business Revenue Decline Slows Down; Up 35% QoQ
Looking at individual businesses, AMD's PC business continued to decline significantly YoY in Q2, but the decline was slower than in Q1.
Including desktop and laptop PC processors and chipsets, AMD's client division had Q2 revenue of $998 million, down 54% YoY and 65.2% in Q1, but Q2 revenue was up 35% QoQ. AMD stated that the YoY decline was due to reduced processor shipments caused by a weak PC market and significant inventory adjustments throughout the PC supply chain. The reason for the sharp QoQ increase was a surge in sales of the Ryzen 7000 series CPUs and improved PC market conditions.
In Q2, AMD's data center business turned negative YoY.
Including CPUs, data center GPUs, Pensando, and Xilinx data center products, AMD's data center division had Q2 revenue of $1.3 billion, down 11% YoY and up 2% QoQ. In Q1, it had a small YoY increase of 1.5%. AMD pointed out that the YoY decline in data center business was mainly due to a drop in sales of the third-generation EPYC processor, reflecting weak enterprise demand and high cloud inventory levels for some clients. The QoQ increase in data center business was due to the nearly doubled revenue of the fourth-generation EPYC CPU, growth in EPYC CPU enterprise sales, partially offset by a decline in semi-custom System-on-Chip (SoC) data center products.
Q2 Gaming Business Remains AMD's Largest Source of Revenue, YoY Decline Slows Down
Including standalone GPUs and semi-custom game console products, AMD's gaming division had revenue of $1.6 billion, down 4% YoY and 6.3% in Q1. AMD stated that semi-custom product sales in this division increased YoY, but were offset by a drop in GPUs. Q2 revenue for this division was down 10% QoQ, primarily due to a decrease in GPU sales.
In Q2, AMD's embedded products business was the only one with YoY revenue growth, reflecting the ongoing impact of last year's acquisition of the world's largest programmable logic component manufacturer, Xilinx.
Including data center and server processors, semi-custom SoC, and video game console chips, AMD's Enterprise, Embedded, and Semi-Custom division had Q2 revenue of $1.5 billion, up 16% YoY and 1.6 times YoY in Q1. AMD stated that this division was driven by industrial, visual and healthcare, automotive, as well as test and simulation markets. However, QoQ revenue for this division was down 7%, reflecting the impact of a weak communications market.
CEO Says AI Engagement Increased More than Sevenfold, Increasing AI R&D Spending, Expecting to Launch MI300 Accelerator in Q4
After announcing Q1 earnings in May this year, AMD CEO Lisa Su stated that AI is now AMD's top priority. "We are in the early stages of the AI era, and AMD is in a favorable position to take advantage of this opportunity. AMD wants to make AI a key to future market expansion."
After announcing Q2 results this Tuesday, Su specifically mentioned AMD's progress in the field of AI. She said that due to several clients starting or expanding support for AMD Instinct accelerator for large-scale future deployment, AMD's AI engagement has increased more than sevenfold this quarter.
The company has made significant progress in achieving key hardware and software milestones, aiming to meet the growing customer demand for data center AI solutions. They expect to launch the MI300 accelerator in Q4 and expand production.
AMD's CEO, Lisa Su, said during the earnings call that AMD is increasing its AI-related R&D expenditure, and the company has developed an AI strategy, including the development of AI-specific chips and software. The goal is to make AI an "important growth driver" for the company. She also suggested that AI might help boost PC chip sales.
In June of this year, AMD released a large-scale model-specific chip, the MI300, which aims to compete with Nvidia's AI chip H100. The MI300 from AMD claims to have an HBM density up to 2.4 times higher than Nvidia's H100, an HBM bandwidth up to 1.6 times that of H100, and a single chip can run models with up to 80 billion parameters, larger than those the H100 can run.
Media commentary stated that the MI300X is not yet able to completely replace the GH200, but it already has a larger memory capacity than Nvidia's GH100, and the MI300X performs better in terms of energy efficiency. The market estimates that the cost might be higher than the H100.
Furthermore, the commentary also stated that Nvidia's CUDA GPU is faster than AMD's GPU in many computationally intensive tasks, including GPU design and the availability of more efficient compiler optimizations. AMD still cannot challenge the Nvidia CUDA stronghold. AMD is working to improve the performance of the MI300X GPU, and whether it can narrow the gap with Nvidia in the future remains to be seen.
