Double-digit revenue increase from last quarter, profit decrease Q-Q

AMD continued its growth streak, reaching $5.9 billion in Q1’22, a YoY gain of almost 71%. However, gross margin (GAAP) fell 4% Q-Q, but was up 4.4% YoY.

“The first quarter marked a significant inflection point in our journey to scale and transform AMD as we delivered record revenue and closed our strategic acquisition of Xilinx,” said AMD Chair and CEO Lisa Su. “Each of our businesses grew by a significant double-digit percentage year-over-year, led by EPYC server processor revenue more than doubling for the third straight quarter. Demand remains strong for our leadership products, with our increased full-year guidance reflecting higher AMD organic growth and the addition of the growing Xilinx business.”

Excluding Xilinx, AMD had recorded quarterly revenue of $5.3 billion, non-GAAP gross margin of 51%, and non-GAAP operating margin of 30%.

Operating income was $951 million compared to $662 million a year ago and $1.2 billion in the prior quarter. The year-over-year increase was primarily driven by higher revenue and gross profit, partially offset by amortization of intangible assets and acquisition-related costs. The quarter-over-quarter decrease was primarily due to amortization of intangible assets and acquisition-related costs.

Net income was $786 million compared to $555 million a year ago and $974 million in the prior quarter. The year-over-year increase was primarily driven by higher operating income. The quarter-over-quarter decrease was primarily due to lower operating income related to amortization of intangible assets and acquisition-related costs.

Computing and Graphics

Computing and Graphics segment revenue was $2.8 billion, up 33% year-over-year and 8% quarter-over-quarter. The year-over-year increase was driven by Ryzen and Radeon processor sales. The quarter-over-quarter increase was driven by Ryzen processor sales.

Enterprise, Embedded, and Semi-Custom segment revenue was $2.5 billion, up 88% year-over-year and 13% quarter-over-quarter, driven by higher EPYC processor revenue, semi-custom, and embedded product sales.

Record operating income was $881 million compared to $277 million a year ago and $762 million in the prior quarter. Operating income improvements were primarily driven by higher revenue and an $83 million licensing gain.

Xilinx’s, now known as Adaptive solutions, partial quarter revenue was $559 million with operating income of $233 million. On a pro-forma basis for the full quarter, Xilinx generated over $1 billion of revenue, up 22% year-over-year, driven by growth across all Xilinx major end market categories.

All other operating loss was $886 million compared to operating losses of $100 million a year ago and $121 million in the prior quarter. Higher operating loss was primarily due to amortization of intangible assets and acquisition-related costs.

AMD announced a definitive agreement to acquire Pensando for approximately $1.9 billion before working capital and other adjustments. Pensando’s distributed services platform will expand AMD’s data center product portfolio with a high-performance data center processing unit (DPU) and software stack, which are already deployed at scale across cloud and enterprise customers including Goldman Sachs, IBM Cloud, Microsoft Azure, and Oracle Cloud.

Margin

The gross margin was 48%, an increase of 2 percentage points year-over-year and a decrease of 2 percentage points quarter-over-quarter. The year-over-year increase was primarily driven by higher server processor revenue and high margin Xilinx revenue, partially offset by amortization of intangible assets and acquisition-related costs. The quarter-over-quarter decrease was primarily due to amortization of intangible assets and acquisition-related costs.

Client processor average selling price (ASP) increased year-over-year and quarter-over-quarter, driven by a richer mix of Ryzen processor sales.

GPU ASP increased year-over-year, driven by high-end Radeon processor sales, and decreased quarter-over-quarter due to a lower mix of data center GPU revenue.

Record operating income was $723 million compared to $485 million a year ago and $566 million in the prior quarter. Operating income improvements were primarily driven by higher revenue, partially offset by higher operating expenses.

AMD expanded its lineup of high-performance AMD Ryzen desktop processors for gamers and creators.

AMD announced the Ryzen 7 5800X3D processor, the first Ryzen processor to feature AMD 3D V-Cache technology and the industry’s first x86 PC processor with 3D stacked chiplets. The Ryzen 7 5800X3D processor delivers leadership gaming performance in select titles, compared to the competitive processor without stacked cache technology.

AMD also expanded the Ryzen desktop processor portfolio with six new Zen 3 and Zen 2 processors, giving PC enthusiasts even more options to create a customized gaming experience.

Current outlook

AMD’s outlook statements are based on current expectations. The following statements are forward-looking and actual results could differ materially depending on market conditions and the factors set forth under “Cautionary Statement” below.

For the second quarter of 2022, AMD expects revenue to be approximately $6.5 billion, plus or minus $200 million, an increase of approximately 69% year-over-year and approximately 10% quarter-over-quarter. The year-over-year increase is expected to be driven by the addition of Xilinx and higher server, semi-custom, and client revenue. The quarter-over-quarter increase is expected to be primarily driven by Xilinx and higher server revenue. AMD expects non-GAAP gross margin to be approximately 54% in the second quarter of 2022.

For the full year 2022, AMD now expects revenue to be approximately $26.3 billion, an increase of approximately 60% over 2021, up from prior guidance of approximately 31%, driven by the addition of Xilinx and higher server and semi-custom revenue. AMD expects non-GAAP gross margin to be approximately 54% for 2022, up from prior guidance of approximately 51%.

What do we think?

AMD continues its march into the data center and the cloud as customers continued to buy the company’s AMD EPYC processor. AMD says there are 465 cloud instances now, and Microsoft Azure upgraded its HBv3 virtual machines (VMs) to 3rd Gen AMD EPYC processors. Google Cloud and Amazon also expanded AMD’s presence in their farms.

The company will announce new AIBs powered by AMD in the third week of May, and the rumor mills stay active with hints and leaks about the company’s next-gen GPU. Meanwhile, Intel looms over AMD in all corners and is boosting. It will realize a billion in dGPU revenue this year—that business has to come from somewhere, and AMD is the most vulnerable even as its brand grows stronger.

Sales of PC and monitors for Q1 were down, and that doesn’t bode well for the market and the fighting over share between the big three—AIN. However, a few years ago, AMD would not have been considered part of the big three, and with the recent acquisitions and reduced debt, the company is stronger than ever to battle with the other two of the big three.