AMD CEO Refocused Company on Growth in Graphics, High-Performance Compute

CEO Lisa Su believes that 2017 was “a year of inflection” for the company and one that will bridge between two different versions of AMD. Prior, AMD was a company in flux, with a seemingly unfocused direction that affected its ability to compete with Intel and NVIDIA. Moving from an organization that wanted to address every facet of the market to one that realigned toward high-performance computing and graphics, Su has created a more efficient and more targeted company. From 2018 onward, Su has AMD on track to grow in well-established segments including processors, graphics, and enterprise, but also in expanding markets like blockchain and cryptocurrency, machine learning, and cloud computing.

The just announced Q4 AMD financials are out and paint a positive picture of growth for the once struggling chip company. Revenue spiked 34% to $1.5B this quarter and margins for 2017 were up 3% YoY, reaching 35%. Last year as a whole saw a 25% jump in revenue for AMD, a total of $1B of additional income, bringing the company to a full year profit for the time in recent memory.

The Now

By far the most head-turning result last quarter from AMD was its growth in the compute and graphics segment. Covering both its processor and graphics divisions, Q4 saw a 60% jump in year-over-year revenue, attributed to the position of its consumer Ryzen processors and Radeon graphics solutions. 2017 saw the release of the Ryzen family of parts for mainstream and enthusiast buyers, enterprise systems, workstations, and even notebook and 2-in-1 PCs.

This group saw $140M in quarter-to-quarter revenue increase, of which roughly one-third is attributed to sales of graphics chips for blockchain processing, or cryptocurrency mining as it is most often referred to. (Blockchain is the underlying technology behind cryptocurrencies.) That means around $46M of the revenue growth in the fourth quarter is attributed to the sales of graphics cards into the cryptocurrency market, with the remainder coming from the combination of graphics chip sales for gaming, professional cards, and Ryzen processors. In total, more than 50% of the total revenue growth for this segment of AMD is coming from its graphics products.

Accurately measuring the impact of cryptocurrency-based graphics chip sales can be difficult, as they are sold through the same partners and channels as gaming hardware. There are pros and cons to being a significant player in the coin-mining markets, from the surge in sales and revenue to the potential saturation of the graphics market should there be a steep decline in blockchain demand.

The Ryzen processor family was up in both units and revenue for the quarter, but AMD didn’t break down in any more detail what that looked like. ASPs (average selling prices) are up on the year but flat for the quarter as a result of the introduction of the Ryzen 3 family targeting the budget OEM market. Selling additional lower-priced hardware will generally bring down ASP and margin, but the size of the addressable market is larger in this price segment than any other consumer space.

AMD’s EESC group (enterprise, embedded, and semi-custom) was up only 3% year-on-year, a surprise considering the continued success of the game consoles that AMD hardware powers (Microsoft Xbox One and Sony PlayStation 4), and the release of EPYC processors for server and cloud infrastructure. Though the media reception has been strong for the performance and capability of the EPYC processor family, ramping sales in the server market is greatly dependent on refresh cycles and availability from vendors like HP and Dell.

The Future

AMD CEO Lisa Su also stated in the earnings call that it would be attempting to “ramp up” graphics chip production in order to meet the demand for graphics cards in the market for both gaming and blockchain/cryptocurrency. The problem for AMD (and NVIDIA as well) is that the bottleneck of production doesn’t lie with the vendors that build the chips (groups like TSMC, Samsung, and GlobalFoundries that make the chips for fabless semiconductor companies like AMD, NVIDIA and Qualcomm) but apparently with the memory ecosystem. The prices of memory have increased drastically over the last year as the demand for all variants has increased without movement in memory production capability.

As a result, even if AMD could or wanted to significantly increase its graphics chip production for its current family of parts, shortages in the memory space could hold back inventory increases to a large degree. There is a limit to how much impact any “ramp up” that AMD might move forward with on how its growth in the graphics markets is affected.

In some ways this might be a happy accident for AMD as it means limited risk of inventory concerns in the future. One of the biggest fears the cryptocurrency market has created is that a crash of the market will mean significant inventory pushed back into the resale market for consumers, stunting any future product releases or sales of product currently being produced.

While the cryptocurrency market will remain fluid and speculation will continue to drive price swings for the foreseeable future, blockchain technology itself has proven to be a viable solution to many computing and security problems. Previous Bitcoin crashes were dependent on only a single virtual currency but today we have seen the expansion to dozens of currency options and additional use cases for the underlying technology. AMD believes that the demand for blockchain processing on graphics processors will remain strong through the first quarter of 2018 and will be a continued source of revenue and sales well into the future.

Looking at the processor market, AMD’s move into the mobile processor segment comes with the most competitive product it has fielded in over a decade. By combining the technology of both a high-performance graphics chip and traditional processor in a single package, AMD can offer a solution that is unique from anything Intel currently sells.

We only saw a moderate growth rate in the enterprise segment for AMD with its EPYC processor but I expect that to increase through 2018 as more partners like Baidu and Microsoft integrate and upgrade systems in datacenters across the world. This space traditionally takes much longer than consumer areas to migrate to newer technology and AMD still believes it has a strong position of growth.