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AMD shares jumped to record growth in data center revenues



© Reuters. AMD shares jumped to record growth in data center revenues

Sharik Khan and Vibhuti Sharma

(Reuters) – Chipmaker Advanced Micro Devices (NASDAQ 🙂 Inc on Tuesday reported a record quarterly increase in data center sales and projected revenue growth in fiscal 2019 above Wall Street expectations, after which its shares rose 10 percent after the call.

Investors were preparing for the weak results of AMD after warnings of many other chip manufacturers about the slowdown in China, which was caused by a trade dispute with the United States.

Shares of Nvidia Corp and Micron Technology Inc. (NASDAQ 🙂 also increased by almost 2% during off-hours, while Intel Corp (Nasdaq 🙂 increased slightly.

Nvidia and Intel's larger competitors have noted stagnant growth in data center sales, a segment in which AMD is starting to strengthen on its server chips.

AMD said it expects revenue in 2019 to rise to a high single-digit percentage, while analysts had planned growth of about 6 percent.

The company said that, despite short-term graphics difficulties and revenues that do not match analysts' estimates for the fourth and current quarters, it expects to use the latest graphics chips and data centers to support growth this year.

Stifel analyst Kevin Cassidy said that AMD was not as bad as it had been feared, especially when compared to Nvidia.

On Monday, Nvidia cut its fourth-quarter revenue estimate by half a billion dollars due to weak demand for its gaming chips in China and lower-than-expected sales of data centers.

AMD's gross margin in the fourth quarter rose to 38 percent from 34 percent a year earlier. The company said it expects its adjusted gross margin to exceed 41 percent in 2019, its highest level in almost eight years.

“A more sustainable gross margin forecast provides some level of comfort for investors,” said KinNgai Chan of Summit Insights Group LLC. "AMD has every chance of continuing to gain Intel’s share of the high-performance server market, especially in 2H19."

Sales in the computing and graphics segment of AMD, including sales of graphics chips in data centers, grew by 8.5 percent to 986 million dollars, ahead of the analysts' average estimate of 939 million dollars, according to FactSet.

HEADWINDS REMAIN

AMD CEO Lisa Su (Lisa Su) said that there are still obstacles in the graphics channel, and the uncertainty of macroeconomic indicators caused some caution in the first half of the year, since the company's revenue forecast in the first quarter does not correspond to analysts.

The chip manufacturer’s forecast in the current quarter will be $ 1.25 billion, plus or minus $ 50 million, which is 24 percent less than last year. Analysts had expected $ 1.47 billion, according to IBES from Refinitiv.

Su said that the company plans to release 30% more Ryzen systems per year compared to 2018 and expects the processor part of its business to grow faster than the GPU.

The fall in cryptocurrency prices at the end of 2018 struck chip manufacturers, including AMD, in the previous quarter and led to a pile of stocks that were hard to clear.

Soo told analysts that after revenue rose in the first quarter, AMD showed an improvement in GPU sales during the fourth quarter and expects its partners to reduce inventory in the current quarter and in the future.

“I expect that in the second quarter we will have a sort of improved channel inventory level, and we will return to the consistent growth of the gaming site of our business,” Su told investors.

AMD's quarterly revenue of 1.42 billion dollars also fell short of expectations of 1.45 billion dollars. Excluding products, AMD made a profit of 8 cents per share, which is in line with analysts' estimates.


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