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AMD 3Q earnings beat estimates amid EPYC processor momentum

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AMD (AMD) reported third-quarter earnings that beat estimates on Tuesday, with revenue and adjusted EPS both coming in at above Bloomberg consensus forecasts. The California-based semiconductor company produced another solid print amid the momentum in demand for its EPYC processors and semi-custom products.

Here were the main metrics from AMD’s report, compared to Bloomberg consensus estimates:

  • Revenue: $4.3 billion vs. $4.12 billion expected, $2.80 billion Y/Y

  • Adjusted EPS: $0.73 vs. $0.67 expected, $0.52 Y/Y

Of the $4.3 billion in revenue, $2.4 billion came from AMD's CG segment consisting of Higher Ryzen, Radeon, and AMD Instinct processor sales (up 44% Y/Y and 7% Q/Q). The remaining $1.9 billion came from the company's EESC segment, consisting of Higher EPYC processor and semi-custom product sales (up 69% Y/Y and 20% Q/Q).

AMD's gross margin increased 80 basis points (bps) quarter-over-quarter to 48%, constituting an increase of over 400 bps year-over-year. 

"AMD had another record quarter as revenue grew 54% and operating income doubled year-over-year." President and CEO Lisa Su said in the earnings report. "3rd Gen EPYC processor shipments ramped significantly in the quarter as our data center sales more than doubled year-over-year. Our business significantly accelerated in 2021, growing faster than the market based on our leadership products and consistent execution."

Results were aided by the increased adoption of EPYC processors by hyperscaling giants such as Google (GOOG, GOOGL), Amazon (AMZN), Microsoft (MSFT), and HP (HPE). For instance, AMD processors are taking center stage in powering Microsoft’s Azure cloud computing service.

AMD’s stock has returned over 50% during the past year, more than 15% greater than the SPDR S&P 500’s (SPY) 33.5%. AMD shares have been on an uptrend since the beginning of the month in the lead-up to earnings following a cooldown from August to September.

Industry analysts reiterated their positive outlook for the company, specifically citing potential growth in adoption of AMD's EPYC 7003 series of high-performance microprocessors based on the Zen 3 microarchitecture, codenamed “Milan.”

“From our channel checks and company commentary, hyperscalers/cloud providers are the first-movers in adopting Milan, but we expect that as enterprise spending recovers and customers gain more experience with the chip in a cloud setting, on-prem enterprise adoption of Milan is likely to follow over the next several years,” an Oct. 24 Goldman Sachs (GS) Equity Research report stated. “Coupled with the upcoming release of Genoa (next-generation server CPU based on the Zen 4 core architecture) in 2022, we reiterate our Buy rating for AMD and expect continued share gains for the foreseeable future.”

In terms of a short-term production and sales horizon in light of the global chip shortage, Su believes that the current supply crunch is unlike anything the industry has seen before.

“If you think about the semiconductor industry, we've always gone through cycles of ups and downs where demand has exceeded supply or vice versa,” Su said at Code Conference 2021 on Sept. 27. “This time it's different and what's different this time is every industry needs more, and so the confluence of that means that there is an imbalance.”

AMD does not manufacture its chips in house. Instead, it outsources the production of its chips to foundries, or chip factories. According to Su, there is a “tremendous amount of investment” occurring in the industry, with more than 20 new factories expected to come online this year. In addition, there are another 20 more factories in the planning stage, and all of this in conjunction may help alleviate the chip shortage, Su said. And though she anticipates that the shortage will extend into 2022, she expects it to become less severe in the second half of next year.

Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter @thomashumTV

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