AMD Q1 FY 2019 Earnings Report: Revenue Down But Margins Up

Today AMD announced their Q1 FY 2019 earnings. Revenues were down 23% year-over-year, coming in at $1.27 billion. Gross margin for the quarter was 41%, up 5% from a year ago, but operating income was down 68% to $38 million. Net income was down 80% to $16 million, and earnings-per-share were down 87.5% to $0.01. But why?

AMD Q1 2019 Financial Results (GAAP)
  Q1’2019 Q4’2018 Q1’2018
Revenue $1272M $1419M $1647M
Gross Margin 41% 38% 36%
Operating Income $38M $28M $120M
Net Income $16M $38M $81M
Earnings Per Share $0.01 $0.04 $0.08

AMD’s recent success has been driven primarily by their Computing and Graphics segment, however revenue for this segment was down 26% from a year ago, coming in at $831 million. AMD is stating that lower graphics channel sales are the primary reason, and with the crash of cryptocurrency, this makes sense. However, the decline was offset by increased client processor and GPU sales. Operating income for this group was $16 million, compared to $138 million a year ago.

AMD Q1 2019 Computing and Graphics
  Q1’2019 Q4’2018 Q1’2018
Revenue $831M $986M $1115M
Operating Income $16M $115M $138M

Enterprise, Embedded, and Semi-Custom revenue was down 17% from a year ago, coming in at $441 million. The decline can be mostly attributed to declines in semi-custom revenue, which is mostly consoles that have been on the market for quite a few years now, but some of the decline was offset by higher server sales, and AMD stated that their margin growth for this quarter was driven by the ramp of Ryzen and EPYC processor sales, as well as datacenter GPUs. Despite lower revenue, the operating income for this group is up 385% to $68 million, although $60 million of that is attributed to a joint venture with THATIC.

AMD Q1 2019 Enterprise, Embedded and Semi-Custom
  Q1’2019 Q4’2018 Q1’2018
Revenue $441M $433M $532M
Operating Income $68M -$6M $14M

All Other had an operating loss of $46 million, compared to a loss of $32 million a year ago.

AMD also announced that their Navi GPU and Rome CPU are going to launch in Q3 of this year which should help bolster sales then, but may impact short-term sales as customers wait for the new products to launch. AMD is forecasting revenue for Q2 to be down approximately 13% year-over-year, with a forecast of $1.52 billion plus or minus $50 million.

Source: AMD Investor Relations

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