AMD: Ready For Takeoff (NASDAQ:AMD)

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Summary

Most of AMD's channel partners under our coverage posted strong sales growth during April.
This dispels bearish narratives which suggest that AMD may be hit with a financial slowdown in the near future.
Investors should ignore the FUD and remain long on the name.

The bears are having a go at AMD (NASDAQ:AMD) in various investing forums of late. While some believe the chipmaker's sales will be hit during Q2 due to supply chain disruptions, others feel its sales momentum will fade away due to a general slowdown in demand during the currently uncertain economic conditions. But while these may make great catchy headlines, supply chain data says otherwise. AMD's AIB and foundry partners registered robust sales growth during April which comes across as an excellent news for the chipmaker and its shareholders. Let's take a closer look.

(Image source, Image labeled for reuse)

The Data

For starters, AMD is not a vertically integrated business. Its chips are manufactured by foundry partners - such as Taiwan Semiconductors (TSM) - and assembled in the form of usable GPUs by its add-in board partners - such as Gigabyte, MSI, ASRock and TUL Corp. among others. So, tracking their monthly sales figures can provide us with leading insights about the health of AMD's supply chain and its extent of sales during ongoing quarters.

Our monthly revenue tracker at Business Quant, which covers 1300+ firms from various sectors, revealed an interesting trend. As it turns out, five of the six above-mentioned AMD partners saw their sales grow by over 20% during April on a year on year basis. The one that registered a sales decline, TUL Corp, has been struggling with sales in the past several months anyway so we need not relate its financial performance with AMD's.

(Source: Taiwan Sales Tracker)

For the uninitiated, TUL Corp, Gigabyte, ASrock and MSI assemble and sell AMD GPUs under their sub-brands. Although TUL is an exclusive GPU partner with AMD and generates most of its revenues from selling PowerColor GPUs, its larger mentioned peers are diversified firms that manufacture and sell consumer and enterprise products globally - such as self-branded laptops, networking gear, servers, mini PCs, motherboards - in addition to AMD GPUs.

Taiwan Semiconductor, on the other hand, is a non-exclusive foundry partner for AMD which also does business with its GPU rival Nvidia (NVDA) and its x86 microprocessor rival Intel (INTC).

So, altogether, the sales performance of these firms highlights the supply and demand trends prevalent within the PC, notebook and PC peripherals sectors. If there was truly a supply chain disruption in AMD's line of business, as the bears would lead us to believe, these firms would have registered a notable decline in their monthly sales figures. But that did not happen here and most of these firms, instead, registered a robust 20%-plus revenue growth during April. So, I'm of the opinion that AMD's supply chain is healthy and that investors should ignore the speculation floating around in the rumorverse.

What Lies Ahead

There are a few takeaways from these April numbers. To begin with, these April sales numbers weren't out when AMD's management hosted their Q1 earnings call and issued a cautious revenue outlook for the year. From their last earnings call on April 29:

So I would say from the full-year standpoint, the biggest variable is the PC business in its entirety. So that's notebook and desktop… when we started the year, we had the expectation of a pretty normal PC environment. I think we would all say that the environment is different than when we started. And given the size of that market, we have, given ourselves a wide range.

These April sales numbers provide us with some clarity about AMD's biggest variable for the year -- the notebook and PC business - and it suggests that things have been looking bright for the chipmaker so far. We'll have to continue tracking the monthly sales numbers for the rest of the year of course, but the strong channel data available so far, should come across as an encouraging sign for AMD and its shareholders.

To put things in perspective, AMD breaks down its revenues into two reportable segments, out of which its Computing and Graphics segment accounts for the bulk of its overall revenues.

(Source: Business Quant)

Also, this may be a no brainer, but AMD's Q2 usually spans from April through June. This essentially means the strong April sales numbers seen above are likely going to drive the chipmaker's second quarter results, unless of course things drastically deteriorate in the coming few weeks and wipe off all the gains from the first month of its Q2.

Besides, the closure of brick and mortar stores had hurt offline sales for major consumer goods companies during Q1 and AMD wasn't spared either. From the chipmaker's last earnings call:

While both component and system demand were relatively strong at online vendors, offline channel sales were weaker-than-expected as many retail locations across China were closed for much of the quarter. PC demand in the rest of the world was strong, offsetting the softness in China.

But this market dynamic may be behind us. Fact of the matter is that more and more countries are coming of their coronavirus-led lockdowns (such as India) and brick-and-mortar PC parts stores are gradually reopening across the globe. This development, in my opinion, should bolster offline sales for AMD and other similarly impacted firms in the coming weeks and months.

Your Takeaway

We must understand that fluctuations in partner sales numbers may not perfectly correlate with AMD's financials. For all we know, there could be GPU market share churn among AMD sub-brands, or other business segments may be growing rapidly for these firms and resulting in their revenue growth in April. So, these monthly numbers should, at best, be used to ascertain the health of supply chains across PC, notebook and other ancillary sectors.

But having discussed the risk factors, the takeaway here is that things aren't as dire as the bears may have expected. AMD's strong partner sales data dispels a lot of bearish speculation and should come across as an encouraging sign for the chipmaker and its investors. I would recommend that investors ignore the fear, uncertainty and doubt floating around in the rumorverse and remain long on AMD as there may be more upside to its shares. Good Luck!

Author's Note: I'll be writing another article on AMD in two weeks, discussing sales numbers for May. You can stay updated by clicking the "Follow" button at the top. Thanks!

This article was written by

Business Quant

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Business Quant is a comprehensive investment research platform. It hosts KPI data, financial data and analytical tools to help you become a better investor. You don’t have to go through boring SEC filings to keep a track of AT&T’s subscriber count, Apple’s revenue from iPhones or Disney’s revenue by region. Our Company KPI Data tool does that for you and it does so much more. Get an edge over the market, from day one. Watch Business Quant in action here.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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@sigcopath

I've been kicked off the comment line twice now and may have to enter through a different web portal.

Beginning of the year AMD claimed a 30% second half increase in 7 nm availability as Apple and Huawei moved to 5 nm. I'm waiting for that increase supporting 2020 leadership plan. On AMD 30% annual increase will get production into the Intel industrially competitive 55 M to 65 M unit range. However, because AMD 35% annual production volume seen in revenue sacrifice bundled in as sales close incentive, for AMD to make this year's revenue target of $8.076 B (20% CAGR over 2019) to $8.749 B (30% CAGR) actually needs to produce 71 M to 76 M units. So every next available wafer helps.

On TSMC withdrawal Huawei 5 nm allocation goes to AMD; My first inquiry is, does that truly mean 5 nm, or can this additional access be secured from 7 nm lines (probably not on booking) or 5 nm lithography adaption to 7 nm+. Reason is 5 nm carries a factor cost increase regardless of the design verification tasks. There are time, cost and risk factors moving to new node before anticipated.

I suspect for Epyc Milan, AMD and TSMC have qualified 5 nm for Milan. But what else and that takes effort, time and money.

AMD is primarily a process competitor and opportunity to advance one node is certainly compelling. More so AMD needs wafer starts especially if up to 35% of the production revenue continues to be sacrificed as sales close. AMD needs those starts or AMD will not make its 2020 revenue objective. Supply vis-à-vis Intel has held AMD enterprise and constituent cluster back from capitalizing on better product that Intel, although, I am not so sure in server in relation Intel Scalable (work horse) kibble; even if Rome/Milan are sirloin and rib steak. It takes whole product and software stack and AMD has shown that ability essentially in some custom space.

You have to want AMD, and AMD takes extra effort to secure the advantages AMD is capable effectively utilized.

Intel on the other hand holding commercial, hyperscale and cloud with supply that is trusted good enough for the application and enterprise on the application Cores balanced sweet spot; 8 to 16. 61% of all Scalable volume is 8 to 16C. Which for AMD will take more than access to 5 nm process too compete. AMD needs and will gain some supply advantage.

In relation Scalable, 58% of all Rome is 8 to 24C. Or, 59% is 16 to 32C, where AMD like ARM 64 attempt to compete above Intel product rungs. Only 18% of Rome is 48/64C likely on applications development and perhaps infinity bus saturation seems that way for TR 3990X v TR 3970X, there are certain applications effected by bus saturation at 48/64C. If application can be containerized associated cores and cache more cores scale, if not, the massive multicores stall.

On price competition. I don't think AMD will be competitive with intel on cost : price for margin gain at 5 nm node on the factor cost increase of 5 nm and Intel's strategy to lag as cost optimizer.
Intel's on 10 nm now for 3 years. Xeon Ice lake risk production digital logic and SRAM and SRAM with processing logic for Aigilex 10 nm FPGA. Intel knows how to produce whatever 10 nm is. And will do so at a cost : price advantage verse AMD claiming process leadership position. Intel's factor cost increase, not that AMD does not share this, is interconnect and packaging. So Intel is exposed to factor costs too and if trailing on lithography optimizes for a design manufacturer on component subsystem cost averaging.

AMD needed the wafer starts and wasn't going to make 2020 revenue objective solely inheriting TSMC 7 nm access as Apple and Huawei left those lines. 5 nm makes it possible for AMD to secure needed supply for 2020 objective and how AMD manages the cost and risk of 5 nm is a worthwhile engineering design and production management task.