Key points to remember
- Adjusted EPS was $0.52 versus $0.47 expected by analysts.
- Revenue beat analysts’ expectations amid strong demand for PC, gaming and data center products due to the pandemic.
- Gross margin remained stable year-on-year, as expected.
AMD reported an impressive Q4 2020, with Adjusted EPS growing around 63% YoY and revenue up around 53% YoY. Both metrics beat analysts’ expectations, which were already elevated from the fourth quarter of fiscal 2019. Gross margin was flat year-on-year at around 45%, as analysts expected. AMD attributed the strong revenue performance to its Computing and Graphics segment and its Enterprise, Embedded and Semi-Custom segment. The company said an increase in net profit to more than 10 times its level a year earlier was due in part to a $1.3 billion tax benefit associated with a release of a valuation allowance.
(Below is the original Investopedia Earnings Snapshot published on January 21, 2021.)
What to look for
Advanced Micro Devices Inc. (AMD), the global producer of semiconductors, computer processors and similar products, has thrived amid increased demand for microprocessor chips during the COVID-19 pandemic, as more people work from home. The company recently cemented its dominant position during this period of massive growth with a $35 billion all-stock purchase of rival Xilinx Inc. (XLNX).
Investors will be looking for signs that AMD can build on this success when it reports results on January 26 for the fourth quarter of fiscal 2020. Analysts estimate that adjusted earnings per share (PES) and revenue will grow significantly year-over-year (YOY), although Adjusted EPS may grow at a slower pace than in recent quarters.
At the same time, investors will focus on company gross margin, a key metric in the semiconductor industry that measures the degree of operational efficiency in a company’s operations. Analysts believe AMD’s quarterly gross margin will be the second highest in nearly four years, although it will show only a slight improvement from the same quarter a year ago.
AMD’s outstanding performance over the past year has been reflected in its dramatic share price gains. Shares of the company have provided a total return of 73.9% over the past 12 months, nearly 5 times the S&P 500 total return of 16.0% over the same period, as of January 20, 2021. In July 2020, AMD’s stock has greatly widened its performance gap against the broader market.
Over the past three years, AMD has generally experienced robust quarterly Adjusted EPS growth, with only two quarters with declines in the first half of fiscal 2019. The first three quarters of 2020 provided Adjusted EPS growth of more than of 228%, 131%, and 125% YOY, respectively. Analysts predict that pace of growth will slow as AMD reports a still-strong adjusted EPS increase of 49.3% year-over-year.
AMD’s quarterly revenue performance over the past three years has also been generally robust, but marked by five quarters with revenue declines or weak growth. In the first three quarters of fiscal 2020, AMD recorded growth of 40.4% in the first quarter, 26.2% in the second quarter and 55.5% in the third quarter. Analysts estimate a 42.3% year-on-year increase in the fourth quarter, which would be slower than the 49.9% increase in the same quarter a year earlier.
|AMD Key Metrics|
|Estimate for the fourth quarter of 2020 (fiscal year)||Actual for Q4 2019 (AF)||Actual for Q4 2018 (AF)|
|Adjusted earnings per share ($)||0.47||0.32||0.08|
|Gross margin (%)||44.7||44.7||41.1|
Source: visible alpha
As mentioned above, investors will also be looking at AMD’s gross margin. This key indicator reflects gross profit, which is sales minus cost of goods sold, as a percentage of total sales. A company can increase its gross margin by increasing sales or reducing costs, or a combination of both. Computer processor chips are basically commodity goods, with little quality differentiation between chips made by different companies. This means that producers have little pricing powerthe main way to increase margins is therefore to keep costs low, especially during periods of low sales.
AMD’s gross margin metric’s performance has been more consistent than its EPS or revenue numbers. The overall trend over the past three years has been steady growth, from 36.3% in the first quarter of fiscal 2018 to 44.0% in the third quarter of fiscal 2020. Analysts expect gross margin of AMD will be 44.7% in the fourth quarter of fiscal 2020, the second highest gross margin since the start of 2017 and was only exceeded in the first quarter of fiscal 2020. Nevertheless, the margin of the fourth quarter will be only a fraction larger than the same period a year earlier, indicating that there may be little room for major gains in this economic cycle.
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