In the Intel earnings article a few days ago, I expressed concern about AMD's report:
That concern proved prescient. The market was overly optimistic on AMD AI GPU revenue (raised from $2B to $3.5B+ vs. highest expectations of $8B), and everyone still wants to take a shot at NVIDIA.
AMD Q4 Results:
Revenue was $6.168B, up 10% year over year and 6% sequentially, slightly above prior guidance of $6.1B.
Full-year 2023 revenue was $22.68B, down 4% year over year; guides 2024Q1 revenue of $5.4B, up 1% year over year and down 13% sequentially, below consensus expectations.
GAAP gross margin was 47.2%, non-GAAP gross margin was 50.8%, both down modestly sequentially.
GAAP operating income was $342M, profitable for the second consecutive quarter; non-GAAP operating income was $1.412B, up 12% year over year and 11% sequentially; guides 2024Q1 non-GAAP operating income of $1.078B, down 2% year over year.
GAAP net income was $667M, swinging to a profit year over year; non-GAAP net income was $1.249B, up 12% year over year, still below the 2022Q4 peak of $1.7B.
Full-year 2023 GAAP net income was $854M, down 35% year over year; non-GAAP net income was $4.32B, down 22% year over year; guides 2024Q1 non-GAAP net income of $938M, down 3% year over year.
Operating cash flow was $381M, down 33% year over year and 10% sequentially; the prior historical peak was $1B in 2022Q4.
Full-year 2023 operating cash flow was $1.667B, down 53% year over year; free cash flow was $1.121B, down 64% year over year.
By Segment Q4:
Data Center revenue was $2.282B, up 38% year over year, accounting for 37% of revenue; operating income was $666M, up 50% year over year, hitting a record high and becoming AMD's most profitable business.
EPYC revenue set another record; Zen 4 EPYC (Genoa+Bergamo+Siena) achieved high-double-digit growth, Zen 3 EPYC demand remains strong, and overall server CPU share continues to rise; despite soft overall Cloud demand, server CPU revenue grew both year over year and sequentially; Enterprise revenue grew double digits, with robust industry demand expected in 2024; customers show strong interest in H2 Zen 5 EPYC Turin; Data Center GPU full-year revenue set a record, quarterly revenue exceeded the $400M expectation, MI300X ramping quickly, MI300 revenue ramp faster than any product in company history; Cloud customers include Microsoft, Oracle, Meta; Enterprise customers include HPE, Dell, Lenovo, Supermicro; El Capitan supercomputer to complete full delivery in 2024Q1; this quarter won German HPC Center, HLRS, and Italian Eni supercomputer GPU orders.
In 2024, the traditional server CPU market remains weak; H1 Cloud inventory digestion and Enterprise softness persist, but AMD share is poised to keep rising.
Guides 2024Q1 Data Center GPU revenue up sequentially, gross margin rising to corporate average; 2024 revenue raised from $2B to $3.5B+ on stronger demand (supply can be larger); MI300 series 2024Q4 revenue run rate can reach $1.5B; MI300 series revenue concentration across customers will not be too high; 2027 AI Accelerator chip TAM of $400B.
Embedded revenue was $1.057B, down 24% year over year, accounting for 17% of revenue; operating income was $461M, down 4% year over year; customers still destocking; Xilinx launched several new products this quarter; embedded design wins exceeded $10B in 2023, up 25%+ year over year; expects embedded market to remain weak through H1 2024, with 24Q2 flat sequentially vs. 24Q1.
Client revenue was $1.461B, up 62% year over year and 1% sequentially, accounting for 24% of revenue; operating income was $55M, profitable for the second consecutive quarter, but operating margin remains far below Intel's (4% vs 33%); Ryzen 8000 series mobile and desktop processors launch in January, on sale in February; expects 2024 full-year PC units up slightly, revenue weighted to H2 alongside Zen 5 product launches.
Gaming revenue was $1.368B, down 17% year over year, the fifth consecutive quarter of declines, accounting for 22% of revenue; operating income was $224M, down 16% year over year; gaming GPU revenue grew both year over year and sequentially; gaming console revenue declined year over year; this is already year 5 of the current console generation, expects 2024 gaming console revenue down high double digits.
Guides 2024Q1 Data Center revenue up double digits year over year, flat sequentially; server CPU down 7%-14% seasonally sequentially; Data Center GPU up; Embedded revenue down double digits year over year, down 11%-14% sequentially; Client revenue up double digits year over year, down 7%-14% seasonally sequentially; Gaming revenue down sharply year over year, down 30%+ sequentially.
Guides 2024 full-year Data Center and Client revenue growth; Embedded revenue down; Gaming revenue down high double digits; company overall 2024 revenue up year over year, gross margin up, profit growth faster than revenue growth.
Overall, 2024 is indeed an opportunity for AMD's fundamentals to improve significantly; I believe revenue will likely surpass the 2022 all-time high, non-GAAP annual net income near-term sustained at $7-8B, H2 margin trajectory needs monitoring, and a $300B+ valuation appears reasonable in the near term.
Mainly the point raised in the last earnings:
Regarding the most-watched AI GPU, full-year revenue guidance was raised to $3.5B+; assuming server CPU revenue grows modestly year over year, 2024 Data Center revenue would be roughly $11B; at a 30% margin that implies $3.3B in profit, representing very strong growth for AMD itself, and could even unlock the milestone of Data Center quarterly revenue surpassing Intel's by year-end; but the market may want more than that.
Back to my longstanding concerns on AMD:
1) Whether Arm-based server CPUs, led by NVIDIA, can disrupt the incumbent x86 server CPU market (under observation).
2) Xilinx significantly slowing (continuing to slow)
3) Process technology bottleneck, Intel outsourcing to TSMC (Qualcomm Win on Arm challenging x86, watching)