Dispatches from AMD Financial Analyst Day 2022

Like many publicly traded companies, AMD periodically hosts Financial Analyst Days to share updates on its corporate strategy, product roadmaps, long-term financial goals, growth opportunities and more with analysts, investors and the media. It’s a wealth of information that technical analysts like me can use. On top of that, it’s a chance to hear all of this directly from company management. There’s nothing better than a day like this to get the most accurate public source of corporate truth in a matter of hours. CEO Lisa Su and her company hosted AMD’s final Financial Analyst Day last Thursday, and I tuned in. I would like to share my takeaways.

AMD sets its sights on adaptive computing

First, Su started the event by basically saying, “Remember the strategy we showed you in 2020? It’s the same thing we’re doing now, but with a few twists. AMD changed its very successful high performance computing 2020 strategy (not to be confused with HPC) to focus on that plus adaptive computing – the spoils of its acquisition of Xilinx in October.While some might argue that AMD was already making adaptive computing with GPUs, it can now do adaptive computing, all the way to programmable FPGA hardware and high-end data center SoCs.

Speaking of AMD’s strategy, Su then took some well-deserved victory laps in the latest TOP500 list of the world’s most powerful supercomputers. She highlighted the AMD-powered Frontier supercomputer, which recently became the first to break the exaflop barrier. You can be sure the company will carry that “first to exascale” title for decades to come, just like it did with “first to 1 GHz.” In the most recent TOP500 list, Frontier was also named the #1 supercomputer, the #1 green supercomputer, and the #1 AI supercomputer in the world. Additionally, AMD achieved 95% year-over-year growth in TOP500 systems, powering more than half of all new systems on the list.

In the data center, Su celebrated that AMD now powers the top 10 hyperscalers on the planet: AWS, Alibaba Cloud, Baidu, Meta, Google Cloud, IBM Cloud, Oracle, Microsoft Azure, Tencent Cloud, and Twitter. Su noted that AMD has also grown in popularity with enterprise customers, with a base that includes Ford, GE, Goldman Sachs, Mastercard, Salesforce and Wells Fargo.

In the PC segment, Su noted the company’s leadership in battery life and performance while acknowledging that AMD is still underrepresented in revenue share. AMD is underrepresented in commercial PCs. In gaming, AMD is happy with its performance per watt. Su also highlighted the momentum of the company’s customers, noting that AMD is now the No. 1 game console vendor in the world thanks to its victories with PlayStation 5, Xbox Series 5 and X. Steam Deck.

By the numbers

Then, of course, there are the financials – over the past three years, AMD has consistently improved its gross margins (43% in 2019, 45% in 2020 and 48% in 2021), as well as its operating margins (12% in 2019, 17% in 2020 and 25% in 2021). Its earnings per share also increased significantly, from $0.64 in 2019 to $1.29 in 2020 to $2.79 in 2021. Free cash flow fell from $0.3 billion in 2019 to 0. $8B in 2020 to $3.2B in 2021. unhappy there.

Digging a little deeper, AMD’s data center business has grown by a staggering 95% CAGR since 2020. It now accounts for 25% of AMD’s overall revenue mix, an increase of 10%. since 2019. Although not as drastic as that of the data center. growth rate, the PC business is growing at a respectable CAGR of 46%, with the gaming business registering a CAGR of 50%.

Remember that all of the successes listed above have happened within the last three years. Moreover, they are partly due to Su’s 2020 strategy mentioned earlier. The recent past is not the only thing financial analysts are interested in, they want to know the plan for the future. This brings us to the acquisition of Xilinx and the new focus of AMD’s strategy: adaptive computing.

Acquisition of Xilinx and Pensando

Xilinx, now part of AMD, boasts of being the #1 product leader in adaptive FPGAs and SoCs, with market share growth in each. It also has a robust software suite which Su noted will be very helpful in integrating the two companies. Xilinx’s valuable intellectual property includes its scalable AI engine, high-speed SERDES, 2.5/3D packaging, and a variety of wireless, networking, security, and video patents. Its broad portfolio of solutions spans SmartNICs and networking, 5G radio platforms, automotive, healthcare, industrial, and test and measurement, giving AMD a chance to significantly diversify its markets. And, of course, an assessment of Xilinx’s value wouldn’t be complete without mentioning its pre-existing and deep customer relationships – six of the top seven 5G wireless OEMs, the top ten automakers, the top ten aerospace and defense, and the number one industrial IoT vision and medical imaging company.

AMD also recently acquired Pensando, another strategic purchase that furthers AMD’s goal of being the “most strategic supplier to the world’s largest data centers.” While AMD is doing very well with EPYC, Instinct and the IP from the Xilinx acquisition, Pensando brings valuable leadership in DPU technology and significant networking and security expertise.

Wham, TAM, thank you, ma’am

To put some numbers on the impact of the Xilinx acquisition and AMD’s overall outlook going forward, at the 2020 Financial Analyst Day, AMD estimated its TAM at $79 billion, or $12 billion. in games, $35 billion in data center and $32 billion in PC. Today, with Xilinx included in its analysis, AMD sees its TAM at around $135 billion, with games ballooning to $16 billion, data center at $50 billion, PCs at $40 billion and thanks to Xilinx, 29 billion dollars in embedded.

The absolute stunner was the five-year projection of a $300 billion net TAM – $125 billion in data center, $37 billion in gaming, $50 billion in PC, $33 billion in embedded, $27 billion in automotive, and $32 billion in communications. In the data center and cloud, new opportunities will come from ever-increasing performance demands, the growing need for core-to-edge security, the rise of load-optimized computing and networking. work and pressure for more effective and sustainable solutions. Other market forces driving these projections include the continued integration of AI everywhere from the data center to the far reaches of the edge and, in the PC market, the drive to meet the needs of an increasingly hybrid workforce. The adoption of emerging technologies such as autonomous driving, 5G communications and the Industrial Internet of Things is also undoubtedly playing a role.

Wrap

In conclusion, AMD has many reasons to be confident. The TOP500 feathers in its cap lend confidence to the company’s plan to add adaptive computing to its high-performance strategy. Finances are excellent across the board, with revenue, EPS and FCF showing impressive growth. The acquisition of Xilinx has the potential to be a real boon, allowing AMD to break into various high-growth markets such as 5G communications, in-vehicle IoT and automotive. I might add that all of these new segments are interconnected – success in one could very well breed success in the others. Add to that the acquisition of Pensando and AMD suddenly became a leader in data center network offloading, with an impressive list of customers and technologies.

AMD has a lot of work to do. The company has never integrated a company the size of Xilinx and it can’t afford that to slow it down. Many AMD executives are now wealthier than ever with stock appreciation and I’ve seen it slow businesses down. Intel will have access to TSMC N3 for its CPU and GPU tiles which will put it on par with AMD. And, finally, it’s not the hardware that keeps AMD on the fringes of the cloud hyperscaler training ground, it’s the software, and it has to come competitively close or change the game completely. I’ve been impressed with its high-level “Pervasive AI” strategy, I can’t say for sure at this time how it closes the software gap or is a game-changer. I need more time to soak in and research.

Looking back, the days when AMD was considered a liability seem a long way off. Keep doing what you’re doing, AMD.

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