Why AMD Earnings Weren't Bad, Just Not Good Enough

Advanced Micro Devices Inc. (NYSE: AMD) reported fourth-quarter and full-year 2018 earnings after markets closed Tuesday. For the quarter, the chipmaker posted earnings per share (EPS) of $0.08 on revenues of $1.42 billion. In the same period a year ago, the company reported EPS of $0.08 on revenues of $1.48 billion. Fourth-quarter results compare to the consensus estimate for EPS of $0.08 per share on $1.45 billion in revenues.

For the full year, AMD reported adjusted EPS of $0.46 per share on revenues of $6.48 billion compared with 2017 EPS of $0.17 on revenues of $5.25 billion. Analysts were looking for EPS of $0.46 per share and revenues of $6.5 billion.

Investors are probably breathing a small sigh of relief over these numbers after Monday’s warning from Nvidia. Earnings came in at expectations but revenues were low, and that sent shivers up and down the spines of investors.

The weakness came in the forecast. AMD expects revenue to be lower, year-over-year, in the first quarter of fiscal year 2019. Revenue is forecast in a range of $750 million to $1.75 billion, down 12% sequentially and 24% year over year at the midpoint. For the full year, AMD expects revenue growth in the high single digits and non-GAAP gross margin of more than 41%. That’s the good news–gross margin was 39% in 2018 and 34% in 2017.

Analysts had forecast first-quarter earnings at $0.08 per share and revenues at $1.48 billion. For the full year, revenues were seen at $6.9 billion (about 6.5% higher than 2018 revenues) and EPS was forecast at $0.62.

Operating income totaled $451 million last year, well ahead of $127 million in 2017. On a non-GAAP basis, operating income rose to $633 million from $224 million a year ago which the company attributed to higher revenue and gross margin expansion partially offset by higher operating expenses.

The company’s CEO, Dr. Lisa Su, said:

Despite near-term graphics headwinds, 2019 is shaping up to be another exciting year driven by the launch of our broadest and most competitive product portfolio ever with our next-generation 7nm Ryzen, Radeon, and EPYC products.

To escape the drag on semiconductor stocks caused by Nvidia, AMD needed to hammer estimates and that, predictably, didn’t happen.

AMD’s shares closed at $19.25 Tuesday, down about 4.6% for the day, and dropped another 4.6% in the after-hours trading today, to trade at $20.52. The stock’s 52-week range is $9.04 to $134.14. The consensus price target for the shares was $23.66 before the report.

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