AMD: Confident in Our Suppliers, Set to Grow in 2022

AMD revenues have been growing steadily in the past few years. In 2020, the company posted its all-time record revenue of $9.763 billion and, for this year, it recently guided a whopping 60% increase to around $15.5 billion, a goal that is particularly hard to hit amid a chip-supply crisis. Yet, AMD is confident that it will achieve its targets this year and in the coming years because of improved supply, growing demand for server and HPC-grade hardware, and a focus on premium models.

Continuous Growth

"We believe that we can continue [this revenue growth], both with the customers on the demand side and also supply [side] with our foundry partners, substrate suppliers, and ATMP [assembly, testing, marking, and packaging] capacity and feel that there is significant room for us to grow out to 2022 and 2023," said Devinder Kumar, chief financial officer of AMD, at Deutsche Bank Technology Conference 2021 (via SeekingAlpha).

So far this year, AMD's sales have been very strong. The company earned $7.295 billion in the first two quarters of the year and is on-track to hit the goal of growing its revenue by 60% year-over-year.

To hit its financial targets this year, AMD had to prioritize manufacturing of products it had committed to supply as well as high-margin models, which sometimes means giving up unit share. In fact, AMD gained unit and revenue share in servers and mobile client PCs, but its unit share in desktops dropped in Q2 2021 (even though it has some of the best CPUs these days) as the company focused its production on high-margin server CPUs as well as on mobile processors (which it had committed to supply to PC makers in advance). Meanwhile, the company's unit share on the market of discrete GPUs for desktop and laptop PCs dropped to a multi-year low in Q2 2021.

Datacenters & HPC

"The first priority is if we have made a commitment to our customer, we want to make sure that we can supply the parts to the customers," said Kumar. "The second thing you look at from an overall standpoint of demand versus supply, […] datacenter is a very high priority […]. Then the PC business, in particular with the higher end of the stack, we want to make sure that we can maintain and continue to grow the business in that area."

 When it comes to datacenters and servers, AMD is particularly competitive with its 2nd and 3rd Generation EPYC processors codenamed Rome and Milan that feature up to 64 cores, something that Intel cannot offer. To this point, AMD's EPYC CPUs have been particularly successful with OEMs supplying to enterprises. But as operators of cloud datacenters are ramping up adoption of EPYC chips, the company has to meet additional demand for its server processors. 

Speaking of EPYCs, it is impossible to omit another major market that they are designed to address: supercomputers. AMD has won and fulfilled multiple supercomputer contracts with its EPYC processors, yet its main design wins for Oak Ridge Leadership Computing Facility's Frontier 1.5 ExaFLOPS supercomputer as well as for Lawrence Livermore National Laboratory's El Capitan 2+ ExaFLOPS supercomputer are yet to be delivered.  

Both Frontier and El Capitan are powered by AMD's EPYC processors as well as the company's Instinct compute GPUs based on the CDNA architecture developed specifically for the HPC space. Being exascale systems, they use loads of high-end components and bring some huge money to technology companies. The Frontier machine alone will earn AMD, HPE, and others around $600 million. 

GPUs Are for Gamers, Not for Miners

Demand for discrete GPUs for desktops and laptops increased significantly in the recent quarters as people now spend more time at home, but AMD could not really capitalize on this in terms of unit shipments. 

Obviously, since demand is high, the company could increase the prices of its GPUs and sell more high-end models (such as those on our best graphics card list) than usual. However, AMD also ran into controversy. 

A recent Steam Hardware Survey revealed that there were 11 times more gamers using Nvidia's GeForce RTX 30-series graphics cards than there were gamers using AMD's latest Radeon RX 6000-series boards. Based on data from Jon Peddie Research, Nvidia outsold AMD 9:2 in Q2 2021, so after reviewing data from both sources, some observers accused AMD of selling its Radeon GPUs to large mining farms rather than sending them to the retail channel after seeing a video at Reddit. 

AMD's CFO denied the accusations and said that demand from miners was negligible. He also indicated that while AMD did not prioritize its GPU customers (well, at least not unless it had committed to supply them to a client in advance), the Radeon GPUs were for gamers, not for miners.

"First, crypto is negligible, that is not a priority for us," said Kumar. "We do not prioritize our product or make them for the crypto folks is more for the gamers and that's our high priority from that standpoint. What has driven the [GPU revenue] growth, as you know, we [have] the Radeon RX 6000-series high-end GPUs [they are] very competitive and that is driving the growth in the GPU space." 

The discrete GPU business largely relies on massive R&D spending, a halo effect produced by top-of-the-range graphics cards, presence in retail with a wide family of offerings and marketing investments. Several years ago, AMD could not afford major investments in its graphics business and prioritized its CPU business as it had a clear roadmap with visible returns. This is the reason why Nvidia can significantly outsell AMD today.  

What would be interesting to know is whether AMD is investing enough in its GPU business now and whether this will be enough to capture a sizeable market share from Nvidia several years down the road. 

Focus on Revenue Share

Being constrained on wafer processing, substrate supply, and ATMP (assembly, testing, marking, and packaging) capacity levels, AMD realistically cannot significantly increase its unit shipments and win unit share from Intel, particularly on the client side of the market. Therefore, AMD has to focus on revenue share by selling server CPUs as well as premium products instead of cheaper SKUs. 

"We are very focused on revenue share to go ahead and continue growing that because we believe even at the level that we are in right now, we have significantly lower revenue share in terms of where we are going to get to from a revenue share gain in particular with the premium products and the comparative products that we're introducing," said Kumar.

Summary

AMD is quite optimistic about its mid-term future as demand for its products is growing across all segments of the market, including client PCs, datacenters, and supercomputers. In fact, for the first time throughout its history, AMD has very competitive (if not the best CPUs) processors for virtually all major applications. When combined with generally high demand for computers, it is not surprising that the company cannot meet 100% of demand that it faces. 

Given growing demand for everything that computes, AMD's main challenge in the coming quarters and years will hardly be to land additional orders to sell as many parts as possible, but to produce enough chips to meet the growing demand. In the meantime, AMD will focus on increasing its revenue share by selling more expensive components.