AMD Reports Fourth Quarter and Annual 2018 Financial Results

Jan. 31, 2019 – AMD (NASDAQ:AMD) today announced revenue for fiscal year 2018 of $6.48 billion, operating income of $451 million, net income of $337 million and diluted earnings per share of $0.32. On a non-GAAP(1) basis, operating income was $633 million, net income was $514 million and diluted earnings per share was $0.46.

For the fourth quarter of 2018, the Company reported revenue of $1.42 billion, operating income of $28 million, net income of $38 million and diluted earnings per share of $0.04. On a non-GAAP(1) basis, operating income was $109 million, net income was $87 million and diluted earnings per share was $0.08.

Annual Financial Results

  GAAP  Non-GAAP 
 20182017Y/Y20182017Y/Y
Revenue ($B)$6.48$5.25Up 23%$6.48$5.25Up 23%
Gross margin38%34%Up 4 pp39%34%Up 5 pp
Operating expense ($M)$1,996$1,712Up $284$1,863$1,617Up $246
Operating income ($M)$451$127Up $324$633$224Up $409
Net income (loss) ($M)$337$(33)Up $370$514$103Up $411
Earnings (loss) per share$0.32$(0.03)Up $0.35$0.46$0.10Up $0.36

 

GAAP Quarterly Financial Results

 Q4 2018Q4 2017Y/YQ3 2018Q/Q
Revenue ($B)$1.42$1.34Up 6%$1.65Down 14%
Gross margin38%34%Up 4 pp40%Down 2 pp
Operating expense ($M)$509$454Up $55$511Down $2
Operating income (loss) ($M)$28$(2)Up $30$150Down $122
Net income (loss) ($M)$38$(19)Up $57$102Down $64
Earnings (loss) per share$0.04$(0.02)Up $0.06$0.09Down $0.05

Non-GAAP(1) Quarterly Financial Results

Q4 2018Q4 2017Y/YQ3 2018Q/Q
Revenue ($B)$1.42$1.34Up 6%$1.65Down 14%
Gross margin41%34%Up 7 pp40%Up 1 pp
Operating expense ($M)$474$433Up $41$476Down $2
Operating income ($M)$109$19Up $90$186Down $77
Net income ($M)$87$8Up $79$150Down $63
Earnings per share$0.08$0.01Up $0.07$0.13Down $0.05

“In 2018 we delivered our second straight year of significant revenue growth, market share gains, expanded gross margin and improved profitability based on our high-performance products. Importantly, we more than doubled our EPYC processor shipments sequentially and delivered record GPU datacenter revenue in the quarter,” said Dr. Lisa Su, AMD president and CEO. “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.”

2018 Annual Results

  • Revenue of $6.48 billion was up 23 percent year-over-year primarily driven by higher revenue in the Computing and Graphics segment.
  • Gross margin was 38 percent compared to 34 percent for the prior year. Non-GAAP(1) gross margin was 39 percent compared to 34 percent in the prior year. Gross margin expansion was primarily driven by our new Ryzen TM, EPYC TM and Radeon TM
  • Operating income was $451 million compared to $127 million in the prior year. Non-GAAP operating income was $633 million compared to $224 million in the prior year. The operating income improvement was primarily due to higher revenue and gross margin expansion partially offset by higher operating expenses.
  • Net income was $337 million compared to a net loss of $33 million in the prior year. Non-GAAP net income was $514 million compared to $103 million in the prior year.
  • Diluted earnings per share was $0.32 compared to a loss per share of $0.03 in 2017. Non-GAAP diluted earnings per share was $0.46 compared to $0.10 in the prior year.
  • Cash, cash equivalents and marketable securities were $1.16 billion at the end of the year, down slightly from $1.18 billion at the end of 2017.
  • Free cash flow was negative $129 million for the year due to higher inventory related to new products and to the timing of collections.

Q4 2018 Results

  • Revenue of $1.42 billion was up 6 percent year-over-year primarily driven by the Computing and Graphics segment. Revenue was down 14 percent compared to the prior quarter as a result of lower revenue in the Enterprise, Embedded and Semi-Custom segment. Third quarter 2018 included approximately $125 million of IP-related revenue.
  • Gross margin was 38 percent compared to 34 percent a year ago and 40 percent in the prior quarter. Fourth quarter gross margin included a $45 million charge related to older technology licenses that are no longer being used. Non-GAAP gross margin was 41 percent compared to 34 percent a year ago and 40 percent in the prior quarter. Gross margin improvements were primarily driven by Ryzen and EPYC processor sales.
  • Operating income was $28 million compared to an operating loss of $2 million a year ago and operating income of $150 million in the prior quarter. On a non-GAAP basis, operating income was $109 million compared to $19 million a year ago and $186 million in the prior quarter. The year-over-year improvement was primarily due to the ramp of higher margin products in the Computing and Graphics segment. The decrease compared to the prior quarter was primarily due to seasonally lower Enterprise, Embedded and Semi-Custom segment revenue and the absence of IP-related revenue, partially offset by the benefit of new Ryzen, EPYC and Radeon products.
  • Net income was $38 million compared to a net loss of $19 million a year ago and net income of $102 million in the prior quarter. On a non-GAAP basis, net income was $87 million compared to $8 million a year ago and $150 million in the prior quarter.
  • Diluted earnings per share was $0.04 compared to a loss per share of $0.02 a year ago and diluted earnings per share of $0.09 in the prior quarter. On a non-GAAP basis, diluted earnings per share was $0.08 compared to $0.01 a year ago and $0.13 in the prior quarter.
  • Cash, cash equivalents and marketable securities were $1.16 billion at the end of the quarter as compared to $1.06 billion at the end of the prior quarter.
  • Free cash flow was $79 million for the quarter.

Quarterly Financial Segment Summary

  • Computing and Graphics segment revenue was $986 million, up 9 percent year-over-year and 5 percent compared to the prior quarter driven by strong sales of Ryzen processors.
  • Operating income was $115 million compared to $33 million a year ago and $100 million in the prior quarter. The year-over-year improvement was primarily driven by the ramp of Ryzen processors. The improvement compared to the prior quarter was primarily driven by Ryzen processors and datacenter GPUs, which more than offset the benefit of IP-related revenue in the third quarter of 2018.
  • Client processor average selling price (ASP) was up year-over-year and sequentially driven by Ryzen processor sales.
  • GPU ASP was up year-over-year and sequentially primarily due to higher datacenter GPU sales.
  • Enterprise, Embedded and Semi-Custom segment revenue was $433 million, flat year-over-year. Revenue declined 39 percent compared to the prior quarter driven by seasonally lower semi-custom sales, partially offset by strong EPYC datacenter processor sales.
  • Operating loss was $6 million compared to an operating loss of $13 million a year ago and operating income of $86 million in the prior quarter. The year-over-year improvement was primarily due to higher EPYC datacenter processor revenue partially offset by lower semi-custom sales and server-related investments. The decrease compared to the prior quarter was due to seasonally lower semi-custom sales, partially offset by higher EPYC datacenter processor revenue.
  • All Other operating loss was $81 million compared to operating losses of $22 million year-over-year and $36 million in the prior quarter, primarily due to the $45 million charge related to older technology licenses.

Wafer Supply Agreement Update

Today AMD announced it entered into a seventh amendment to its wafer supply agreement with GLOBALFOUNDRIES Inc. (GF). GF continues to be a long-term strategic partner to AMD for the 12nm node and above and the amendment establishes purchase commitments and pricing at 12 nm and above for the years 2019 through 2021. The amendment provides AMD full flexibility for wafer purchases from any foundry at the 7nm node and beyond without any one-time payments or royalties.

Current Outlook

AMD’s outlook statements are based on current expectations. The following statements are forward-looking, and actual results could differ materially depending on market conditions and the factors set forth under “Cautionary Statement” below.

For the first quarter of 2019, AMD expects revenue to be approximately $1.25 billion, plus or minus $50 million, a decrease of approximately 12 percent sequentially and 24 percent year-over-year. The sequential decrease is expected to be primarily driven by continued softness in the graphics channel and seasonality across the business. The year-over-year decrease is expected to be primarily driven by lower graphics sales due to excess channel inventory, the absence of blockchain-related GPU revenue and lower memory sales. In addition, semi-custom revenue is expected to be lower year-over-year while Ryzen, EPYC and Radeon datacenter GPU product sales are expected to increase. AMD expects non-GAAP gross margin to be approximately 41 percent in the first quarter of 2019. In addition, the Company expects to record a $60 million IP licensing gain which will be a benefit to operating income and recorded on the licensing gain line of the P&L.

For full year 2019, AMD expects high single digit percentage revenue growth driven by Ryzen, EPYC and Radeon datacenter GPU product sales as the Company ramps 7nm products throughout the year. AMD expects non-GAAP gross margin to be greater than 41 percent for 2019.