Dispatches From AMD Financial Analyst Day 2022

Like many publicly traded companies, AMD holds periodic Financial Analyst Days to share updates to its corporate strategy, product roadmaps, long-term financial targets, growth opportunities and more with analysts, investors and media. It’s a veritable goldmine of information for tech analysts like me to utilize. On top of that, it’s a chance to hear all this directly from company leadership. There’s nothing better than a day like this to get the most accurate, public source of company truth in a few hours. CEO Lisa Su and company hosted AMD’s most recent Financial Analyst Day this past Thursday, and I tuned in. I’d like to share my takeaways.

AMD sets its scope on adaptive computing

First off, Su began the event by basically saying, “Remember the strategy we laid out to you in 2020? It’s the same thing we’re doing now, but with some twists.” AMD has modified its highly successful 2020 High Performance Computing (not to be confused with HPC) strategy to focus on that plus adaptive computing—the spoils of its October acquisition of Xilinx. While some could argue that AMD was already doing adaptive computing with GPUs, now it can do adaptive computing, down to programmable FPGA hardware and high-end data center SoCs.

Speaking of AMD’s strategy, Su then took some well-earned victory laps from 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 that the company will ride that “first to exascale” title for decades, just as it has done with “first to 1GHz.” In the most recent TOP500 list, Frontier was also named the Number #1 supercomputer, the #1 Green Supercomputer and the world’s #1 AI Supercomputer. Furthermore, AMD has achieved 95% growth in the TOP500 systems year-over-year, powering over half of all new systems on the list.

In the data center, Su celebrated the fact 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 AMD has also gained strong traction across 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 AMD is still underrepresented in revenue share. AMD is underrepresented in commercial PC. In gaming, AMD is happy with its performance per watt. Su also highlighted the company’s customer momentum, noting that AMD is now the world’s #1 game console provider thanks to its wins 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 have also risen considerably, from $0.64 in 2019 to $1.29 in 2020 to $2.79 in 2021. Free cash flow is up from $0.3B in 2019 to $0.8B in 2020 to $3.2B in 2021. There’s just not a lot to be unhappy about there.

Drilling down a little deeper, AMD’s data center business has grown by a jaw-dropping 95% CAGR since 2020. It now accounts for 25% of AMD’s overall revenue mix, a 10% increase since 2019. While not as drastic as the data center’s rate, the PC business is growing at a respectable 46% CAGR, with the gaming business clocking in at 50% CAGR.

Remember that all the successes enumerated above happened in the last three years. Furthermore, they are partially due to Su’s 2020 strategy referenced earlier. The recent past isn’t the only thing financial analysts are interested in, though—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.

Xilinx and Pensando acquisitions

Xilinx, now a part of AMD, boasts #1 product leadership in FPGAs and adaptive SoCs, with market share growth in each. It also possesses a robust suite of software, which, Su noted, will be very useful in integrating the two companies. Xilinx’s valuable IP 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, offering AMD a chance to drastically diversify its markets. And, of course, an assessment of Xilinx’s worth wouldn’t be complete without mentioning its preexisting, deep customer relationships—six of the top seven 5G wireless OEMs, the top ten car manufacturers, the top ten aerospace and defense firms, and the number one industrial IoT vision and medical imaging company.

AMD also recently acquired Pensando, another strategic buy that furthers AMD’s goal to be the “most strategic supplier to the largest data centers in the world.” While AMD is doing great with EPYC, Instinct and the IP from the Xilinx acquisition, Pensando brings valuable DPU technology leadership 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 prospects moving forward, at 2020’s Financial Analyst Day, AMD estimated its TAM at $79 billion—$12B in gaming, $35B in the data center and $32B in PCs. Today, with Xilinx included in its analysis, AMD sees its TAM at approximately $135B, with gaming swelling to $16B, data center to $50B, PCs to $40B and thanks to Xilinx, $29B in embedded.

The absolute stunner was the five-year projection of a net $300B TAM—$125B in the data center, $37B in gaming, $50B in PCs, $33B in embedded, $27 in automotive and $32B in communications. In the data center and cloud, new opportunities will come from the ever-increasing performance demands, the mounting necessity of core-to-edge security, the rise of workload-optimized compute and networking and the push for more efficient and sustainable solutions. Other market forces driving such projections include the ongoing integration of AI everywhere, from the data center to the outer reaches of the edge and, in the PC market, the effort to meet the needs of an increasingly hybrid workforce. The uptake of emergent technologies such as autonomous driving, 5G communications and the industrial Internet of Things also undoubtedly play a part.

Wrapping up

In conclusion, AMD has many reasons to feel confident. The TOP500 feathers in its cap lend confidence to the company’s plan to add adaptive computing to its high-performance strategy. The financials look great across all businesses, with revenue, EPS and FCF showing impressive growth. The Xilinx acquisition has the potential to be a real boon, enabling AMD to break into diverse, high-growth markets such as 5G communications, embedded 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. Throw in the acquisition of Pensando, and AMD has suddenly become a leader in data center network offload, 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 to have that slow it down. Many AMD execs are richer now with stock appreciation than ever before and I’ve seen that slow companies down. Intel will get access to TSMC N3 for its CPU and GPU tiles that will put it on par with AMD. And, finally, it’s not hardware keeping AMD on the sidelines of the cloud hyperscaler training ground, it’s the software, and it has to competitively get closer or change the game completely. While I was impressed with its high-level “Pervasive AI” strategy, I can’t say confidently right now how that narrows the software gap or changes the game. I need more time to soak and research.

Looking back, the days when AMD was considered a liability seem very far away. Keep doing what you’re doing, AMD.

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