AMD posted its financial results for the fourth quarter of 2016 this week and provided additional details on its plans for its upcoming Ryzen and Vega products. Both of these launches are critical to AMD’s future — Ryzen, its upcoming desktop processor, is based on AMD’s first brand-new architecture in over five years and is meant to close a critical performance gap between itself and Intel. Vega will be AMD’s first brand-new GPU architecture since GCN debuted just over five years ago as well, and is critical to the company’s efforts in the graphics card market.
We’ll talk about both products, but let’s hit the financial details first. AMD delivered year-on-year improvements in Q4 in almost every single category. Quarterly revenue was down seasonally compared with Q3, but that’s in-line with expectations. Currently, most of AMD’s revenue is driven by console sales, and Microsoft and Sony order the most hardware in Q3 as they ramp up to meet holiday demand.
AMD’s revenue was up 15% year-on-year, its gross margin is five percentage points higher, and its operating loss has been much reduced. The company has more cash on-hand, and while it’s carrying a higher inventory load, that’s likely related to the upcoming Ryzen launch. Total debt is also significantly lower, at $1.435B, down from $2.237 billion a year ago.
AMD’s segment reports are also improving. Total Computing and Graphics revenue rose to $600 million in Q4, a 27% gain quarter-on-quarter and a 28% gain year-on-year. Sales in these businesses typically peak in the fourth quarter, but AMD’s improvement is much stronger than seasonal gains typically account for, and likely reflect improved product sales. During the conference call, CEO Lisa Su said desktop CPU sales fell in advance of Ryzen’s launch, so the gains we are seeing here reflect improved demand for AMD’s seventh-generation Bristol Ridge APUs as well as its Polaris family of GPUs. Total AMD CG revenue increased 9% for the full year 2016 compared with all of 2015 and the company shrank its full year operating loss to half of what it was in 2015.
In the enterprise, embedded, and semicustom segment (mostly the PS4 and Xbox One), revenue improved 4% in Q4 2016 compared with Q4 2015, and 5% for the full-year 2016 compared with 2015. One obvious question is how this matches expectations for console sales, given that both Microsoft and Sony launched refreshed versions of their platforms in the back half of the year, but this data doesn’t give us much to go on. AMD has previously said its licensing and royalty agreements with both console manufacturers were front-loaded to pay the highest royalty rates at the beginning of the business cycle when both platforms launched. Without knowing more about the rate schedule and any subsequent agreements made regarding the Xbox One S and PS4 Pro, we can’t really speculate about how these launches impacted AMD’s earnings or how well the platforms sold. AMD’s $3 million operating loss for Q4 2016 is excellent, relative to how the company has performed the last few years.
Launch dates for Naples, Ryzen, and Vega
During the conference call, CEO Lisa Su made some specific remarks regarding when we will see Ryzen and Vega in the market place. Ryzen will launch “in early March,” while Vega is set to debut in Q2 of this year. Naples, AMD’s updated server platform, will also launch in the second quarter. AMD reports this product will target workloads “that will benefit from more threads, higher memory, as well as I/O-bound applications. So we expect cloud, big data applications as well as traditional enterprise.”
Su also said Ryzen will launch in the retail channel first, followed by system integrators and OEMs. If you’re looking forward to the core, you should be able to buy one on launch day (AMD has also given guidance that Ryzen will be a hard launch, with plenty of product on store shelves for purchase).
AMD also noted it has Zen APUs already in the works (Raven Ridge) and scheduled for launch in the back half of 2017. Raven Ridge is expected to use DDR4, not HBM or HBM2, but can still offer 50% more memory bandwidth than AMD’s older DDR3-based APUs. APU graphics performance tends to be extremely memory bandwidth-bound, so we expect a healthy jump on that basis alone, before GPU performance improvements or delta color compression are taken into consideration.
According to Lisa Su, Raven Ridge is “a very strong notebook part when you think about sort of the high end notebooks, 2-in-1s, and those types of things. But yes, it can also be used in desktop.” Over the past few years, AMD has positioned its APUs as its lower-end and mainstream desktop parts while its six-and-eight-core desktop chips anchored the (relative) high end. Su’s comments seem to imply Ryzen will be the focus of AMD’s desktop plans this year, but we won’t know how Raven Ridge (Zen APU) and Summit Ridge (Zen CPU) fit together until AMD shares more details publicly.