AMD reported its fourth quarter and full year results for 2017 yesterday evening. The company’s financial results are easily the best its posted in five years and arguably some of the best results we’ve seen in a decade (this last needs a bit of unpacking, but we’ll get to that).
If AMD performed well from Q1 to Q3 2017, it positively crushed Q4. Revenue for the quarter was $1.48B, an increase of 1.34x year-on-year. Full year revenue hit $5.3B, compared with $4.27B for 2016, an increase of 1.25x. The 10 percent seasonal decline is due to a decrease in console revenue — while Q4 is the strongest quarter for PC OEMs, console purchases peak in Q3 as Sony and Microsoft ramp up their own manufacturing to meet holiday demand. AMD’s full year net revenue was $201M, a respectable result considering the Client and Graphics business hasn’t posted a net profit for the year in six years.
There’ve been a lot of questions raised over the past year over where AMD’s revenue is coming from and what we can expect in the future. These are reasonable questions: As great as Ryzen is, Piledriver was an underperforming architecture from the start and it was five years old at the beginning of 2017. Now that a hefty chunk of the low-hanging fruit has been collected, what’s next?
Where’s the Money Coming From?
AMD reports its increased revenue is due to strong sales of its Ryzen, Radeon, and Epyc platforms. The enterprise, embedded, and semi-custom (EESC) segment, which includes consoles, saw sales decline in line with seasonality, but segment revenue rose 3 percent in Q4 2017 compared with the same period in 2016, an increase AMD attributed to increased server market share for Epyc. Epyc revenue is expected to ramp strongly into 2018, with new design wins and cloud deployments across the industry.
As far as weighting whether the major increase in revenue came from Vega or Ryzen, Lisa Su plays that close to her chest. Here she is on revenue mix:
[W]e saw a 17 percent sequential growth, significantly better than seasonality. That was up on clients, particularly Ryzen desktop had a very strong holiday. We also started initial shipments on Ryzen mobile. And then, on the graphics side, we saw strength in all product lines. So, we saw strength in the channel for both gaming as well as blockchain; we saw strength in OEMs as we ramped Apple with our Vega processors; we also saw strength in professional graphics as we launched some GPU compute into the data centers.
Later, Su clarifies that of AMD’s $140M worth of increased CG sequential revenue, roughly 1/3 of it came from cryptocurrency-related sales. The other 2/3 of revenue was generated by a mixture of “other” GPU activity and Ryzen sales. Ryzen accounted for just under 50 percent of AMD’s total CPU sales in Q4, with legacy products covering the rest of the market.
We don’t know what the revenue split was between Ryzen and Radeon for that other 2/3 of spending. I’d wager it was tilted much more heavily towards Ryzen, but even if the raw product sales weren’t, the profits almost certainly were. Vega yields have never been great, even before this latest cryptocurrency boom, and the GPU demand explosion doesn’t automatically drop cash into AMD’s pockets if AMD doesn’t raise its prices to compensate (as far as we know, neither it or NV have).
Lisa Su noted that memory shortages continue to constrain AMD’s overall GPU production, saying:
Relative to just where we are in the market today, for sure the GPU channel is lower than we would like it to be, so we are ramping up our production. At this point we are not limited by silicon per se, so our foundry partners are supplying us, there are shortages in memory and I think that is true across the board, whether you are talking about GDDR5, or you’re talking about high bandwidth memory.
Su also answered a question on which products she expected to drive the most revenue for AMD in 2018 in absolute dollar terms. She answered Ryzen and Epyc are the largest absolute contributors to AMD’s expected growth, particularly as Ryzen mobile ramps up.
Looking Ahead to 7nm, 2018 Revenue, Meltdown and Spectre
AMD didn’t have much to say about 7nm that it hasn’t said before. It intends to ramp a single GPU part (Vega for machine learning workloads) in 2018. This tracks with what we know of 7nm — it’s a very early node, with a limited-run part slated for 2018 ramp-up and production.
AMD expects Q1 2018 revenue to be $1.55B, up roughly 1.32x year-on-year. AMD is moving to a new accounting standard in Q1 2018, which mucks up the comparison some, but its restated Q1 2017 income is $1.17B and its restated Q4 2017 income is $1.34B. Gross margin improvements of ~1 percent are anticipated. For the full year 2018, AMD expects double digit percentage growth in revenue compared with 2017, and a gross margin rate in excess of 36 percent.
AMD’s guidance on Meltdown and Spectre have not changed. It believes its CPUs are completely immune to Meltdown. It is working with vendors to roll out patches for Spectre Variant 1. Variant 2 is still believed to be “difficult” to exploit on AMD processors, but AMD is working to close the loopholes.
All in all, the best year AMD has had in a long time, and a welcome return to profitability.