Advanced Micro Devices, Inc. (NASDAQ:AMD) Gets Another Boost from Its Biggest US Customer

Advanced Micro Devices, Inc. (NASDAQ:AMD) continues to gather fresh upside momentum following the dark day late last month when the stock dropped 30% on weakened Q4 guidance. As we have detailed, much of the real selling was about a loss of faith in the course and evolution of the chip cycle.

However, with several other chip reports (including INTC and XLNX, most notably), and key conference calls (MSFT and INTC), and now a stellar earnings report from AMD’s biggest US customer, Dropbox (DBX), we feel we can say with relative certainty that the notion that AMD will be forced to wade through several coming quarters of declining chip demand and a sustained CPU shortage is an unsupported idea given the facts at hand.

Advanced Micro Devices, Inc. (NASDAQ:AMD) shareholders have been carted up and down the tracks of a roller coaster over the past year, and the tape is justifiably “jumpy”, but it is that very feature that allowed new money to have an opportunity at this stock in our primary buy zone (see here) under $17, and to already be sitting on 25-30% gains, and nearing a possible gap-fill.

Principal resistance is that gap-fill zone now just above in the $22.75-23 area. The stock is now pricing to close this week right at the 50% Fib marker defining the 2018 overall trading range.

Turning back to the Dropbox report – which is a huge tell for AMD – we made the following notes from the DBX conference call. These notes suggest an extremely strong footing for its biggest domestic customer.

  • Co guides to Q4 revenue of $367-370 mln vs CapitalIQ consensus of $363.7 mln. Co guides to Q4 non-GAAP operating margin of 9-10%.
  • Co is operating at scale with healthy margins, which should continue to improve as co builds up efficiencies with scale.
  • Users love our new product updates. Machine intelligence (DBXI) is a key innovation. In Q3, co introduced two MI initiatives (Nautilus delivers personalized search experience, surfaces most relevant results; second co has made strides in making images searchable. Most tools cannot find text and images, but customer use images a lot. DBX has been scanning these docs to make them searchable.
  • Operating margin expansion was driven by gross margin expansion and higher revenue in the quarter.
  • ARPU drivers? ARPU trend is driven by business generally and by higher priced SKUs, driven by better functionality. Co also got a tailwind from grandfathering in old accounts and seeing a tailwind from higher attach rates, higher ASPs.
  • Net adds? Co is improving net revenue retention, churn rates have been stable over past few quarters.
  • Q4 guidance, any changes in October, being conservative? Co has healthy and steady and predictable business; co does not include benefits from initiatives until they are more clear.

Top Down

Advanced Micro Devices, Inc. (NASDAQ:AMD) bills itself as a semiconductor company worldwide. It operates in two segments, Computing and Graphics; and Enterprise, Embedded and Semi-Custom.

The company’s products include x86 microprocessors as an accelerated processing unit (APU), chipsets, discrete and integrated graphics processing units (GPUs), and professional GPUs; and server and embedded processors, and semi-custom System-on-Chip (SoC) products and technology for game consoles.

It provides x86 microprocessors for desktop PCs under the AMD Ryzen, AMD Ryzen Pro, Threadripper, AMD A-Series, AMD E-Series, AMD FX CPU, AMD Athlon CPU and APU, AMD Sempron APU and CPU, and AMD Pro A-Series APU brands; microprocessors for notebook and 2-in-1s under the AMD Ryzen processors with Radeon Vega GPUs, AMD A-Series, AMD E-Series, AMD C-Series, AMD Z-Series, AMD FX APU, AMD Phenom, AMD Athlon CPU and APU, AMD Turion, and AMD Sempron APU and CPU brands; and microprocessors for servers under the AMD EPYC and AMD Opteron brands. It also offers chipsets under the AMD brand; discrete GPUs for desktop and notebook PCs under the AMD Radeon and AMD Embedded Radeon brand; professional graphic products under the AMD Radeon Pro and AMD FirePro brands; and customer-specific solutions based on AMD’s CPU, GPU, and multi-media technologies.

In addition, it provides embedded processor solutions for interactive digital signage, casino gaming, and medical imaging under the AMD Opteron, AMD Athlon, AMD Sempron, AMD Geode, AMD R-Series, G-Series, and AMD Embedded Radeon brands; consumer graphics under the AMD Radeon brand; and semi-custom SoC products.

Advanced Micro Devices, Inc. (NASDAQ:AMD) pulled in sales of $1.7B in its last reported quarterly financials, representing top line growth of 0.6%. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($1.1B against $1.9B, respectively).

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