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AMD announced that Twitter and Google will be adopting the use of the Rome processor. This is a complete game-changer for Silicon Valley and speaks to AMD’s desire to take massive market share in the data center sector.
Shares of Advanced Micro Devices (AMD) rallied last week as the company presented their latest line of server chips. Long-term AMD stock investors have been very pleased with the price performance of semiconductor specialist. At the time of writing, the stock was still up for 0.8% to $34.19.
However, let’s start from the beginning. The second-quarter results didn’t impress investors at all. Revenue fell 13 percent to $1.53 billion year-over-year, operating income was $59 million, net income $35 million and diluted earnings per share of $0.03. On a non-GAAP basis, operating income was $111 million, net income was $92 million and diluted earnings per share were $0.08.
However, last week, after the company announced that both Google and Twitter are using the company’s newest data center processors, the stock jumped by magnificent 16%.
What actually happened is that AMD announced the launch of the second generation of their EPYC chips designed for high-performance usage like in the cloud or inside large enterprises. This business has been traditionally leading by Intel, the corporation that holds around 98% of the market. However, AMD is looking to increase swiftly in the margins of the same sector. As per the recent report from Atlantic Equities, AMD’s share of the data center market should grow to 25% in a decade from 2% that was the case last year.
Google said that they have placed the upgraded EPYC processors inside of their company and that next year will add them to its cloud engine used by other companies to run workloads. Twitter, on the other hand, said that, because of the power reductions that come with the new chips, the plan includes reducing the costs that are associated with data center infrastructure by 25%.
For the third quarter, the company expects the revenue to hover around $1.8 billion, that shows a growth of around 18 percent quarter-to-quarter and about 9 percent year-over-year. Also, they claim that the latter double-digit declines will be considered history.
For the full year 2019, AMD expects revenue growth of mid-single-digit percent compared to last year.
We shouldn’t, however, forget the fact that the company is pretty well-settled, and has a good balance sheet. It is made of around $1.1 billion in cash and securities. Debt offsets are sitting on around $1 billion, so there are no long-term debt issues to even remotely be concerned about.
From the company, they said that they are expecting a significant increase in operating cash flow for the rest of the year as well. Last six months it, however, turned out to be negative to the tune of $183 million, and in the past quarter, it hit $30 million.
However, there are significant problems with free cash flow. Counting from late 2015, the company spent $320 million in cash, was flat in 2016, burned $100 million in cash in 2017, and spent the hundred $30 million in cash last year.
According to AMD CEO Lisa Su, EPYC Rome processor sales could increase significantly as they should generate sales faster than AMD’s first-generation server CPUs.
Su called the trade situation in China “fluid” and commented that AMD is closely watching it along with the rest of the semiconductor industry.
“We have stopped shipping some products to a couple of our customers that are on the U.S. entities list and that is a little bit of a headwind into the second half of the year, but we have great products that are backstopping some of that and so we feel really good about the growth prospects into the second half,” explained she.