2024 AI chip revenue will exceed $2 billion!

Time：2023-11-09　Reading：60

    AMD's revenue in Q3 increased 4% year over year, with PC business surging 42% year over year, but other businesses such as data centers saw revenue decline in the quarter. Q4 will lower its sales forecast for the game business, saying that the AI chip MI300 series will be mass-produced and will be the fastest product in the company's history to reach $1 billion in sales, and it is expected that the revenue of Q4 data center GPU business will be $400 million and exceed $2 billion next year.

01 Q3 revenue

■ Q3 revenue and earnings beat expectations by 4%

AMD in the United States Eastern time on October 31 announced this year's Q3 financial results, Q3 revenue reached 5.8 billion US dollars, an increase of 4%, operating profit of $224 million US dollars, net profit of 299 million US dollars, gross margin of 47%.

Both operating income and earnings per share (EPS) earnings beat expectations, and revenue grew year-over-year for the first time this year, as shown by:

• Q3 adjusted EPS of $0.7, up 4% year-over-year
• Q3 Adjusted gross margin of 51% was in line with AMD's own guidance and analysts' expectations, up from 50% a year ago
• Q3 adjusted operating margin of 22%, down from 23% a year ago (analysts expected 21.6%)

Q3 capital expenditures of $124 million, up 0.8% year-over-year (analysts expected $114.1 million)

• Q3 R&D expenses of $1.51 billion (analysts expected $1.45 billion)

■ PC revenue surged 42% from a year earlier than expected

Most of AMD's Q3 revenue growth came from the PC business. AMD's customer division, which includes PC processors and chipsets, reported Q3 revenue of $1.51 billion, up 42% from a year earlier and well above analyst expectations of $1.23 billion.

AMD said growth in the business was primarily driven by higher sales of Ryzen mobile processors, with revenue up 46% sequentially in Q2, driven by higher sales of Ryzen 7000 series cpus.

■ Revenue in the three major businesses, including data centers, declined

AMD's other three big business, including data center, server, gaming and other business revenue fell year-on-year, and the decline was more than expected.

Figure: AMD Q3 revenue in FY23

Data Center Q3 revenue was $1.6 billion, down 0.7% year-over-year and roughly the same as last year. That was below analysts' expectations of $1.62 billion. The increase in fourth-generation EPYC processor sales was partially offset by lower SoC data center sales.

Driven by sales of Ryzen mobile processors, Client revenue was $1.5 billion, up 42% year-over-year.

Gaming was the worst performer as orders for custom chips for devices such as the Xbox Series X and PS5 fell 7.7% to $1.51 billion in Q3, missing analysts' expectations of $1.53 billion.

The Embedded segment performed poorly, with Q3 revenue of $1.24 billion, down 4.6% from a year earlier and below analyst expectations of $1.31 billion. In Q2, the division's revenue was $1.2 billion, which AMD blamed on the weak communications market, which affected network components and the FPGA business acquired when it acquired Xlinix.

AMD said that in its data center business, a decline in SoC data center products offset an increase in fourth-generation EPYC CPU sales. The decline in the embedded business was mainly affected by lower revenue in the communications market. In the gaming business, sales growth for Radeon Gpus was offset by a decline in revenue from semi-custom products.

02 Q4 Revenue forecast

■ Q4 revenue is expected to increase by 9% year-on-year and 5% quarter-on-quarter, the growth rate is less than market expectations

AMD expects Q4 revenue to be about $6.1 billion, with a range of $5.8 billion to $6.4 billion, with revenue up about 9% year-over-year and up about 5% sequentially. The expected growth rate is less than the $6.4 billion expected by analysts, and the growth rate is not as strong as market expectations.

On a non-GAAP basis, excluding production costs, AMD expects Q4 gross margin to be approximately 51.5%, slightly higher than Q3's 51%, but still below market expectations of 52.1%.

AMD lowered its sales forecast for the Q4 gaming business this time. In addition, AMD Chief Financial Officer Jean Hu said that the company expects strong growth in the Q4 data center business and continued momentum in the PC business, partially offsetting the negative impact of declining sales in the gaming business and further weakening demand in the embedded market.

03 AI chip layout

■ The AI chip MI300 series will be mass-produced in Q4 and start shipping as soon as the next few weeks

AMD said in its earnings call that MI300 series processors will begin shipping in the coming weeks, including two upcoming new MI300 A and MI300 X Gpus that will be mass-produced in Q4. This also means that the product will begin to compete for NVIDIA's AI chip supremacy in the AI market.

AMD CEO Lisa Su said the company's data center business is on track for significant growth, based on the strength of the company's EPYC CPU portfolio and increased shipments of MI300 accelerators to support multiple deployments for hyperscale, enterprise and AI customers.

■ Data center GPU sales are expected to exceed $2 billion next year

AMD said that the M1300 series has received a number of earlier orders, including several large cloud computing customers committed to deploy the MI300 chip products. Su said the company expects the GPU products under the data center segment where the Q4 and MI300 are located to bring $400 million in revenue to the company and exceed $2 billion next year. AMD is very bullish on the MI300, saying it will be the fastest product in the company's history to reach $1 billion in sales.

Lisa Su said that most of this year's Q4 accelerator revenue came from supercomputing services, and the company expects Q1 accelerator revenue to reach $400 million next year, mostly from the AI field.

Lisa Su admitted that people are still in the initial stage of technology application, but by 2027, the total market size of AI chips is expected to exceed 150 billion US dollars.

04 Opportunities for AMD in China

New export restrictions on Chinese AI chips in the United States may benefit AMD from recent developments in the semiconductor market. One of AMD's main strengths is its ability to effectively compete with industry giants like NVIDIA and Intel in the AI space.

The new export restrictions on AI chips are not aimed at the industry as a whole, and these restrictions have already affected NVIDIA's ability to sell specific chips (H800 and A800) to China. On the contrary, this may allow AMD to obtain more Chinese AI chip market share on mature nodes, and AMD can also use this good opportunity to further strengthen its position in the AI chip market.

AMD's 7nm and 5nm processes, developed in collaboration with TSMC, will drive its edge in producing cutting-edge chips. In addition, AMD's introduction of the Zen 4c architecture (EPYC 8004 series processors) has also narrowed the performance gap with NVIDIA and Intel.

As of June this year, NVIDIA generated $3 billion in revenue in the Chinese market, but these revenues may be significantly lower in the future due to successive export restrictions on AI chips. The export restrictions may push contract manufacturers like TSMC to find new AI chip suppliers, and AMD may be able to capitalize on this opportunity.