AMD: Managing Supply Chain Problems?

Advanced Micro Devices (AMD) is turning out to be a frontrunner in the semiconductor industry, as evidenced by its strong financial performance. The company’s products include graphics processing units (GPUs), semi-custom System-on-Chip (SOC) products and chipsets, x86 microprocessors (CPUs), and accelerated processing units that integrate microprocessors and graphics (APUs).

AMD had a stellar third quarter, with the company’s revenues soaring 54% and its operating income doubling year-over-year. This was the company’s fifth straight quarter of revenue growth of more than 50%.

The chip company posted revenues of $4.31 billion, surpassing the consensus estimate of $4.12 billion. Adjusted earnings came in at $0.73 per share, up 78% year-over-year beating analysts’ expectations of $0.67 per share.

AMD President and CEO Dr. Lisa Su commented, “3rd Gen EPYC processor shipments ramped significantly in the quarter as our data center sales more than doubled year-over-year. Our business significantly accelerated in 2021, growing faster than the market based on our leadership products and consistent execution.”

AMD’s soaring revenues were driven by a 69% growth in revenues when it comes to its Enterprise, Embedded, and Semi-Custom CPUs and chipsets. At its Q3 earnings call, the company’s management commented that its third-generation “EPYC processors continue ramping faster than the prior generation and contributed the majority of our server CPU revenue in the quarter.”

The company also foresees “significant ongoing growth opportunities as our enterprise server pipeline has more than doubled year over year.” (See Analysts’ Top Stocks on TipRanks)

AMD anticipates total revenue of $4.4 billion to $4.6 billion in Q4, an increase of 39% year-over-year, driven by growth across all businesses. For FY21, AMD has raised its guidance and now expects its revenues to rise year-over-year to 65% from the prior growth rate of 60%.

Supply Chain Crisis

In addition, to counter the supply chain crisis that is plaguing different companies around the world, the company has “made strategic investments in long-term supply chain capacity to support future revenue growth,” according to Su.

Elaborating further, Dr. Lisa Su stated, “I think we’re prioritizing in the most strategic segments. And we have invested significantly in capacity for additional capabilities, and we’ll see some of that come online as we go through 2022.”

Navigating supply chain issues is important for the company, as the widespread problem could hamper its business adversely. Indeed, according to the TipRanks Risk Factors tool, the company was at a significant Supply Chain risk of 11%, as part of the company’s total Production risk factor of 20%.

In fact, AMD’s most significant risk factors include Production risk, finance and Corporate risk, and Ability to Sell, at 20% each. Moreover, the company is at a higher Production risk than other companies in its sector, which has a benchmark of 14.4%.

Many analysts seem to agree that AMD is likely to manage its supply chain risks, and is poised for success in general.

Looking at AMD’s growth trajectory as indicated by its Q3 earnings, Rosenblatt Securities analyst Hans Mosesmann considers AMD a top-three Buy pick. The analyst stated, “We see years of significant sales growth, margin expansion, and with Xilinx (the deal appears to be on track to close before year-end) a meaningful diversifier into key infrastructure markets including data center (networking/storage), communications, automotive, and industrial.”

Mosesmann reiterated a Buy following its Q3 earnings and raised the price target from $150 to $180 (47.2% upside) on the stock.

Turning to the rest of the Street, consensus is that AMD is a Moderate Buy, based on 14 Buys and 5 Holds. The average AMD price target of $139.63 implies 14.2% upside potential to current levels.

Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article​.

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