February 25, 2018 | Equity Research
Chip Weekly: AMD's New Products
Driving Share Gains Semiconductors
Last week we organized investor meetings with AMD’s management in California. Mercury Research estimates that AMD gained about 6 percentage points of desktop discrete graphics chip market share in the December 2017 quarter. Intel announced multiple collaborations for development of 5G communications solutions. Hewlett Packard Enterprises stated that it expects to see continuing increases in DRAM pricing through 2018. We are reiterating our Outperform ratings on AMD (AMD, $12.07, Outperform) and Micron (MU, $46.53, Outperform). Last week we sat in on a number of investor meetings with AMD’s CFO Devinder Kumar and Laura Graves, Corporate Vice President, IR, in San Francisco and Los Angeles. We think that in 2018 and subsequent years, revenue growth, rising margins and demonstration of sustainable profitability will be drivers of AMD’s stock value. With a solid lineup of new products that significantly improves AMD’s competitive position in server, desktop and notebook processors, and graphics processor units (GPUs), we think AMD is positioned to show meaningful market share gains through 2018. Separately, AMD launched its EPYC Embedded 3000 processor and Ryzen Embedded V1000 processor product families. AMD EPYC Embedded 3000 processors focuses on markets including networking, storage, and edge computing devices, and Ryzen Embedded V1000 targets medical imaging, industrial systems, digital gaming and thin clients. Intel and its industry partners are offering 5G solutions with a foundation of Intel architecture, including Xeon Scalable platform and Intel Xeon D-2100 system-on-chip processor. Intel announced that it is collaborating with Dell, HP, Lenovo, and Microsoft to offer 5G connectivity to Windows PCs with Intel XMM 8000 series commercial 5G modems. Intel expects first 5G-connected PCs (mobile) to be introduced in the second half of 2019. Expanding its entry into the China phone market, Intel, Unigroup Spectrum and RDA have formed a multiyear collaboration to develop 5G products for mobile platforms, combining Intel 5G modems with Spreadtrum application processor technology. On earnings call last week, Hewlett Packard Enterprise Co. (HPE) noted that it continues to see increases in DRAM pricing. HPE expects to see increases in DRAM pricing for the remainder of 2018, albeit not at the elevated levels seen last year.
Last week we published our graphics chip note in which we present Graphics Processor Unit (GPU) market-share data and review recent David Wong, CFA, PhD news in the GPU market. Mercury Research estimates that AMD’s desktop discrete GPU market unit share increased 6.3 percentage Senior Analyst|212-214-5007 points sequentially to 33% in the December quarter. We believe that [email protected] uncertainty associated with the use of GPUs for cryptocurrency mining Amit Chanda is a risk for both AMD and Nvidia. Associate Analyst |314-875-2045 [email protected] In the coming week, we think that ADI’s earnings report will reflect a Keith Kan, CPA continuation of the trend of solid growth we have seen in recent quarters in many chip end markets such as the industrial and Associate Analyst |212-214-5066 automotive markets, though we believe that the communications [email protected] infrastructure and smartphone end market remain soft. Joy Zhang
Associate Analyst |212-214-8017 [email protected]
Please see page 7 for rating definitions, important disclosures and required analyst certifications. All estimates/forecasts are as of 02/25/18 unless otherwise stated. 02/25/18 18:37:47 ET
Wells Fargo Securities, LLC does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of the report and investors should consider this report as only a single factor in making their investment decision. Semiconductors Equity Research
Our View - Spotlight on AMD: new products should drive market share gains and profitability
Last week (2/20 and 2/21) we sat in on a number of investor meetings with AMD’s CFO Devinder Kumar and Laura Graves, Corporate Vice President, IR, in San Francisco and Los Angeles. We think that in 2018 (and subsequent years) revenue growth, rising margins and demonstration of sustainable profitability will be drivers of AMD’s stock value. We are reiterating our Outperform rating on AMD (AMD, $12.07, Outperform).
We think that AMD has done an excellent job of stabilizing and then improving its financials in recent years. In 2018 and subsequent years, we think that revenue growth, rising margins and demonstration of sustainable profitability will be drivers of AMD’s stock value. o In the December 2017 quarter, about 1/3 of AMD’s total revenues were from new products launched in 2017. About 40% of PC processor revenues were from Ryzen products in the December quarter, and the company is on track for this to rise above 50% in the March 2018 quarter. AMD’s new products in aggregate have gross margins of more than 50%, with its EPYC server processors gross margins of 60+%.
With a solid lineup of new products that significantly improves AMD’s competitive position in server, desktop and notebook processors, and graphics processor units (GPUs), we think AMD is positioned to show meaningful market share gains through 2018. o AMD said its EPYC server products are in various stages of testing or deployment with all of the top 7 cloud providers and also the major enterprise server OEMs (original equipment manufacturers. With Ryzen, AMD has extended its addressed portion of the PC processor space upward to the top price points, and the company now has products that range from the top to the bottom end of the PC space. In April 2018 AMD expects to launch its first 2nd generation Ryzen CPUs built on 12nm technology. In 2H18 AMD expects to sample also its first 7nm Zen 2 EPYC server chips and also its first 7nm Vega chips (Radeon Instinct accelerator chips). o Ryzen desktop chips helped push up AMD’s desktop microprocessor ASPs in 2017. The Ryzen mobile (notebook) chips should do the same for AMD’s mobile microprocessor ASPs in 2018. Ryzen mobile revenues could begin to ramp meaningfully in the June 2018 quarter from large OEM design wins.
With its x86 processor and GPU (graphics processing unit) expertise and its semi-custom design organization, we think AMD has some unique capabilities which may help it address emerging high growth markets such as AI (artificial intelligence) and autonomous driving.
We believe that there is some amount of risk associated with AMD’s exposure to demand for GPUs for cryptocurrency mining applications. However, in our view AMD is taking a thoughtful and appropriate approach to balancing inventory risk with attempting to benefit from the revenue opportunity the current demand presents. o We estimate that cryptocurrency-related revenues might have been about $150 million for AMD in the December quarter (approximately 10% of total revenue).
I on Intel February 22, 2018. Intel expects to bring 5G to mobile PCs in second half of 2019. Intel indicated that it continues to build new products and collaborations for 5G across network, client, and cloud. Intel and its industry partners are offering 5G solutions with a foundation of Intel architecture, including Xeon Scalable platform and Intel Xeon D-2100 system-on-chip processor. Intel announced that it is collaborating with Dell, HP, Lenovo, and Microsoft to offer 5G connectivity to Windows PCs with Intel XMM 8000 series commercial 5G modems. Intel expects first 5G-connected PCs (mobile) to be introduced in the second half of 2019. Expanding its entry into the China phone market, Intel, Unigroup Spectrum and RDA have formed a multiyear collaboration to develop 5G products for mobile platforms, combining Intel 5G modems with Spreadtrum application processor technology. Intel expects Spreadtrum to launch its first 5G smartphone platform featuring Intel XMM 8000 series modem in the second half of 2019. At Mobile World Congress, Intel will be showcasing the first 5G-enabled concept 2 in 1 with a live over the air 5G connection and will demonstrate the first 5GNR (5G New Radio) interoperability publicly.
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Chip Weekly: AMD's New Products Driving Share Gains Equity Research
February 20, 2018. Intel Security Update. Intel has now released production microcode updates to its OEM customers and partners for Kaby Lake- and Coffee Lake-based platforms, with additional Skylake- based platforms. The update includes 6th, 7th, and 8th Gen Intel Core product lines, Intel Core X-series, Xeon Scalable and Xeon D processors. Intel indicated that the new microcode will be generally available through OEM firmware updates. Intel continues to encourage clients to keep their system up-to-date. Intel noted that there are multiple mitigation technologies which may provide protection against the exploits, including “Retpoline” (Google-developed mitigation technique for Variant 2).
Data Roundup
Graphics 4Q17: AMD Gaining Desktop share. We issued a note in which we review Graphics Processor Unit (GPU) market-share data and discuss recent news in the GPU market. We think that AMD desktop GPU unit share gains in the December quarter will continue into the next couple of quarters with the continuing ramp of its Vega-based products. We are reiterating our Outperform rating on AMD (AMD, $12.07, Outperform), though we believe that uncertainty associated with the use of GPUs for cryptocurrency mining is a risk for both AMD and Nvidia. We think that the possibility of moderation from the very strong gaming GPU growth seen recently, uncertainty associated with graphics demand for cryptocurrency mining applications, and competitive pressures from AMD are risks for Nvidia’s stock, given high investor expectations. GPUs continue to show high growth, boosted by cryptocurrency- related demand. Nvidia’s gaming segment revenue grew 29% year/year and increased 11% sequentially to $1.739 billion in its January quarter. AMD said it achieved second straight quarter of record graphics revenue in the December quarter based on significantly improved ASP and increased unit sales from a year ago. Mercury estimated that total mining consumption of new GPUs was about 3.0 million units in the December 2017 quarter. Mercury estimates though that even if cryptocurrency shipments are backed out, PC demand was down 2.5% year/year. AMD gains unit and revenue share on GPUs due to richer product mix of Vega GPUs and increase in cryptocurrency demand. According to Mercury, AMD unit share of the discrete GPU market in the December quarter increased by 3.4pp (percentage points) sequentially and 1.7pp year/year to 33% in the December quarter. Mercury noted that AMD’s revenue share in graphics was up more than 10pp year/year and up 3.5pp sequentially. Mercury estimates that AMD’s desktop discrete GPU market unit share increased 6.3pp sequentially to 33% in the December quarter due to Nvidia’s lower shipments and AMD’s high growth in discrete GPUs. We expect the ramp of Vega for gaming applications, beginning in August will help AMD continue to gain traction at the higher end of the GPU market in the first half of 2018. Mercury Research estimates that Nvidia’s notebook discrete GPU market share increased by 1.0pp sequentially and 1.0pp year/year to 66.7% in the December 2017 quarter. AMD’s processors, graphics and semi-custom design capabilities may create unique opportunities, in our view. In November 2017, Intel announced a new mobile processor that features its Core H-series processor, second generation Bandwidth Memory, and a custom discrete AMD graphics chip. We think that this collaboration between Intel and AMD is beneficial for both companies, while implying incremental competitive risk for Nvidia in graphics. We think that in the future there might be interesting applications in autonomous driving, datacenter and other segments for AMD semi-custom products. For additional details, please refer to our note dated February 20th.
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Figure 1. Desktop Discrete GPU Market Share Trends (including workstation and server GPUs)
Source: Mercury Research and Wells Fargo Securities, LLC
Memory Pricing
Spot Market Last week, DRAM spot price declined while NAND spot prices remained flat, according to DRAMeXchange (see Figure 2). The spot price for an 8Gb DDR4 chip decreased to $9.18, compared to $9.26 at the end of the prior week. The 128Gb MLC (multi-level cell) NAND spot price remained at $6.67, compared to the end of the prior week. The 256Gb MLC (multi-level cell) NAND spot price remained at $13.37, compared to the end of the prior week.
Contract Market The contract price for an 8Gb DDR4 chip increased to $7.94 in the second half of January 2018, compared to $7.50 in the second half of December 2017.
The contract price for a 128Gb NAND chip remained at $5.60 in the second half of January 2018 similar to $5.60 in the second half of December 2017.
Current quarter bit growth expectations: For the March quarter, SK Hynix expects DRAM and NAND bit shipments to fall by low single-digit sequentially. For the March quarter, Samsung expects DRAM market bit growth to decline in the low single-digit range and Samsung’s bit growth is expected to be in line with the market. For the March quarter, Samsung expects NAND market bit growth to be flat and Samsung expects to grow in line with the market.
Figure 2. Memory Chip Prices 256Gb NAND 8Gb DDR4 128Gb NAND MLC MLC
Date Spot Contract Spot Contract Spot 02/23/2018 $9.18 $6.67 $13.37 02/14/2018 $9.26 $6.67 $13.37 02/09/2018 $9.27 $6.67 $13.33 02/02/2018 $9.33 $7.94 $6.66 $5.60 $13.36 01/26/2018 $9.58 $6.63 $13.36
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Chip Weekly: AMD's New Products Driving Share Gains Equity Research
01/19/2018 $9.56 $6.65 $13.36 01/12/2018 $9.65 $6.65 $13.49 01/05/2018 $9.65 $6.69 $14.02 12/29/2017 $9.59 $7.50 $6.69 $5.60 $14.11 12/22/2017 $9.62 $6.72 $14.15 12/15/2017 $9.62 $6.73 $14.15 12/08/2017 $9.68 $6.75 $14.15 12/01/2017 $9.65 $6.84 $14.25 11/24/2017 $9.60 $7.50 $6.84 $5.60 $14.27 11/17/2017 $9.50 $6.85 $14.28 11/10/2017 $9.54 $6.91 $14.39 11/03/2017 $9.66 $6.92 $14.39 Source: DRAMeXchange, Wells Fargo Securities, LLC
News Items:
February 23, 2018. Skyworks and Sequans introduce LTE-M/NB-IoT connectivity solution for the Internet of Things. Skyworks Solutions and Sequans Communications introduced a new solution that combines Skyworks’ front end solution with Sequans’ Monarch LTE-M/NB-IoT platform that complies with Release 13/14 of the 3GPP LTE standard. The solution has been pre-certified with leading operators through existing certifications of Sequans’ Monarch platform.
February 23, 2018. MediaTek reportedly shipping 12nm chips to Oppo and Vivo. DigiTimes reported MediaTek’s 12nm Helio P40 series mobile chips are being used by Opoo and Vivo for upcoming smartphone models, citing sources. Orders of the Helio P40 chips adopted by Oppo and Vivo will help MediaTek perform better than expected during the first half of 2018, referencing sources.
February 22, 2018. Chinese smartphone related chip orders expected to improve in the June quarter. DigiTimes reported chip orders for the China’s smartphone industry will increased in the June quarter of 2018, with customer orders expected to demonstrate double-digit sequential growth. Due to low point of the March 2018 quarter, sales are set to exhibit material sequential growth in the June quarter. Specifically, MediaTek’s Helio P series mobile chips are expected to grow in the March quarter. MediaTek’s chip shipments targeting smartphones are expected to grow 23% sequentially in the June quarter, when sales will grow 15% sequentially and up 1% yr/yr, due to a pull in of orders from its Chinese based clients, according to sources.
February 22, 2018. HPE continues to see nominal increases in DRAM pricing. On its earnings call Hewlett Packard Enterprise Co. (HPE) noted that the company continues to see increases in DRAM pricing. HPE expects to see increases in DRAM pricing for the remainder of 2018, however not at the elevated levels seen last year. HPE noted that it has improved in passing these price increases to its customers.
February 22, 2018. Samsung breaks ground on new EUV line in Hwaseong. Samsung announced it broke ground on a new EUV (extreme ultraviolet) line in Hwaseong, Korea. The new facility is expected to be completed within the second half of 2019 and start production ramp up in 2020. The initial investment in the new EUV line is expected to reach $6 billion by 2020. Samsung will use its EUV technology starting with its 7nm LPP (Low Power Plus) manufacturing process. The new line will be set up with EUV lithography equipment.
February 22, 2018. Acer to continue penetration in gaming device and smart solutions. According to Digitimes, Acer is planning to continue its deployments in the gaming PC and Chromebook markets in 2018 while ramping up its efforts in developing smart transportation and education solutions. Acer has seen its shipments of gaming devices to double in January yr/yr and its Chromebook performance was higher than industry average. Acer said that it will enhance its presence in enterprise PC markets internationally, and that it will be able to maintain as the top ranking vendor in the Philippines. In the smart solutions front, Acer has been stepping up its efforts to expand sales in its smart education solutions, smart transportation solutions, and the smart air detectors market.
February 22, 2018. Microsemi’s new RF modules speed time to market for implantable medical device designers. Microsemi announced the ZL70123, a new radio frequency RF base station module for implantable devices using the Medical Implant Communication Service RF band. The new model was developed for external controllers and monitors for implantable medical devices. Microsemi’s ZL70123
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base station module combined with the company’s existing ZL70323 implant module offers a complete solution. Both modules are based on the latest generation of Microsemi’s ultralow power, MICS-band and radio transceiver chip. Microsemi’s new ZL70123 RF base station module is in production and is available now.
February 22, 2018. MediaTek joins Open Neural Network Exchange to evolve its Edge AI platform. MediaTek announced it joined the Open Neural Network Exchange (ONNX) to support the evolution of its edge AI platform. ONNX was created and launched by Amazon, Facebook and Microsoft to establish an interoperability standard for transferring deep learning models between frameworks. MediaTek is building upon its recent announcement to enable AI edge computing with the launch of its new NeuroPilot AI platform.
February 22, 2018. Tight supply expected in server DRAM market in Q1 2018, according to DRAMeXchange. DRAMeXchange expects tight supply to remain in the server DRAM in 1Q 2018 as server shipments continue to show strength; DRAMeXchange also expects sales of server DRAM modules to remain high. According to DRAMeXchange, combined revenues of the top three server DRAM suppliers (Samsung, SK Hynix, and Micron) grew 14% sequentially to about US$5.55 billion in Q4 2017. DRAMeXchange cited tight supply of server DRAMs has been driven by demand from data center projects in North America; while major chip suppliers have allocated more of their available capacities to server DRAM products, supply was outstripped by demand resulting in a boost in the suppliers’ server product ASPs.
February 21, 2018. AMD launches EPYC Embedded and Ryzen Embedded Processors. AMD launched its EPYC Embedded 3000 processor and Ryzen Embedded V1000 processor product families. AMD EPYC Embedded 3000 processors focuses on markets including networking, storage, and edge computing devices, and Ryzen Embedded V1000 targets medical imaging, industrial systems, digital gaming and thin clients. Customers announced products based on AMD’s new product processors include Esaote ultra-performance MyLab9 eXP ultrasound system (based on Ryzen Embedded V1000 and targets Q3 availability), Quixant QX-70 4K Ultra HD casino gaming platform (based on Ryzen Embedded V1000 and available now), and four products from Advantech based on Ryzen Embedded V1000. Companies can also purchase boards and access software with AMD EPYC Embedded 3000 and AMD Ryzen V1000 technology from more than 16 major ecosystem partners. AMD’s EPYC Embedded 3000 features 4-16 cores (available in single-threaded and multi-threaded configurations), 30W to 100W TDP (Thermal Design Power), up to 64 PCIe (Peripheral Component Interconnect Express) lanes, up to eight channels of 10 GbE (gigabit Ethernet), and up to 32MB (megabyte) of Level 3 cache. AMD Ryzen Embedded V1000 features Zen CPU and Vega GPU on a single die, up to 4 CPU cores/eight threads and up to 11 GPU compute units, 12W to 54W TDP, up to 16 PCIe lanes, dual 10 Gbe and USB options, and dual-channel 64-bit DDR4.
EPYC Embedded 3000 Processors: o 3451: 16 cores/32 threads, 100W, Base 2.15GHz/Max 3.00GHz, 32MB L3 cache o 3401: 16 cores/16 threads, 85W, Base 1.85GHz/Max 3.00GHz, 32MB L3 cache o 3351: 12 cores/24 threads, 80W, Base 1.90GHz/Max 3.00GHz, 32MB L3 cache o 3301: 12 cores/12 threads, 65W, Base 2.00GHz/Max3.00GHz, 32MB L3 cache o 3251: 8 cores/16 threads, 50W, Base 2.50GHz/Max 3.10GHz, 16MB L3 cache o 3201: 8 cores/8 threads, 30W, Base 1.50GHz/Max 3.10GHz, 16MB L3 cache o 3151: 4 cores/8 threads, 45W, Base 2.70GHz/Max 2.90GHz, 16MB L3 cache o 3101: 4 cores/4 threads, 35W, Base 2.10GHz/Max 2.90GHz, 8MB L3 cache Ryzen Embedded 1000 Processors: o V1807B: 4 cores/8 threads, 11 GPUs, 35-54W, Base 3.35GHz/Boost 3.8GHz/GPU freq 1.3GHz, 2M (megabyte) L2 cache o V1756B: 4 cores/8 threads, 8 GPUs, 35-54W, Base 3.25GHz/Boost 3.6GHz/GPU freq 1.3GHz, 2M L2 cache o V1605B: 4 cores/8 threads, 8 GPUs, 12-25W, Base 2.0GHz/Boost 3.6GHz/GPU freq 1.1GHz, 2M L2 cache o V1202B: 2 cores/4 threads, 3 GPUs, 12-25W, Base 2.3GHz/Boost 3.2GHz/GPU freq 1.0GHz, 1M L2 cache
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Chip Weekly: AMD's New Products Driving Share Gains Equity Research
Upcoming Events February 27, 2018. US Durable Goods data for the month of January 2018. We expect the technology-related segments will show a continuation of the modest growth trend seen in recent months. The Computer and Electronics aggregate saw consistent year/year growth at a low- to mid-single-digit percentage rate in the past few months and we believe this supports our view that global semiconductor growth will likely continue in 2018.
February 28, 2018. Analog Devices scheduled to report earnings. In November 2017 ADI guided for January quarter sales to be $1.44-1.54 billion (midpoint down 3% sequentially and up 9% year/year organically). Sequential and yr/yr growth in the January quarter is boosted by an additional week of revenues, as it is a 14 week quarter. ADI guided for GAAP EPS of $0.79-$0.95 and non-GAAP EPS of $1.20-$1.36.
Our Coverage
The following are the stocks we cover.
Table 1: Stocks we cover/Dividend monitor: Annualized Price Annual Dividend Company Name Ticker 02/23/18 Dividend Yield Rating Advanced Micro Devices AMD $12.07 - - Outperform Analog Devices ADI $90.37 $1.80 2.0% Market Perform Applied Materials AMAT $57.01 $0.80 1.4% Outperform Intel INTC $47.73 $1.20 2.5% Outperform Maxim Integrated Products MXIM $62.00 $1.68 2.7% Market Perform Micron Technology MU $46.53 - - Outperform Microsemi MSCC $62.31 - - Outperform Monolithic Power Systems MPWR $118.05 $1.20 1.0% Market Perform Nvidia Corporation NVDA $245.93 $0.60 0.2% Underperform Qorvo QRVO $80.13 - - Market Perform Skyworks Solutions SWKS $108.23 $1.28 1.2% Outperform Texas Instruments TXN $107.04 $2.48 2.3% Market Perform Xilinx XLNX $70.05 $1.40 2.0% Market Perform Source: FactSet, Wells Fargo Securities, LLC
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STOCK RATING 1=Outperform: The stock appears attractively valued, and we believe the stock's total return will exceed that of the market over the next 12 months. BUY 2=Market Perform: The stock appears appropriately valued, and we believe the stock's total return will be in line with the market over the next 12 months. HOLD 3=Underperform: The stock appears overvalued, and we believe the stock's total return will be below the market over the next 12 months. SELL SECTOR RATING O=Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months. M=Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months. U=Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months. VOLATILITY RATING V=A stock is defined as volatile if the stock price has fluctuated by +/-20% or greater in at least 8 of the past 24 months or if the analyst expects significant volatility. All IPO stocks are automatically rated volatile within the first 24 months of trading.
As of: February 25, 2018
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