AMD | 1/6/21 FIRST FOCUS ADVANCED MICRO GREEN YELLOW RED DEVICES, INC LIGHT LIGHT LIGHT (Ticker: AMD) LBIR Recommendation Stock Price: $92.7 (1/5/21) Company Size: $110.4B Author: Madhu Chaudhary Company Rank: 76 Sector: Technology Industry: Semiconductor AMD, Inc. is a semiconductor company that manufactures computer processors and related technologies such as microprocessors, motherboard chipsets, GPUs, processors for data centers, and PC/Gaming solutions. IN THIS FIRST FOCUS WE’LL COVER: Summary of the Business AMD is a semiconductor company that develops processor units for servers, workstations, PCs, data centers etc. Grab-and-Go THESIS Recent Developments The company delivered impressive financial An investment in AMD is a play on performance in the recent quarter primarily led by the advancement of high- strong tailwinds from the growing push for global performance computing based business digitization. It has announced acquisition technologies such as machine of Xilinx to diversify itself and expand its presence learning and AI as well as the in the datacenter market segment. gaming industry. The company is a Competitive Environment strong player in the accelerated In CPU segment, it faces intense competition from processor units market segment and market leader Intel and in the GPU segment it competes with industry leaders such competes with the industry leader Nvidia. as Nvidia and Intel. AMD’s success depends upon its ability to get large Conclusions/Recommendations clients to use its high performance Given strong fundamentals and positive prospects products while consistently as a result of accelerated innovation and product innovating newer solutions to grow suite expansion, we are taking a positive stance on its share. the stock and assigning it a “GREEN LIGHT”. SEEKING STOCKS THAT CAN DOUBLE IN 2-3 YEARS 1 LEFTBRAINIR.COM . 630-517-9300 0.94 STOCK: AMD | 1/6/21 FIRST FOCUS Data as of 1/6/20 unless specified Revenue NTM $11.77B Enterprise Value: $109.1B Market Cap: $110.4B (TTM): ($8.65B) NTM (TTM) 9.4x YTD Return: 95.7% RSI: 51.25 Price/Sales: 12.8x Gross Margin Revenue Growth 44.5% 43.5% ROIC (TTM): 39% (TTM): TTM (YoY): 200-day Moving 52-Week High: $97.98 52-Week Low $36.75 $78.46 Avg. Operating Profit $1.4B CFO (TTM) $959M FCF (TTM) $697M (TTM) Insider Transactions (2020): In 2020, Lisa Su (CEO) has sold 1.2M shares, Devinder Kumar (CFO) has sold 375,703 shares, Eugene Norrod (SVP) has sold 600,000 shares, Mark Papermaster (CTO) has sold 393,377 shares, Harry Wolin (SVP) has sold 153,984 shares and Darren Grasby (President EMEA) has sold 59,970 shares. leadership of Lisa Su, AMD went through a major SUMMARY OF BUSINESS restructuring which has paved the way for Advanced Micro Devices (AMD) is a company’s strong success in the last few years. semiconductor company that manufactures More recently, AMD announced that it will be computer processors and related technologies acquiring Xilinx to leverage its expertise in such as microprocessors, motherboard chipsets, making programmable chips that are useful in GPUs, processors for data centers, and delivering customized processors for data PC/Gaming solutions. Founded in 1969 by Jerry centers, expanding the 5G network, and in Sanders and his 7 colleagues, AMD is artificial intelligence. headquartered in California and went public in The company operates its business under two 1972. Over the years, the company has reportable segments: - established itself as a serious competitor in the chips market by producing Intel compatible Computing and Graphics Segment: This segment processors, acquisition of Nexgen, introduction of of the company targets two markets, the Athlon processor to run Microsoft’s Windows computing market (CPU) and the graphics OS, and the introduction of Opteron chips. In market (GPU). A few of the products in the 2014, AMD diversified its portfolio by finding its computing market include AMD Zen processors way into the graphic segment with the release of for the desktops and AMD Athlon series Graphics Core Next (GCN) which is used in processors for notebooks, and AMD pro mobile consoles, desktop PCs, workstations, and servers. and desktop processors for enterprise-class However, the company’s poor financial desktops and notebooks pc solutions. Some of the management primarily due to overpayment for products that the company sells in the Graphics the ATI acquisition, disappointing successors to markets include discrete AMD Radeon chips for the famous K8 chips, 2008 financial crisis, high enhancing desktops and notebook graphics, debt, and competition from Intel led the company AMD Radeon Pro Vega series for applications to report dismal numbers. Later, under the that require advance graphics such as designing SEEKING STOCKS THAT CAN DOUBLE IN 2-3 YEARS 2 LEFTBRAINIR.COM . 630-517-9300 0.94 STOCK: AMD | 1/6/21 FIRST FOCUS and manufacturing on CAD by 3D designers, and SoC products were the key drivers for the growth architecture designs, as well as Data Center in this segment. graphic chips for deep learning training and high- performance computational workloads. The Revenue Mix company earns revenue through the sale of CPUs and GPUs for desktops, notebooks, and GPUs for Computing and data centers. Few of the customer end markets Graphics include Original Equipment Manufacturers 40% (OEMs), Original Design Manufacturers (ODMs), 60% Enterprise, Custom PC builders, Game Console Embedded, and Semi- Manufacturers, and Server Manufacturers such Custom as IBM and HP. As of October 2020, Computing and Graphic Segment was the largest source of revenue and contributed 60% of the top line in Q3 Operating Income Mix 2020. The segment also reported a Non-GAAP Operating Income of $384 million (73% of Total Computing Non-GAAP Operating Income) in Q3 2020 as and 27% Graphics compared to $179 million in Q3 2019. Higher demand in the Ryzen and Radeon product lines Enterprise, were key drivers for the growth in this segment. 73% Embedded, and Semi- Enterprise, Embedded, and Semi-Custom Custom Devices: A few of AMD’s Enterprise, Embedded, and Semi-Custom devices products include Source: AMD, Inc. 10-Q CPUs for data centers, Embedded processors, and semi-custom System on Chips (SoCs) products. Geographically, US and China continue to remain The company makes AMD EPYC Series and the largest market for AMD contributing 26% of AMD Opteron X Servers processors that enable the overall top-line each, followed by Japan and fast and efficient computing of advanced Europe at 12% and 11% respectively. Sony computational problems. The company provides Interactive Entertainment LLC is AMD’s largest the processers for different types of servers such client and accounts for more than 10% of its as cloud, on-premises, web, e-mail, etc. AMD consolidated net revenue. also manufactures embedded processors used in the products (casino gaming machines, Total Addressable Market (TAM) enterprise-class telecommunications, ◼ networking, etc.) that require a high to moderate The company estimates a TAM of $110 billion level of performance. This segment accounted for including $35 billion for Data Center, $32 billion 40% of the company’s total revenue in Q3 2020. for PCs, $12 billion for Gaming, and $32 billion The segment also reported a Non-GAAP from Xilinx acquisition. The two key players in Operating Income of $141 million for Q3 2020 as the CPU market are Intel and AMD. The compared to $61 million in Q3 2019. High company has gained a significant market share demand for server processors and semi-custom from Intel which has remained a leader over the last 50 years, primarily due to AMD’s cost- SEEKING STOCKS THAT CAN DOUBLE IN 2-3 YEARS 3 LEFTBRAINIR.COM . 630-517-9300 0.94 STOCK: AMD | 1/6/21 FIRST FOCUS effective quality processors. According to CPU a YoY basis. This growth was primarily because benchmark, AMD holds 38.8% of the share in the of increase in the sale of Ryzen processors and the CPU market. In the discrete GPU market, AMD AMD Radeon RX Series (GPU). The company’s competes with NVIDIA. According to Jon Peddie ASP (Average Selling Price) in this segment Research, NVIDIA is the market leader and holds experienced an increase from the previous 80% of the share in the discrete GPU market, and quarter primarily due to its differentiated, cost- the rest 20% is held by AMD. The company’s effective, and high-performance AMD Ryzen and server processor segment lags the market leader Radeon series processors. During Q3 2020, the Intel that currently holds more than 90% market company expanded its mobile and desktop share but AMD is making a significant effort to processor families by launching AMD Ryzen take share through its EPYC Rome and Milan Threadripper PRO for pre-built professional processors for servers. workstations developed by OEMs such as Lenovo, along with AMD Ryzen 4000 desktop Special/Unique Characteristics of processors which includes built-in Radeon ◼ graphics targeting consumers, gamers, creators, the Company and streamers. It also launched the AMD Radeon Pro 5000 series for the updated 27-inch iMac for AMD boasts a highly diversified product portfolio. It has a strong market presence in both professionals doing intensive graphics works. CPUs (Central processing unit primarily used in Moreover, catering to the ‘Work from Home’ PCs) industry segment as well as high situation, the company introduced AMD Ryzen performance GPUs segment (Graphics 3000 series and AMD Athlon 3000 C-Series processing unit primarily used in data centers mobile processors for Chromebooks to enable efficient multi-tasking and content creation and for high performance gaming). remotely. In October 2020, the company launched AMD Ryzen 5000 processor series to target LB•LOGIC A diversified portfolio professional gamers and content creators to helps stabilize revenue stream and also deliver seamless gaming and content creating supports long term growth of the experiences.