Earnings season | Read and analyze AMD's financial report in three steps

Hi, tigers~

Today, I will focus on using the "three-step method" to teach you to understand $AMD 's Q2 financial report，and I also bring a free course for you. US Stock Financial Statements for Beginners 

At 10 p.m. on August 9, U.S. President Biden signed the "CHIPS and Science Act 2022" in Washington, marking a rare high-subsidy bill for a single industry finally taking effect.

Unexpectedly, chip stocks fell collectively that day, with Applied Materials down more than 7%, ASML, STMicroelectronics down more than 5%.

In recent days, memory-chip maker Micron Technology and chip giant Nvidia both cut their revenue forecasts for the current quarter, putting the industry, already battered this year, on shaky terms.

 You may ask, can we still invest in the semiconductor industry?

My answer is yes!

Instead of answering this question directly, you need to focus on finding great companies. In the range of cheap valuations, if you can ambush the fundamentals of good, excellent financial reports of a company, to the rebound cycle, there is a great chance to gain profits.

So, how can we tell if a company's financial statements are good? This time, I will use AMD as an example to teach you how to quickly identify good companies in three steps!

Here's a three-step tutorial for beginners in investing:

Step1: Find out AMD's main business and quickly focus on core data

When we look at a company's financial results, the main business is the most important thing to pay attention to. Through a company's main business and revenue, we can quickly judge the company's industry, business proportion, competitive advantage and other core information.

AMD's main business is as follows:

1.Data Center

It mainly includes server microprocessor, GPU, data processing unit (DPU), field programmable gate array (FPGA) and adaptive SoC products for data center.

2. Client

These are microprocessors, accelerated processing units (APUs) that integrate microprocessors and graphics, and chipsets for desktop and notebook personal computers.

3. Gaming

It includes independent graphics processing unit (GPU), semi-deterministic system-on-camera (SoC) products and development services.

4. Embedded

They are mainly embedded microprocessors, GPU, FPGA, adaptive SoC products and Adaptive Computing Acceleration Platform (ACAP) products.

(The Company may also sell or license portions of its intellectual property portfolio from time to time.)

5. All Other

Includes primarily certain expenses and credits not allocated to any operating segment. This category also includes acquisition-related intangible asset amortization expense, stock-based compensation expense, acquisition-related costs, and licensing benefits.

Proportion of Main Business (2022 Q2) :

Conclusion:

1. AMD has five main businesses: Data Center, Client, Gaming, Embedded, and All Other.

2. Two departments account for the largest proportion of services: Individual users (clients) account for 32.85%; Gaming accounted for 25.27 percent.

All right! After finding out the main business of the company, we can make simple statistics on the revenue data of each business and the business proportion. In this way, we can not only have a certain understanding of a company's main business, but also know which is the largest income, which is convenient for follow-up analysis.

Step2: Analyze the growth of AMD's main business

1. Data center growth

Data center revenue was $1.5 billion, up 83% from a year ago.

Mainly because of strong sales of EPYC server processors. Operating income was $472 million, or 32% of revenue, compared with $204 million, 25% of revenue a year ago. The improvement in operating income was primarily due to higher revenue, partially offset by higher operating expenses.

2. Growth of client

Affected by the epidemic, the sales performance of PC terminal is not good. The so-called good results are all set off by peers, Intel's performance this quarter was down, AMD's performance appeared more resilient.

Revenue from the personal user business was $2.2 billion, up 25% year over year, driven by sales of Ryzen's mobile processors.

3. Game growth

Gaming revenue was $1.7 billion, up 32% from a year earlier.

4. Growth of embedded department

Embedded revenue was $1.3 billion, up 2,228% yoy, driven by embedded revenue driven by Xilinx's business.

Operating profit was $641 million, or 51% of revenue, compared with just $6 million, 11% a year ago. The improvement in operating income and margins was primarily driven by Xilinx revenue.

Growth of other key earnings indicators:

1. Operating revenue growth:

Operating revenue in Q2 2022 increased from $3.9 billion to $6.6 billion compared to Q2 2021, representing a 70% yoy increase.

Note that there is a gap in gross margin here mainly because GAAP counts the amortization expense of intangibles related to acquisitions, resulting in a decrease in gross profit growth. Excluding factors such as acquisitions, gross profit rose 6% year on year.

2. Operating profit, net profit, EPS and other indicators

Similarly, operating profit fell $300 million when it included amortization of acquisition-related expenses; If not, it's up $1.1 billion.

EPS would have been up 0.42 if the company's acquisition related expenses were excluded, and down 0.31 if not.

GAAP net income was $447 million and non-GAAP net income was $1.7 billion.

Step3: Understand the future deployment of AMD and find the performance driving points

Key points driving AMD's performance:

1. Performance growth point from the mobile internet Era to the Data Center Era (Industrial trend)

Revenue growth in the enterprise, embedded, and semi-custom segments has exploded over the past two years, mainly due to AMD's assault on Intel in the data center market, and rapid volume expansion as the industry accelerates.

In addition to developing high-performance products, AMD is also making acquisitions to strengthen its presence in the data center market.

So, one of the most important factors that will determine the trend of AMD's stock price in the future will be how much space it gets in the data center.

2. The Nvidia/Intel battle (Corporate rivalry)

The current data center chip market by Intel, Nvidia, AMD three world pattern has been emerging.

AMD may not be able to compete with Intel and Nvidia in the short term, but it's nimble enough to keep gaining market share, and with its recent acquisitions to fill in the gaps in its technology, it can significantly strengthen its competitiveness in the data center chip market.

For Intel, the strategy of increasing the number of high-performance GPU close to the "enemy hinterland" and integrating multiple computing platforms deeply plows into the data center market.

Nvidia, in addition to its GPU, has been focusing on the CPU line and is pushing ahead with it.

Who has more camps, who has more market share, who can get more attention from investors.

3. Technical progress of own products (Product advantages)

On the product side, AMD recently detailed its leadership roadmap and expanded product portfolio to achieve the next phase of growth in the estimated $300 billion market for high performance and adaptive computing solutions, including:

For semiconductor companies, technology means a lifeline. In the same race track, whoever has a stronger technological advantage has a higher bargaining power.

That's how the Cheese Tiger interprets AMD's earnings in three steps. Did you get it?

Let me summarize it with a mind mapping:

Is it easy to learn in three steps?   

If you're new to stocks and have no idea what financial metrics are, I recommend one of our official financial reporting courses: U.S Stock Financial Statements For Beginners   

Lesson 4 is what we learned today 👇

Just take three hours , you can easily grasp various financial indicators, easily read the financial statements of listed companies! If you like the course, you could forward it to your friends！

see you next time