AMD's Last Report Before Ryzen: What to Expect

By Timothy Green Markets Fool.com

Image source: AMD.

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Advanced Micro Devices' (NASDAQ: AMD) fourth-quarter report, set to be released after the market closes on Tuesday, will be the last quarterly report prior to the launch of its highly anticipated new products. Ryzen, its upcoming high-end CPU, will launch sometime during the first quarter, and Vega, its new high-end GPU, is set for some time during the first half.

AMD is expected to grow revenue during the fourth quarter compared to the prior-year period, but a steep decline compared to the third quarter is also expected. The semi-custom business, still comprised primarily of game console SoCs, peaks in the third quarter as inventory is ramped up for the holidays. AMD's mainstream Polaris graphics cards should drive some growth in the computing and graphics segment, but the company is still expected to post a non-GAAP net loss.

What analysts are expecting

AMD guided for an 18% sequential decline in revenue for the fourth quarter in its third-quarter earnings report, implying revenue of roughly $1.07 billion. That's up 12% year over year, a deceleration from the 23% growth posted in the third quarter. Analysts' average estimate is in line with this guidance, with very little variation in estimates suggesting a high level of confidence.

AMD didn't provide earnings guidance, but the non-GAAP profit the company managed during the third quarter likely won't be repeated. Analysts expect a non-GAAP EPS loss of $0.02 on average, an improvement from a loss of $0.10 during the fourth quarter of 2015 but a loss nonetheless.

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Analysts aren't expecting much from AMD during 2017, despite two high-profile product launches. The average estimate calls for just 8.1% revenue growth and non-GAAP EPS of just $0.05 for the full year, although the ranges are wide. AMD's guidance for the first quarter should include some impact from the launch of Ryzen, so that should give investors some insight into AMD's confidence in the product. If Ryzen and Vega lead to meaningful market share gains, AMD could very well blow these estimates for 2017 out of the water.

What investors should look for

With Ryzen potentially just a few weeks away, AMD should be announcing more information on its new line of CPUs soon. What we know so far, based on AMD's demonstrations, is that the eight-core variant of the chip is competitive with Intel products in terms of performance. AMD expects the chips to deliver greater than a 40% increase in instructions per clock, a measure of single-threaded performance, exceeding its long-held target.

We don't know much else about Ryzen. Only the eight-core version has been shown off so far, and pricing is still a mystery. Given AMD's weak position in the CPU industry, I would expect aggressive pricing from the company. Intel certainly has room to lower prices if necessary, so it will be interesting to see how disruptive Ryzen ends up. Investors should listen for any new Ryzen information during the company's earnings conference call.

The semi-custom business is still heavily dependent on the major game consoles. AMD has so far announced three semi-custom deals in addition to its original game console deals, but two of those were new versions of the PlayStation 4 and Xbox One. The third is outside of game consoles, but AMD hasn't disclosed exactly what it is. The company had no new deals to announce after the third quarter, but CEO Lisa Su pointed to very active discussions with potential customers. Investors should expect an update on what has become an extremely important part of AMD's business.

With Ryzen and Vega still in the future, AMD's fourth-quarter report is unlikely to surprise. The company's Polaris graphics cards should drive some revenue growth in the computing and graphics segment, but a return to profitability depends on the success of its upcoming products.

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Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.