How AMD Makes Money

Enterprise, Embedded, and Semi-Custom products are growing rapidly

Advanced Micro Devices Inc. (AMD), known as AMD, is a global semiconductor company providing central processing units (CPUs), graphics processing units (GPUs), chipsets, and similar computing products. The company's products serve a variety of computing platforms including in desktop, notebook, and commercial applications, as well as for graphics processing, server processors, and more. AMD's products also play an important role in blockchain applications.

Major competitors for AMD include Intel Corp. (INTC) and NVIDIA Corp. (NVDA). Other computing and technology companies are less specialized in the semiconductor area but still have overlapping offerings, making them competitors, such as International Business Machines Corp. (IBM).

Key Takeaways

  • AMD is a global semiconductor company providing processing units, chipsets, and similar products.
  • Its fastest-growing segment is its Enterprise, Embedded, and Semi-Custom products.
  • AMD has experienced solid growth in its two major segments in recent quarters.
  • AMD recently completed its previously announced acquisition of semiconductor firm Xilinx in an all-stock transaction valued at approximately $50 billion.

AMD's Financials

In early February, AMD announced financial results for Q4 of its 2021 fiscal year (FY), the three-month period ended Dec. 25, 2021. Net income fell 45.3% year-over-year (YOY) to $974 million. Net revenue was $4.8 billion, growing 48.8% compared to the year-ago quarter. Total operating income, which AMD uses to measure profit in its individual business segments, increased 111.8% YOY to $1.2 billion. The company said that the increase in operating income was primarily driven by higher revenue and gross margin expansion.

The reason for the big decline in net income during the quarter was due to the year-ago quarter's net income becoming abnormally inflated by a one-time income tax benefit of $1.3 billion associated with a valuation allowance release. AMD's non-Generally Accepted Accounting Principles (GAAP) net income, which excludes the income-tax benefit from the year-ago quarter, was $1.1 billion in Q4 FY 2021, up 76.4% YOY.

AMD said that it expects its revenue in Q1 FY 2022 to grow approximately 45% compared to the year-ago quarter. Growth is expected to be driven by all of its businesses. For FY 2022 as a whole, the company expects revenue to increase approximately 31% compared to FY 2021, driven by growth across all businesses.

AMD's Business Segments

AMD breaks down its revenue and operating income into two segments: Computing and Graphics; and Enterprise, Embedded, and Semi-Custom. The company also has an All Other category, which is not a reportable segment and primarily includes employee-stock-based compensation expenses and acquisition-related costs. Percentages for operating income in the pie chart and in the story below do not include the All Other category, which had an operating loss of $121 million in Q4 FY 2021.

Computing and Graphics

The Computing and Graphics segment includes desktop and notebook processors, accelerated processing units, chipsets, and GPUs. This segment also includes AMD's data center and professional products and development services.

AMD's Computing and Graphics segment posted $2.6 billion in revenue for Q4 FY 2021. This represented about 54% of total revenue for the quarter. Operating income for the segment for the same period was $566 million, accounting for nearly 43% of total operating income. Segment quarterly revenue and operating income grew by 31.8% and 34.8% YOY, respectively.

Enterprise, Embedded, and Semi-Custom

AMD's Enterprise, Embedded, and Semi-Custom segment includes server and embedded processors, system-on-a-chip products, and various services and technology for game consoles.

Enterprise, Embedded, and Semi-Custom segment revenue was $2.2 billion for Q4 FY 2021. This represents over 46% of total revenue for the quarter. Operating income was $762 million for the quarter, or 57% of total operating income. Enterprise, Embedded, and Semi-Custom was the fastest-growing of AMD's segments in Q4 FY 2021, with revenue and operating income climbing by 74.6% and 213.6% YOY, respectively.

AMD's Recent Developments

On Feb. 14, 2022, AMD announced that it has completed its previously announced acquisition of rival chipmaker Xilinx in an all-stock transaction valued at approximately $50 billion. Xilinx specializes in making field programmable gate arrays, a special type of semiconductor that is capable of being reprogrammed after it is manufactured. AMD first announced its agreement to acquire Xilinx for $35 billion on Oct. 27, 2020.

Article Sources
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  1. Advanced Micro Devices Inc. "Form 10-K for the fiscal year ended Dec. 25, 2021," Pages 3-7.

  2. Advanced Micro Devices Inc. "Form 8-K dated Feb. 1, 2022," Page 1.

  3. Advanced Micro Devices Inc. "Form 8-K dated Feb. 1, 2022," Page 3.

  4. Advanced Micro Devices Inc. "Form 8-K dated Feb. 1, 2022," Page 8.

  5. Advanced Micro Devices Inc. "Form 8-K dated Feb. 1, 2022," Page 6.

  6. Advanced Micro Devices Inc. "Form 10-K for the fiscal year ended Dec. 25, 2021," Page 73.

  7. Advanced Micro Devices Inc. "Form 8-K dated Feb. 1, 2022," Page 13.

  8. Reuters. "AMD closes record chip industry deal with estimated $50 billion purchase of Xilinx."

  9. Advanced Micro Devices Inc. "Field Programmable Gate Array (FPGA)."

  10. Advanced Micro Devices Inc. "AMD Completes Acquisition of Xilinx."

  11. Advanced Micro Devices Inc. "AMD to Acquire Xilinx, Creating the Industry’s High Performance Computing Leader."

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