AMD and Nvidia Beat Estimates

Last week, Intel entered into an agreement with AMD and also agreed to pay $1.25 billion to the former for dropping its antitrust lawsuits. According to the latest report from IDC, PC processor unit shipments in 3Q09 rose 23% q-o-q, and Intel increased its share by 2.2% to 81.1% while AMD had a share of 18.7%, a loss of 2%. Let’s take a closer look at the recent performances of AMD and its rival, Nvidia.

As part of a new agreement with Intel announced last week, AMD’s JV, Global Foundries, will now be able to manufacture x86 chips. Intel had earlier filed a patent lawsuit saying that its agreement with AMD does not cover its JV. Intel has also agreed to pay $1.25 billion to AMD for dropping its antitrust lawsuits. In May, European regulators charged Intel a $1.45 billion fine for its antitrust practices. Intel is also being investigated by the Federal Trade Commission for its retroactive discounts, bid buckets, and end-user discounts that AMD says are illegal.

On October 15, AMD (NYSE:AMD), which has annual revenue of $5.8 billion, reported better than expected third quarter results. Q3 revenue declined 22% y-o-y and grew 18% q-o-q to $1.4 billion. Net loss was $128 million or $0.18 per share compared to net income of $16 million or $0.03 per share. Wall Street was expecting a loss of $0.42 per share on revenue of $1.26 billion Q2 coverage is available here.

Gross margin was 42% compared to 37% in the previous quarter, led by improved factory utilization rates, higher microprocessor ASPs, and an increase in 45-nm product shipments. The company ended the quarter with cash of $1.5 billion. It used $104 million to repurchase $186 million of debt principal.

Growth in microprocessor and graphics unit shipments, especially in the notebook sector, drove an 18% q-o-q sequential revenue increase. By segment, Computing Solutions revenue was up 17% q-o-q to $1.069 billion, driven by higher microprocessor ASPs and double-digit unit growth driven by 28% q-o-q growth in notebook processors. Graphics revenue was up 22% q-o-q to $306 million, driven by higher shipments of mobile discrete graphic processors and the launch of the Radeon HD 5000 series, the industry’s first DX 11 compatible graphics cards. AMD believes that the HD 5000 series is uniquely positioned to take advantage of the Microsoft Windows 7 rollout. This month, AMD announced its new technology, Fusion, which combines graphics and CPU cores on a single die. Products based on this technology are expected to reach the market in 2011.

With respect to platforms, AMD said its momentum continues to build with HP, Acer, Toshiba, ASUSTeK, and MSI planning to introduce more than 70 notebooks based on the manufacturer’s latest generation of mainstream and ultra-thin platforms.

In servers, HP, IBM, and Dell are using the new Six-Core AMD Opteron Processors, and AMD plans to release a 12-core chip in the first half of next year. Meanwhile, startup Tilera plans to release its 100-core processor, the TILE-Gx100, in the first half of 2011, targeting systems performing Internet-related functions. As adding cores to boost performance becomes a trend in the industry, Tilera could be an interesting acquisition target. My interview with Anant Agarwal, the company’s co-founder and CTO, is available here.

For the fourth quarter, AMD expects revenue to be up modestly. Intel, on the other hand, expects revenue to increase 23% y-o-y and 7.4% q-o-q. AMD is currently trading around $7 with market cap of about $4.5 billion. It hit a 52-week high of $7.33 yesterday.

AMD’s graphics business rival, Nvidia, with annual revenue of $3.4 billion, also reported a strong third quarter on November 5. Q3 revenue was up 16% q-o-q to $903.2 million and up from $897.7 million last year. It swung to profit of $107.6 million or $0.19 per share compared to net income of $61.7 million or $0.11 per share and net loss of $105.3 million, or $0.19 per share last quarter. Excluding charges, net income was $110.3 million or $0.19 per share, beating analyst estimates of $0.10 per share on revenue of $825.2 million. Q2 coverage is available here.

Gross margin was 43.4%, up from 20.2% last quarter and 41% last year. Gross margin improved due to better sales of GPUs, better product mix, improved 55-nm yields and lower costs. The company ended the quarter with $1.63 billion in cash.

By segment, the core GPU business was strong with 25% q-o-q growth. Within GPU, desktop revenue was up 19% q-o-q and notebooks were up 41% q-o-q. Nvidia was supply constrained in its 40-nm products for desktops and notebooks, which accounted for 19% of its total GPU revenue in the quarter. The Professional Services business was up 11% q-o-q.

Like AMD, Nvidia is also developing new products for notebooks. Yesterday, the company announced the expansion of its 3D VISION technology, on which many popular games depend for their rich 3D, to high-definition notebook platforms.

Nvidia’s focus is on visual and parallel computing and it launched a new Tesla 20-series that reduces the cost of supercomputing. Its first TEGRA devices, Microsoft Zune HD and the Samsung M1, started shipping in Q3. It has over 50 projects in the pipeline that include portable media players, smartphones, Internet television, and automobile.

For the fourth quarter, Nvidia expects revenue to be up slightly by 2% q-o-q. It expects 40-nm products to be supply constrained throughout the quarter and GAAP gross margin to range from 40% to 42%.

The stock is currently trading around $13 with market cap of about $7.5 billion. It hit a 52-week high of $16.58 on September 15.