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MarketWatch First Take: AMD is sticking with its story amid revenue decline

Advanced Micro Devices Inc. is still looking like a second half story — and then some — as investors look for its new chips for the data center as a future growth engine. Read More...

Advanced Micro Devices Inc. is still looking like a second-half story — and then some — as new chips for the data center sit on the horizon like the North Star.

AMD AMD, -0.22%  reported a slightly better-than-expected first quarter Tuesday, as revenue declined slightly less than expected. Revenue came in at $1.27 billion, above Wall Street’s expectations of $1.26 billion, down from $1.65 billion in the year-ago period. The chip maker faced a tough comparison from 2018 due to a big jump in sales of chips for cryptocurrency mining last year.

In after-hours trading, shares jumped around 4%, falling back slightly as the company’s conference call progressed, with many of the questions focused on the company’s efforts in the data center so far. One analyst asked Chief Executive Lisa Su if she could remind them of the opportunities and market-share gains that the company expects from its entry into that market.

“As we looked at the server market, we know very well that the data-center market takes time to ramp with any new product,” Su said. “We’d expect that over the next four to six quarters, we would continue to ramp our server market share with the goal of getting to double-digit percentage share.”

Investors have been looking to AMD’s new chips for data centers to provide some additional upside and revenue, since it has been mostly absent from that fast-growing market until it introduced a new family of chips based on its Zen architecture in 2017. The next chip for data centers coming from that family is code-named Rome and is expected to launch in the third quarter of this year.

Read more: How AMD believes it can challenge Intel in servers

Still, Su’s longer view of the data-center market may not have been as immediately bullish as some investors wanted to hear. At one point, she also said, “It is a multi-year, multi-generational roadmap,” referring to multiple product generations. She also said that AMD’s Rome chips would be able to address about 80% of the workloads for cloud computing. During the call, AMD’s shares slipped back from a high of $29.75 to finish the extended session around $28.75. AMD’s shares are up nearly 50% this year so far, compared with the S&P 500 Index SPX, +0.10% , which is up 17.5%.

One analyst asked what kind of pushback AMD was seeing from any potential enterprise customers. Su said that while she wouldn’t really call it pushback, bigger enterprise customers move more slowly than cloud-computing firms.

“There are longer qualification cycles because their qualification cycles [include] both the OEM side as well as the end-customer side,” she said.

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AMD Chief Financial Officer Devinder Kumar reiterated the company’s previous outlook for the rest of the year, noting that for the full-year 2019, “AMD continues to expect high single-digit percentage revenue growth and non-GAAP gross margin to be greater than 41%.” According to FactSet, the current analyst consensus for AMD is 2019 revenue of $6.8 billion, up 5.25%.

“The key near-term controversy hinges upon the achievability of that outlook,” Stacy Rasgon, a Bernstein Research analyst, said in his preview on AMD.

Investors have been waiting for a while to see the benefits of AMD’s new chip family spill over into the bigger, more profitable market. Indeed, AMD is seeing some benefits, with stronger sales in PCs amid troubles at Intel Corp. INTC, -0.14%  , but chips for data centers and enterprise servers may take a bit longer to ramp up to the growth that some investors expect.

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