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Data Center CPU Market: AMD Surpasses Intel in Share Growth

The global data center CPU market’s revenue declined 4.4% YoY in 2022.
AMD registered a 62% YoY growth in its data center CPU revenue to hold a 20% market share.
Intel’s data center CPU revenue dropped by 16% YoY in 2022, while its market share fell to 71%.
ARM-based CPUs gained traction with Ampere, Graviton (Amazon) and Yitian (Alibaba) to surpass $1 billion in revenues for the first time.

New Delhi, Beijing, Seoul, Hong Kong, London, Buenos Aires, San Diego – February 27, 2023

The global data center CPU market’s revenue registered a 4.4% YoY decline in 2022, according to the latest research from Counterpoint’s Semiconductor Service. Macroeconomic headwinds and increased energy costs impacted the sales of data center CPUs during the year. Besides, from the architecture perspective, the addition of accelerators in the servers for workloads restricted the demand for additional CPUs for servers.

Commenting on the companies’ 2022 performance, Senior Research Analyst Akshara Bassi said, “Even though Intel is still the market leader, its market share loss points to AMD’s rising product portfolio and better performance over Intel. AMD surpassed Intel in market share growth in 2022. Intel suffered due to continued delays in the release of its next-generation product Sapphire Rapids, generationally comparable to AMD’s Milan launched in 2021.

As demonstrated by hyperscalars AWS and Alibaba, ARM-based architecture chips continue to gain steam due to the ROI offered on varied workload deployments and off-the-shelf solutions from Ampere Computing, and shipping of data center CPUs from NVIDIA in H1 2023.”

Talking from the foundry perspective, Associate Director Dale Gai said, “As evidenced by wafer demand and foundry capacity of advanced nodes from TSMC, the total wafer sales at 5/4nm rose by 85% YoY in 2022. One of the demand drivers for the increased demand of advanced nodes is data center CPUs”

Market summary for 2022

Intel remained the market leader with a 71% share, although far from the share that it commanded till 2018. Its revenue from the segment dropped 16% YoY in 2022. The market share declined primarily due to delays in next-generation products and weakness in enterprise spending due to macroeconomic conditions.

AMD came second with a 20% market share primarily driven by increased adoption of its EPYC processor Milan. AMD is becoming a dominant force in the x86-based CPU for data centers, being increasingly adopted by cloud providers and SKUs of server companies. AMD registered a 62% YoY growth in its data center portfolio in 2022.

AWS’ in-house ARM-based chip Graviton, now in its third generation, has been among the early adopters of ARM architecture in a data center. AWS has increased Graviton’s penetration in its offerings and also expanded it to support ML-based instances with in-house accelerators, representing a shift from general-purpose compute to specific workloads.

Ampere Computing started to gain more traction in 2022 with its expansion from traditional cloud providers to enterprises by having its CPU in off-the-shelf servers from OEMs.

The comprehensive and in-depth “Data Center CPU Tracker” report is available. Please contact Counterpoint Research to access the report.

Background

Counterpoint Technology Market Research is a global research firm specializing in products in the technology, media and telecom (TMT) industry. It services major technology and financial firms with a mix of monthly reports, customized projects, and detailed analyses of the mobile and technology markets. Its key analysts are seasoned experts in the high-tech industry.

Analyst Contacts
Akshara Bassi

Dale Gai

Neil Shah

Counterpoint Research

press@counterpointresearch.com

report.counterpointresearch.com

@CounterPointTR

Execution Woes and Economy Sink Intel Earnings

Intel, under immense pressure from internal execution delays in key segments – DCAI, AXG and product design, and economic headwinds from falling consumer demand and fiscal tightening, reported its eighth consecutive YoY revenue decline and its first net loss in 30 years, amounting to $454 Mn.

The GAAP revenue dropped to $15.3 Bn, a 22% YoY decline and missed its estimate by $2.7 Bn for the Q2 outlook due to weaker demand in CCG and lose of market share to AMD.
Gross margins declined 15% YoY and stood at 44.8% compared to 59.8% in the previous year quarter due to component pricing not passed onto consumers

This was well below the guidance issued at its Investor Day and Q1 quarterly earnings where it projected to be above 50%.

Source: Counterpoint Estimates, Company Earnings

Segment Reports

Client Computing: OEM inventory reductions and soft demand contribute to 25% revenue decline; Lowest since 2014

Client Computing Revenues were at $7.7 Bn a 25% decline in YoY revenues and 29% decline in the ‘Notebook’ segment. The biggest decline factors were:

OEM inventory reduction followed by softening demand from consumer, education and SMB (Small and Medium Sized Business) customers.

The company expects the revenue to decline in Q3 and then rise again in Q4 due to inventory balancing and price increases. The company expects a 10% decline in the PC TAM for this financial year.

The company expects its roadmap of Raptor Lake processors to be on schedule for this Q3 and Q4 for desktop and notebook chip releases respectively.

Source: Counterpoint Estimates, Company Earnings

Datacenter and AI (DCAI) underperforms due to execution issues, match-set issues and ethernet & power supply component shortages

The DCAI revenue was $4.6 Bn a 16% YoY decline.

The revenue slump was primarily due to execution issues of stepping out ‘Sapphire Rapids’ which has been delayed three times due to security and quality performance not being in line with expectations and competitor products.

The company had launched its last generation of processors – Ice Lake in 2019 and Cooper Lake in 2020 with some upgrades in 2021.

The revenue for DCAI will remain downcast for the whole year due to the financial impact of Sapphire Rapids ramp only being realized next year and competitive pressures for its existing product line. The company expects a high-volume SKU ramp later this year.

The company launched its next gen AI accelerator Gaudi2 and its software platform security capability – Amber for AI driven continuous optimizations.
On an optimistic note, the company emphasizes the deals it has with Meta, Nvidia and AWS for its multi-year and multi-generational compute expansion.

Source: Counterpoint Estimates, Company Earnings

Network and Edge (NEX) segment provides some green amidst the deep red CCG and DCAI revenues

Revenue grew 11% YoY at $2.3 Bn with Xeon D (processor for Network & Edge) and Mount Evans helping to drive the revenue as leading network companies adopt the product into their network infrastructure.

Accelerated Computing Systems and Graphics (AXG) revenue grew 5% with software issues delaying some launches

The AXG revenue stood at $186 Mn representing a 5% increase in revenue YoY.

The company is poised to miss its target of 4-million-unit shipments in 2022 but to achieve a target of $1 bn in revenues. The Intel Art GPU series remained the revenue driver.
Intel Arc A5 and A7 Desktop GPU Cards were delayed due to software issues and will start shipping in Q3.
Data Center GPU – Arctic Sound has shipped to customers and the financial impact will be seen in the next two quarters.

Mobileye has its best ever quarter revenue at $460 Mn representing 46% YoY growth

Mobileye continued to outperform the market and increased its backlog by over 21 million units for the upcoming quarters. 16 million units were shipped in the first half of 2022. The company expects to add more customers and is extensively deploying capital for next generation ADAS products.

Intel Foundry Services (IFS) gains support and forms IFS Cloud Alliance to improve foundry design efficiency, time-to-market

The revenue of IFS was $126 Mn representing a 54% decline YoY due to lower mass tool sales as well as a revenue decrease in the automotive segment due to customer shortages in the automotive market.

The company has added $1 Bn in revenue pipeline for this quarter, including a new client – MediaTek – on Intel 16 node, making the revenue pipeline about $6 Bn in total.
The advanced node revenue pipeline remains undecided as the company is still working on test chips and design libraries to secure orders. The company is also expected to benefit from the recently passed CHIPS act from 2023 onwards and the industry wide transition to System and Package chipsets vis-à-vis a board chipsets.

Additionally, the IFS Cloud alliance was launched with leading cloud providers – Azure and AWS, and EDA tool providers – Ansys, Cadence, Siemens and Synopsys, to enable secure design environments in the cloud, improving design efficiency and accelerating the time-to-market for chips.

Outlook for Q3 2022 and FY 2022

Q3 revenue to decline 12-17% YoY to $15-$16 Bn and gross margin to be at 46.5%.
FY 2022 revenue to be in range of $65-$68 Bn down $8-$11 Bn from earlier guidance.
Capex reduced by $4 Bn from earlier forecasts to $23 Bn.

The capex reduction will directly impact the wafer fab equipment delivery and possible delays in fab expansion and capacity.

The primary reasons for the forecast revenue declines include – product roadmap delays in DCAI and software issues in AXG product segments. Dampened demand from desktop and notebook industry amid worsening consumer sentiment is also dragging on the revenue outlook.

The company has already indicated a not-too-good Q3 with some breathing room available from Q4.

Though, the company has reiterated its position is on track for its future nodes and product releases we believe the latter half-year launches will crystallize the current status of its advanced nodes and likely delivery of its future product roadmaps.

Nvidia’s Data Center Segment Becomes its Biggest Revenue Contributor for Q1 2022

Nvidia reported a 48% YoY revenue growth in Q1 2022 at $8 billion. The company’s data center segment surpassed the gaming segment for the first time to become the largest revenue contributor. The GeForce RTX 30 Series’ product cycle enabled the gaming segment to grow 33% YoY to achieve $3.6 billion in revenues. The A100 GPU, with large-volume deployments by hyperscale customers, proved to be a key factor in the data center segment’s revenue growth of 79.4% YoY to $3.6 billion.

Source: Counterpoint Estimates, Company earnings; Earnings are CY Quarter

Gaming revenue to decline in Q2 due to architectural transition, mixed global demand

Gaming revenue stood at $3.6 billion with 33% YoY growth. The demand was primarily fuelled by the GeForce RTX 30 series. Nvidia estimates that about one-third of the GeForce Gaming GPU installed base is now on RTX.

The geopolitical situation in Europe caused a demand softness along with COVID-19 lockdowns in China but was cushioned by the growing American demand. Uncertainties faced by the cryptomarket globally also added to the headwinds in the gaming segment. The company also expects a sequential revenue decrease due to architectural transitions.

We believe due to the inflationary environment and tumultuous consumer demand and price cuts, the segment may face a revenue decline in the coming quarters. However, the GeForce Cloud Gaming will continue to grow as more and more players move towards cloud gaming, which presents itself as an inexpensive alternative to premium device gaming.

Pro visualization grows 79.5% YoY to achieve $629 million in revenues

The professional visualization segment’s growth was driven by mobile workstation GPUs enabled by remote office infrastructure against the backdrop of hybrid work environments.

Omniverse enterprise software also proved to be a support for the revenues. The software is being currently used for digital content creation by major enterprises like Sony and Medtronics. Amazon, Kroger and Pepsico are using the software’s digital twin capabilities to optimize their business processes.

As enterprises adopt more Omniverse technologies in their processes, premium GPU configuration systems will become a necessity than an option, and services revenue will continue to contribute to this segment’s growth.

Automotive declines 11.5% YoY at $134 million with uplifting short-term outlook due to Drive Orin SoC

The automotive market declined due to new product cycle ramping in later quarters. Additionally, deals are in pipeline that will take a couple of quarters to materialize. At the time of earnings, the win pipeline was at $11 billion over the course of the next six years.

The segment will be a major growth driver in the coming years due to consumer AV and commercial robotaxis. But as of now, as this market is in its nascent stage, the revenue growth will remain muted in the next quarter.

Data center is the crown jewel with 79.4% YoY growth at $3.6-billion revenue

The A100 GPU drove the data center segment’s revenue past the gaming revenues. Large-volume deployments by hyperscalers and consumer internet companies, financial services, and telecom expansion of IT Infrastructure remained the key growth drivers. From a workload perspective, recommender systems, conversational AI, large language models and cloud graphics were the top workloads that warranted the sale of GPUs and DPUs along with networking to achieve the system architecture required for building systems that can sustain the unique requirements emerging from these workloads.

Outlook for Q2 2022

We expect the data center demand to remain strong for the next quarter due to the H100 systems’ ramp-up, I/O upgrades in servers and large installations – deep recommender systems, large language models and AI models. The almost full-stack solution from Nvidia provides the platform for enterprises to deploy these models in a cost-effective manner.

COVID-19 lockdowns in China and Russia-Ukraine war will impact the gaming market by about $400 million in revenues, with a muted growth in Q2.

Global Server Revenues to Grow 17% YoY in 2022

Global server revenues will grow 17% YoY in 2022 to reach $111.7 billion.
Global server shipments will rise 6% YoY in 2022 to reach 13.8 million units.

New Delhi, Boston, Toronto, London, Hong Kong, Beijing, Taipei, Seoul – June 7, 2022

The global server market’s revenue will grow 17% YoY in 2022 to reach $111.7 billion, according to Counterpoint’s Global Server Sales Tracker. From an enterprise perspective, transformation to hybrid cloud and upgrades of existing infrastructure to handle increased workloads will provide growth impetus after a pause during the COVID-19 pandemic. 5G, automotive, cloud gaming and high-performance computing will remain the key drivers for cloud service providers in data center expansion.

The market is evolving with the introduction of “As-a-Service” and “pay per use” models by server companies, like Pointnext from HPE, APEX from Dell and TruScale from Lenovo. The business model pivot has been enjoying great success due to more flexibility given to the customer at minimum capital expenses due to the emergence of workload-based infrastructure.

Looking at the overall market, Research Analyst Akshara Bassi said, “In an inflationary but extremely dynamic environment, companies are looking to strengthen their infrastructure as they prepare for Web 3.0 demands from the infrastructure end. Companies are diversifying their IT infrastructure to meet the needs of data evolution and making customers cloud-ready.”

Global Server Market Observations, 2018-2021

Revenues were flat in 2020 and early 2021 owing to the pandemic and less spending by enterprises on IT infrastructure upgrades and expansion.
In H2 2021, there was a backlog due to supply chain disruptions across the whole value chain from accelerator chips to power ICs, which has trickled into H1 2022.
The demand in 2021 picked up due to investments by hyperscalers in the fields of supercomputing, edge computing and 5G deployment. From an enterprise perspective, the upgrades and expansions happened to enable digital transformation along with cloudification of processes.
The shipments rose at a single digit owing to better attach rates and higher configurations within the servers.
Higher compute and storage requirements by customers along with supply chain disruptions raised the average unit price considerably for the server units.

Commenting on the server market, Bassi said, “Dell and HPE are the server market icons but are seeing companies like Lenovo, Inspur and Supermicro giving strong competition as demand for flexible customised configurations in bare metal option continues to rise.”

ODM Direct grew at a higher pace by 3 percentage points than the overall market for 2021 indicating shift towards ODM direct as choice of hardware for large scale Data Center deployments. Foxconn and Quanta have been gaining significant market share over the years as hyperscalers continue to expand and favor ODM Direct for their data center orders.

Key Market Drivers, 2022

Edge servers: Edge server configurations will be a key driver of growth in server shipments as companies start enabling chip-to-cloud features within the devices and 5G deployments make IoT use cases penetrate across all verticals – consumer, industrial, healthcare and banking.
Metaverse: The infrastructure spends to enable the Metaverse will give an impetus to servers as they are the building blocks of the Metaverse. Major internet corporations and hyperscalers have already detailed their plans for spends on Metaverse infrastructure.
Supercomputing: Many enterprises are building their own supercomputers to develop software that can unleash Web 3.0 on consumers. From a government perspective, supercomputers are becoming ubiquitous in every research department within it – from being used only in defense initially to climate and healthcare now.
Cloudification of services: Many services are increasingly becoming cloud-based offerings as opposed to device-based earlier, with device storage and compute needs being taken care of by cloud-based services. Data centers, and thereby servers, are an integral part of the infrastructure needed to enable these services.

Note: ODM Direct constitutes sale to hyperscalers and whitelabel device sales to Enterprises directly.

Background

Counterpoint Technology Market Research is a global research firm specializing in products in the TMT (technology, media and telecom) industry. It services major technology and financial firms with a mix of monthly reports, customized projects and detailed analyses of the mobile and technology markets. Its key analysts are seasoned experts in the high-tech industry.

Analyst Contacts:

Akshara Bassi

Dale Gai

Neil Shah

Follow Counterpoint Research

AMD Records Stellar Q1 2022 Numbers, Completes Xilinx Acquisition

AMD reported its best-ever quarterly revenue at $5.9 billion in Q1 2022, a 71% YoY increase driven by the cloud computing, automotive, gaming and data center segments. This revenue includes six weeks of performance of Xilinx, whose acquisition was successfully completed by the company during the quarter. Xilinx is an FPGA and networking compute solution provider. Excluding Xilinx, AMD’s Q1 2022 revenue was $5.3 billion, a 54.7% YoY increase. We give below some of the key takeaways from AMD’s Q1 2022 earnings statement:

The gross margin was at 48%, up 190 bps YoY.
Revenue for the Computing and Graphics segment was $2.8 billion, up 33% YoY.
Revenue for the Enterprise, Embedded and Semi-custom segment was $2.5 billion, up 88% YoY.
The company intends to acquire Pensando, a distributed services platform provider.
Wafer shortage for 16nm and below will remain constrained till H2 2022.

All values in USD Million

Client Compute revenues
The company launched seven new CPUs for desktop processors and first desktop processors with 3D chiplet architecture. In the notebook segment, the company extended the mobile processors to cater to customers across the spectrum, including gaming and creators, with features like better battery life and compute synergies.

Desktop GPUs grew significantly owing to mobile GPU launches, but data center GPUs, including the new launch of Instinct MI210 accelerators, remained flat.

The revenues across the client compute PC market will see a correction in the next quarter, driven by inflationary pressures and dampened demand.
The company will focus more on premium, high-margin segments as the PC market softens in the next quarter.
GPU demand will also remain muted due to lowered prices and improved supply in the market. Weakening crypto markets will also contribute to the growth pace of the product portfolio.

Enterprise, Embedded and Semi-custom segment

Gaming console, automotive and data center units were the growth drivers for this segment, including a new launch by Valve in the gaming console space. The company also launched its first processors for the cloud and HPC markets, featuring 3D-stacked chiplets architecture.

The Data Center Compute segment will continue to drive growth as hyperscalars continue to expand cloud infrastructure and enterprises upgrade their IT infrastructure.
In networking and communication, due to enhanced synergies with the Xilinx portfolio, the company’s FPGA-as-a-Service and Smart NICs will help in penetration and diversification of the market to mainly telecom and fintech players.
The company will focus more on AI workload-based GPUs and expanding its software stack.

The uphill battle for Intel commences with its first earnings of 2022

Intel enters a year where Moore’s law has considerably slowed, supply chains are constantly under pressure from various macro and micro factors, PC demand corrects from the pandemic induced highs and growth rally momentum comes from mostly Cloud, Automotive and 5G.

Intel reported revenue of $18.4B, a decrease of 7% YoY, gross margin was down 4.8% YoY to 50.4%
Client Computing Group (Notebooks and Desktop) was down 13% with Notebook Revenue declining significantly by 14%
Datacenter & AI Group remained the key growth segment for revenues for company with 22% YoY growth in revenues supported by Network and Edge Group with 23% YoY growth, Accelerated Computing & Systems with 21% YoY increase and Intel Foundry Services up by 175%
Foundry capacity and Equipment to remain tightened till 2024

Segment Reports:

Client Computing: Consumer and Apple headwinds chip away $1.4B from the Client Group

The desktop revenues stood at $2.6B and notebook revenues were at $6.0B indicating a decline of 5% and 14% YoY respectively. The decline was majorly attributed to inventory digestion cycle and demand waning due to Covid-driven situations. Ramp down on Apple CPU and modem business in addition to muted demand from education market segment contributed to the significant decline in revenues.

The only offset came from increased ASP pricing across segments with 32% increase in Notebooks and 7% increase in Desktop segment.

The Client computing group will see muted demand for the year because of the inflationary environment, supply chain constraints and inventory realignment by OEMs to reflect the intrinsic demand minus the Covid induced spike.
Gaming and Enterprise Tech Refresh are the two trends that will help the group revenues to surf and stabilise.
The product roadmap in later half of year will see intensive competition due to Raptor Lake and AMD Ryzen 7 hitting the markets.

Datacenter and AI (DCAI) proves to be The Revenue Guard for year 2022

DCAI revenue was up $1.1B or 22% at $6.0B due to continued demand from Hyperscalars and Enterprises. Hyperscalars are continuing to invest in DC infrastructures to enable their Metaverse ambitions whilst Enterprises are expanding and upgrading their infrastructure to sustain the data generation and providing analytics that is fast becoming a necessity from consumers.

Intel FPGA based IPUs also contributed to the growth where volume adoption is present at the major cloud players and the demand continues from peripheries including Networking and Automotive DCs.

A 3% ASP decrease was observed in segment and 26% volume increase due to product and customer mix indicating majority of sales from Intel Xeon Silver/Bronze.

We think that majority of sales went to enable the ‘Edge’ infrastructure.

This is the year of Datacenters and Cloud as reinforced by every chip and cloud company in their revenue forecasts. The demand will be coming from Hyperscalars, and Enterprises expansion accelerated by the supercomputing efforts from the companies, SaaS adoption and cloudification of consumer services.
Company’s Edge to Cloud chip portfolio offerings will help capturing the demand coming from the Edge and Networking market as 5G network deployments and MEC becomes more widespread
With the acquisition of Granulate (SaaS service that improves performance in cloud costs with its autonomous dynamic optimization service to unmodified customer workloads) – the company’s SW stack combined with HW would provide additional revenue streams

Network and Edge (NEX) segment rolls due to the ’Edge’ Expansion

NEX revenue was $2.2B up 22% YoY. Demand drivers for the segment came from cloud networking hardware and software tools.

The networking segment will strengthen as company has focused on launching silicon for software defined infrastructure – vRAN and ORAN for Network and Edge capturing the upcoming high-volume deployments from operators
Upcoming Sapphire Rapids can prove to be a breakthrough for Intel to establish its leadership as it claims to deliver up to two times capacity gains for vRAN and support advanced capabilities like high-cell density for 64T64R Massive MIMO

Accelerated Computing Systems and Graphics (AXG) revenue is at $219M

Intel marked its foray into Discrete Graphics with its Intel A series of mobile GPU which was launched in Spring this year. The Desktop GPU are expected to be launched in Market this summer. Company is expecting to do $1B+ business this year as it scales the range at Data Centre level with Ponte Vecchio.

Intel is entering highly competitive market where Nvidia reigns supreme. The company has launched only one Variant – Intel ARC for Mobile so far with 50+ design wins. The variant has performed well but it will take more time for Intel to get the mind share and the wallet share it is expecting! The other variants would be launching this summer and we sincerely hope that Intel promises on the momentum it has indicated for its AXG business.
The launch of Blockchain accelerator would help in capturing the peripheral accelerator business which is dominated by mostly DIYs or Nvidia
The resonance of synergies from having its own CPU+GPU+I/O and in-house foundry coupled with its proprietary SW technologies – Evo & XeSS would help Intel to produce inspiring performances from devices because of component efficiencies in the long run.

Mobileye logs record revenues at $394M

Mobileye grew 17% YoY to have its best quarter in earnings. The company has successfully demoed L4 robotaxi in Jerusalem and grew its number of testing sites to 10 cities across 3 continents with addition of Miami and Stuttgart. The commercial robotaxi services will commence at the end of 2022 in Munich and Tel Aviv.

The much-awaited IPO might debut later this year but Intel has so far kept to its delivery and promise schedule regarding Mobileye products
The revenue would probably see a considerable spike later this and early next year as the consumer and commercial L4 vehicles enter mass production

Intel Foundry Services (IFS) is on a promising start with $5B in deal value across nodes

The revenue of IFS was $283M. The team has 10 opportunities for its process and package offerings representing over $5B in deal value. The team has over 30 test chips for Intel 16 and is expecting Intel 3 and Intel 18a customer test chips to tape out later in 2022.

From foundry perspective the progress looks very optimistic considering on Intel 4, Meteor Lake has successfully booted and pre-production wafers have commenced on Intel 3.

The company also commented that it has enough substrate and Fab supply to meet customer’s demand.

The behemoth task of delivering 5 nodes in 4 years remains the crucial aspect to Intel for its every business. So far it looks like everything is going good for them but as the tape-outs occur for Intel 7 we would have better visibility on the yields.
Considering the past, we are cautiously optimistic on the outcome on the node delivery as the Wafer Equipment manufacturers have started flagging the delivery timelines.

ESG Commitment Updates: Intel announced initiatives to reduce its greenhouse gas emissions and develop more sustainable technology solutions by identifying greener chemicals, new abatement equipments, including using 100% renewable energy across their global operations by 2030 by investing $300M to achieve 4B KWh of energy savings and achieving net-zero greenhouse gas emissions in their global operations by 2040.

Outlook for Q2 2022

Company is expecting $18B for Q2 2022, a 3% decrease YoY as the inventory burns happen and the company readies itself for inventory reversals due to launch of Raptor Lake and Sapphire lake. But for Q2 the client computing will remain muted due to the macro factors heavily influencing consumer sentiments.

Gaming, Data Center Shine in NVIDIA’s 2021 Show; Shortages Hit Networking Revenues

NVIDIA has reported a 62.3% YoY increase in its 2021 revenues to $26 billion. In Q4 2021, revenues were at $7.5 billion, a 52% YoY increase. Gaming, data center and professional visualization segments contributed to the overall growth in revenues. In terms of products, high-end desktop/laptop gaming processors, data center GPUs and AI rendering workload-specific hybrid workstations contributed to revenue growth. Networking revenues suffered most from the shortages and disruptions in the supply chain, followed by GPUs.

Annual revenues are CY estimates; Source: Company Earnings, Counterpoint estimates

Segment Revenues

Gaming gets biggest slice of revenues with 46.7% share at $12.2 bn

Gaming revenue grew 63.7% YoY to $12.2 billion in 2021

The revenue came primarily from its RTX 30 series of GPUs. Steam grew 50% over 2 years and had nearly 28 million active users by the end of Q4 2021, the second largest for a cloud gaming platform.

RTX GPUs help NVIDIA realize $2 bn in professional visualization segment

Professional visualization revenue almost doubled to $2 billion in 2021, realizing the best year for the segment.

Growth due to the COVID-19 driven consumer and enterprise shift to remote workstations that can take higher workloads of AI, 3D renderings and visualizations.

Supercomputer compute helps data center to shine in best revenue year ever

Data Center segment reported a growth of 59.1% to $10.2 billion in 2021 to make it a record year for NVIDIA.

Offerings across GPU, networking and software, along with synchronization of technologies stemming from the Mellanox acquisition, have made NVIDIA the leader in accelerated computing. The whole suite of offerings and mass adoption of AI technologies in enterprise applications fueled the demand for accelerators. Supercomputing contributed to <1% of overall Data Center revenues.

Additionally, demand from hyperscalars and cloud focusing on inference workloads and AI workloads contributed to the sales of NVIDIA A100 GPUs, a high-end accelerator. Specifically, Meta has purchased over 6,000 GPUs for SuperCluster, its AI supercomputer for natural language processing and visualization workloads.

Slower lap for automotive revenues with growth of 5.6%

This segment proved to be the outlier in NVIDIA’s growth story, posting only 5.6% growth at $573 million and a decline of 18.2% from its best year in 2019.

We believe the decline is due to shift from legacy cockpit processors and an increased focus on software suites that will contribute to revenues over a period of time.

‘OEM and Others’ segment sees 5.7% revenue growth on volatility

OEM and others reported $574 million in revenue, up only 5.7% from previous year
Crypto mining contributed about $24 million in the ‘OEM and Others’ segment for Q4 2021. The annual revenues from CMPs (cryptomining processors) were estimated to be about $550 million in 2021.

The visibility of crypto revenues is due to the changes in GPU software launched in Q1 2021 to detect Ethereum Mining Algorithm to ensure the intended supply of GPUs to gamers and dedicated CMPs.

The segment continues to be among the company’s key volatile segments as the revenues fell 77% sequentially from the previous quarter. The factors contributing to this volatility include limited stocks of the GPU processors, geopolitical tensions at the Russia-Ukraine border (Ukraine is one of the leading crypto miners in the world) and the increasing climate impact.

Strategic SHIFT Observation: Becoming Software HERO

According to NVIDIA CEO Jensen Huang, “NVIDIA is a software-driven business. Accelerated computing is a software-driven business”.

As the company comes close to executing its triple chip strategy – CPU, GPU & DPU, with the data center CPU coming next year and sampling late this year, it is extensively focusing on building next-generation software suites that support Metaverse, 3D and robotics.

FOCUS: The company is focusing on creating an end-to-end complete stack of firmware that complements and augments the functionalities of hardware that serves as a one-stop solution to implement upcoming technologies and the required compute demanded by them.

With the introduction of three prominent software suites, the company intends to have a comprehensive software portfolio covering all hardware products:

NVIDIA DRIVE for automotive
NVIDIA AI for data centers and enterprises
NVIDIA Omniverse for individuals and enterprises for creation of virtual content

At last year’s Nvidia GPU Technology Conference, the company announced that the software suites, particularly the Omniverse, would be made available for free to all creators. The company is betting on the business that would materialize from the connection between a real-world entity like robots or connected cars and the virtual world through digital twins. The software would act as a bridge and the company would reap benefits as the bridge becomes busy and populated!

Analyst Takeaways and Future Outlook

Gaming: As announced at CES 2022, the introduction of the RTX 30 GPU series to laptops will bring the AAA gaming experience and accelerated computing to wider audiences, adding to revenues. Penetration of GeForce NOW in 5G mobile devices, smart TVs and newer titles will continue to augment revenues through software subscription.

Data Centers: As the hyperscalars enter the rush of the metaverse and enterprises focus on weaving the AI technologies across all processes, the workloads will increasingly demand the accelerators to achieve objectives. In the short term, the company would be looking to fill the demand gap due to semiconductor shortages in the networking product portfolio.

Cryptomining: In the short term, as economies around the world reel under inflation, rising fuel prices and geopolitical tensions in the East, we expect a limited demand coming from miners this year. However, as the metaverse gains momentum, crypto regulations become more clear and enterprises get familiar with the possibilities of the virtual world, the demand will again start shooting up from later this year/early next year.

Future Deals: Due to the termination of the ARM-NVIDIA deal, the company has now over $20 billion in cash and will look to augment its growing suite of software and hardware peripheries in networking to develop efficient solution stacks.

AMD in 2021: A Year of Great Profits, Market Gains

AMD, one of the world’s leading chip companies, has reported a 49% YoY growth in its Q4 2021 revenue to $4.8 billion while increasing its gross margin by 560 basis points from the same period in 2020. For 2021, its revenue grew 68% YoY to $16.4 billion and the gross margin increased by 370 basis points due to strong data center revenues and high-end processor sales. Data center business contributed to ~25% of AMD’s overall revenues for 2021.

Company Strategy for 2021
The revenues reflect the company’s strategy to focus on high-margin data center products and high-end Ryzen processors for 2021 as semiconductor shortages persisted throughout the year along with supply chain hiccups.

Source: Company Earnings, Counterpoint Estimates

Annual Segment Updates:

Computing and graphics

The segment’s revenues grew 45% YoY to $9.3 billion in 2021. A 57% increase in the average selling price (ASP) and a higher mix of the latest Ryzen processors along with high-end GPU cards drove the segment’s revenues and profitability to record levels since 2011.

Client launches in 2021

AMD launched the Ryzen 5000 series and Ryzen PRO 5000 series mobile processors powered by the Zen 3 core architecture for business laptops built on 7 nm.

AMD expanded its graphic cards portfolio by launching the Radeon RX 6700 XT built on 7 nm process technology and AMD RDNA 2 gaming architecture, as well as the Radeon RX 6600 XT graphics card that delivers a high frame rate, high fidelity and highly responsive 1080p gaming experience. In mobile graphics, Radeon RX 6000M series was launched for high-performance gaming laptops.

Enterprise, Embedded and Semi-Custom

The revenue grew 113% YoY to $7.1 billion due to EPYC processor and MI200 accelerator sales in HPC (high performance computing), and Cloud and Supercomputer wins. Besides, demand from gaming consoles, automotive and IoT contributed to the segment’s growth.

Data center launches in 2021

AMD launched the Instinct MI200 series accelerators based on the 2nd Gen AMD CDNA architecture, optimized for HPC and AI/ML (artificial intelligence/machine learning) workloads. Next-generation AMD EPYC processors – AMD EPYC 7003 series CPUs boasting 64 Zen 3 cores per processor for HPC, cloud and enterprise customers, were also launched.

Analyst takeaways and company outlook for 2022

AMD estimates a 31% YoY annual revenue growth for 2022 to ~$21.5 billion.
Data center revenues to be ~30% of overall revenues.
Xilinx acquisition creates synergies for its embedded portfolio for other industry segments including IoT, automotive and networking.

AMD will gain market share in the server segment due to the launch of Genoa, its next-generation EPYC processors that feature 96 Zen 4 cores and next-generation memory and I/O technologies. Besides, the ‘Infinity Fabric’, which provides greater efficiencies by connecting CPU and GPU, will play a pivotal role in AMD’s market share considering the accelerator portfolio has established itself as a catalyst in AMD’s data center segment.

The diversification through the successful acquisition of Xilinx has unlocked opportunities for AMD to capture the demand from the networking industry and create an end-to-end solution portfolio for specialized workloads.

For the client side, we see demand correction as the COVID-19 pandemic-led demand subsides in the PC market. However, the compute refresh cycles in enterprise and increased demand from premium ultrathin/thin laptops will offset some of the demand correction, as indicated by the launch of its processors and SKUs at CES 2022.

AMD Q3 2019: Highest Quarterly Revenue in a Decade Driven by Ryzen Shipments

AMD reached its highest quarterly revenue in a decade, at US$ 1.8 Billion. AMD’s recently launched EPYC (2^nd Gen) processor managed to capture business from several major OEMs and cloud providers. In addition, AMD benefitted as the desktop and laptop processor segment grew 36% Y/Y, while Intel’s market position declined. However, Enterprise, embedded, and semi-custom segments declined 27% despite the strong performance of the 2^nd generation EPYC processor. The major reasons for this were declining demand in-game console chips as well as shipments of EPYC processor not meeting expectations due to the US-China trade war. In the coming quarters, AMD is expected to grow market share in both the client processor and data center segment.

Counterpoint’s View on AMD’s Q3-2019 Earnings

AMD’s 2^nd Gen EPYC processor has attracted a lot of business; many server OEMs and cloud providers are now powering their servers and data centers with AMD 2^nd Gen EPYC processors.
AMD will likely take market share from Intel in the data center segment, due to and lower cost. AMD is expected to double up its share in the data center processor segment in 2019.
AMD’s main competitor, Intel, has reported a decline in its client processor sales, in which AMD has gained. AMD is taking share from Intel’s in the desktop and laptop processor segment. AMD is taking advantage of the CPU shortages of Intel.
Due to multiple customers win, AMD’s EPYC and Ryzen families of processors will be the driving force for increasing revenues in the coming quarters.

Key Highlights from AMD:

Partnerships and Customers Wins

Google, Amazon AWS, IBM Cloud, Microsoft Azure, OVHcloud, Twitter and Tencent have all selected 2^nd Gen AMD EPYC processors based on leadership performance and total cost of ownership.
Dell, HPE and Lenovo more than doubled their server portfolio with 2^nd Gen AMD EPYC processor platforms.
Microsoft announced that its new 15-inch Microsoft Surface Laptop 3 will be powered by an AMD Ryzen mobile processor.
HP unveiled its first AMD-powered gaming laptop, the Pavilion Gaming 15 Laptop, featuring the 2^nd Gen AMD Ryzen™ 7 mobile processors.
HP and Lenovo announced commercial desktops powered by Ryzen 3000 PRO series processors.

Product Launches and Announcements

AMD launched 2nd Gen AMD EPYC processors for server and cloud customers.
AMD announced Radeon RX 5500 GPU series, which will be available for OEMs from November 2019.
AMD also launched the AMD Athlon™ PRO processors with Radeon Vega Graphics.

Financial Highlights

Revenue at US$1.80 billion, up 9% YoY, however, up 18% quarter-on-quarter (QoQ), in line with expectations.
Gross margin was 43%, up 3% YoY, primarily driven by increased Ryzen and EPYC processor sales.
Operating income was US$186 million compared to US$150 million a year ago. The increase was mainly due to higher revenue in the Computing and Graphics segment.
Cash, cash equivalents, and marketable securities were US$1.2 billion at the end of the quarter.
Client processor average selling price (ASP) increased YoY and sequentially driven by both Ryzen desktop and mobile processor sales.
GPU ASP increased YoY driven by higher channel sales and decreased QoQ due to a higher proportion of mobile sales.

AMD Q2 2019: Driving High on the 7nm Tech-Train

AMD is riding high under the leadership of its CEO Lisa Su, with increasing traction for its 7nm chipsets and product families. The latest addition in this family is its EPYC Rome processor for servers which will be officially launching on Aug 07, 2019. Although the revenues were down year-on-year (YoY), AMD’s expectation from datacenter CPU products is high in upcoming quarters based on the feedback from the initial usage. In addition, multiple partnership wins in different segments points that AMD is constantly improving in developing relations with customers-partners-suppliers alike, which was the bane for AMD’s demise a decade ago.

Counterpoint’s View on AMD’s Q2-2019 Earnings

AMD is banking on its datacenter CPU offerings with EPYC Rome processor.
AMD’s main competitor, Intel, has reported a decline in its datacenter segment. AMD is expected to grab more share and customers away from Intel in short to mid-term, leveraging superior technology and increasing customer wins.
Key gaming customer wins, Microsoft and Sony, powering their gaming consoles with Ryzen Gen-2 CPU will drive the revenues in the semi-custom segment.
Strategic partnership with Samsung will allow AMD to venture into mobile devices with its graphics solutions, as gaming smartphones get popular and flagship smartphones increase their graphics competency.
Overall, client CPU, datacenter CPU, and datacenter GPU will drive the revenues for AMD.

Key Highlights from AMD:

Overall Financials

Revenue at US$1.53 billion, down 13% YoY, however, up 20% quarter-on-quarter (QoQ), as per expectations.
Gross margin was 41%, up 4 pp YoY, primarily driven by increased Ryzen and EPYC processor sales.
Operating income was US$59 million compared to US$153 million a year ago. The decline was primarily due to lower revenue and higher operating expenses.
Cash, cash equivalents, and marketable securities were US$1.1 billion at the end of the quarter.

Segment Financials

Computing and Graphics segment revenue was US$940 million, down 13% YoY. Revenue was lower YoY primarily due to lower graphics channel sales, partially offset by increased client processor and datacenter GPU sales.
Client processor average selling price (ASP) was up YoY, driven by Ryzen processor sales.
GPU ASP increased YoY primarily driven by datacenter GPU sales.
Enterprise, Embedded, and Semi-Custom segment revenue was US$591 million, down 12% YoY. The YoY revenue decrease was primarily due to lower semi-custom product revenue, partially offset by higher EPYC processor sales.

Product Launches

AMD launched client and graphics processors based on advanced new architectures and 7nm process technology.
AMD Ryzen Desktop Processors are available now with up to 12 cores and 24 threads based on the new “Zen 2” core architecture.
AMD introduced RDNA, which provides up to 1.25X higher performance per-clock and up to 1.5X higher performance-per-watt compared to previous generation Graphics Core Next architecture.
AMD Radeon™ RX 5700 series graphics cards, built on the new AMD RDNA gaming architecture.

Partnerships and Customers Wins

AMD got two important customer wins in the gaming segment, powering Microsoft and Sony gaming consoles, with the Ryzen Zen-2 CPU core.
Samsung and AMD announced a multi-year strategic partnership through which Samsung will license AMD graphics IP to advance graphics technologies and solutions for mobile applications, including smartphones.
Apple announced an all-new Mac Pro featuring AMD Radeon Pro Vega II GPUs that deliver exceptional computational performance by harnessing the power of the 7nm process technology, “Vega” graphics architecture and AMD Infinity Fabric™ Link GPU interconnect technology.
Acer announced the upcoming availability of the new Acer Nitro 5 and Swift 3 laptops, based on 2^nd Gen AMD Ryzen Mobile processors, adding to the more than 40 new consumer and commercial notebooks based on the latest Ryzen Mobile and Ryzen Mobile PRO processors launched this year from all leading global OEMs.
AMD announced that it is working with Cray, the U.S. Department of Energy, and Oak Ridge National Laboratory to build what is expected to be the world’s fastest supercomputer – Frontier. Based on future-generation high-performance custom AMD EPYC CPUs and Radeon Instinct GPUs optimized for artificial intelligence (AI), Frontier is expected to deliver greater than 1.5 exaflops of processing performance.
2^nd Gen EPYC processors are advancing the use of AI across diverse research fields on Indiana University’s Cray Shasta™ supercomputer.

Future Guidance/Outlook

Q3 2019 – US$1.8 billion revenue, expected to be driven by Ryzen, EPYC, and Radeon product sales. Gross margin at 43%.
Full Year 2019 – AMD now expects revenue to increase a mid-single-digit percent over 2018 (5%-6%). Gross margin at 42%.

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