(AMD) reported its fifth consecutive quarter of double-digit revenue growth thanks to broad-based PC, server, and game console strength. Management is confident in the firm’s product pipeline for 2021 and called for 37% revenue growth for the full year. We believe this guidance should be easily attainable, particularly as Intel continues to struggle with its leading-edge manufacturing. we are raising our fair value for no-moat AMD to $77 per share on a probability-weighted basis. We assess AMD's standalone fair value at $67 per share, up from our prior $57 estimate, as we raise some of our share gain and gross margin assumptions. We assign a 75% probability of AMD’s acquisition of Xilinx closing, and our fair value for the combined entity would be $80 per share.
Our probability-weighted fair value for Xilinx (XLNX) is $126 per share. We assign a 75% probability to the value that Xilinx shareholders will receive from AMD of $138 per share (based on our $80 combined fair value times the exchange ratio of 1.7234 shares). The remaining 25% probability stems from our unchanged $90 fair value for standalone Xilinx.
AMD’s fourth-quarter sales grew 53% year over year to $3.24 billion. Computing and graphics sales were $1.96 billion, up 18% year over year due to Ryzen processor strength. Similar to Intel, AMD’s client PC processor ASP was down year over year due to a higher mix of notebook chips. In the enterprise, embedded, and semicustom segment, revenue was $1.28 billion, up 176% year over year, thanks to the ramp of the latest Sony PlayStation and Microsoft Xbox consoles (for which AMD supplies the CPU and GPU) and ongoing EPYC server CPU traction. Server processor sales more than doubled year over year thanks to growing cloud and enterprise adoption. For 2020, total revenue grew 45%, and we suspect annual server CPU sales more than doubled.
Management expects first-quarter sales to be at a midpoint of $3.2 billion, which would be up 79% year over year.
| Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days. |