Advanced Micro Devices (NASDAQ:$AMD) witnessed strong revenue growth in 3Q17 as the company reaped the benefits of high-end computing. This marked the first full quarter where sales of the company’s Vega GPU and its popular Ryzen Threadripper CPU were included. This undeniably increased the company’s average selling price, enhancing profitability.
AMD’s non-GAAP gross margin increased from 31.01% in the third quarter 2016 to 35.0% in third quarter 2017, driven by revenues from IP licensing.
While a 35% gross margin shows improvement in AMD’s margin, it is very low compared to that of its peers. Specifically, Intel (NASDAQ:INTC) reported a gross margin of 63.9%, while NVIDIA (NASDAQ:NVDA) reported a margin of 58.8%.
Higher operating profit meant higher net income for the company. AMD’s non-GAAP net income rose 300.0% year-over-year to $110.0 million in 2017’s third-quarter. This income was distributed among around 1.1 million shares. This included 100.6 million shares related to the company’s 2026 convertible notes.
Despite the larger number of shares, AMD’s non-GAAP EPS rose 230% year over year to $0.10 in 2017’s third-quarter, beating the analyst estimate of $0.8. These high profits raise investors’ expectations of a more profitable 2017 fourth-quarter, but the profit guidance was disappointing.
AMD expects its non-GAAP gross margin to remain unchanged at 35% even when revenues are expected to decline. This implies a 20% sequential decline. Comparatively. NVIDIA expects its gross margin to increase 1.2% sequentially to 60% in fiscal 2018 fourth-quarter.
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