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

August 13, 2020

Online Channels held a 43% share in Q2 2020 in the India online smartphone market, according to the latest research from Counterpoint Research. The increase in online channels share is due to a shift in consumer behavior, who are now preferring contact-less shopping experience and practicing social distancing. The quarter also saw Amazon reaching its highest ever share of 47% among online channels, compared to Flipkart’s 42%. The share of online channels in overall smartphone shipments reached 43% during the quarter as consumers preferred contact-less shopping experiences. Looking forward, we see online channels remaining strong this year and taking a 45% share in the Indian smartphone market in 2020. The COVID-19 pandemic had a huge impact on the current market scenario and innovative business models have emerged.

Commenting on the COVID-19 situation and market dynamics, Senior Research Analyst Prachir Singh said: “The COVID-19 pandemic had a huge impact on the overall smartphone market, April being a washout month. Online channels’ shipments also declined compared to the last year. However, due to the current circumstances, consumers are preferring online platforms. We have already witnessed pre-COVID level shipments at the end of Q2 2020 due to the pent-up demand created in the market by the nationwide lockdown. Brands are aligning their product as well as channel strategies to drive up volumes. Multiple financing options and attractive offers have made the devices more affordable for consumers. During the quarter, multiple brands adopted an online-to-offline (O2O) business model and hyperlocal delivery to help their offline channel partners.”

Commenting on the Q2 2020 findings, Research Analyst Shilpi Jain said: “Online channels remained strong in Q2 2020, grabbing a 43% share in the overall Indian smartphone market. Pent-up demand and changed consumer behavior due to the current circumstances, accompanied by attractive offers and promotions by online platforms, were the main reasons for the increased share. During the quarter, Flipkart organized Big Savings Day Sale to drive up volumes. Due to the preference for online channels, no offline-exclusive model was launched during the quarter. However, during the same period, 11 online-exclusive SKUs were launched.”

Commenting on the brand performance, Jain said: “Xiaomi remained the market leader in online channels with 44% market share. Xiaomi Redmi 8A Dual was the top model for the brand in online channels. Samsung was quite aggressive on online channels and increased its share to 25%, its highest ever share in online channels. Strong shipments of M-series smartphones led to this increase. realme remained the top brand on Flipkart. In Q2 2020, offline channels captured 57% market share. We believe that offline channels will fare better during the latter half of the year. Vivo remained the top brand in offline channels, followed closely by Samsung. Vivo Y91i was the top model for offline channels.”

Exhibit 1: India Online Smartphone Market Share by Channel – Q2 2020

Source: Counterpoint Research Market Monitor Q2 2020

Exhibit 2: India Online Smartphone Top Brands Share – Q2 2020

Source: Counterpoint Research Market Monitor Q2 2020

Market Summary for Q2 2020:

• While smartphone shipments in the online segment declined by 46% YoY, the offline segment declined by 54% YoY.
• Amazon became the top online smartphone channel for the first time, with a 47% share. Xiaomi, Samsung, and OnePlus drove the shipments for Amazon.
• Amazon saw strong shipments of Xiaomi Redmi 8A Dual, Samsung Galaxy M30s, and Galaxy M31. Among the top ten smartphone models on Amazon, nine were from Xiaomi and Samsung.
• The INR 15,000 – INR 20,000 price band contributed the most and reached its highest ever share on Amazon. Samsung Galaxy M31 and M30s were the top models in this price band on Amazon.
• OnePlus remained the top premium smartphone brand on Amazon.
• Flipkart’s share declined; however, the platform led the sub-INR 10,000 price band with more than 50% share in the overall online smartphone market.
• realme remained the top brand on Flipkart. Among the top ten models on Flipkart, five were from realme. Newly launched Narzo 10 series drove the shipments for the brand.
• realme, Xiaomi, Samsung, and Poco contributed most for Flipkart and accounted for more than three-fourths of its total smartphone shipments.
• Poco maintained its strong performance in online channels in Q2 2020 as well. Poco X2 was the second-highest shipped model on Flipkart.
• The top 5 brands captured more than 88% of the total online market.
• Xiaomi alone captured more than 44% of the total online market in Q2 2020. Its Redmi 8A Dual, Note 8 series and Redmi 8 drove volumes, contributing to more than three-fourths of Xiaomi’s total online shipments.
• Samsung increased its share in online channels to 25%, driven by its Galaxy M-series models. Top five online models for the brand were all Galaxy M-series and they contributed to almost 90% shipments for the brand.
• Vivo hosted sales on both the leading online platforms, offering discounts on its models. The brand maintained its top position on offline channels, driven by Y91i and Y11.
• Six out of the top ten online models were from Xiaomi, followed by Samsung with three models. Xiaomi Redmi 8A Dual was the best-selling device in Q2 2020.
• OnePlus drove the shipments in the online premium smartphone segment, capturing more than 50% share, followed by Apple with a 25% share.

The comprehensive and in-depth Q2 2020 Market Monitor is available for subscribing clients. Please contact us at press(at)counterpointresearch.com for further questions regarding our latest research and insights, or press enquiries.

Analyst Contacts:

Prachir Singh

Shilpi Jain

Tarun Pathak

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press(at)counterpointresearch.com   

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There have been numerous acquisitions in the past year which have enhanced Google Cloud’s capabilities across big data, analytics, storage, hosting, and gaming, ultimately expanding the ecosystem of solutions available to their customers.  The acquisitions include:

Exhibit 1:  Recent Google Cloud acquisitions/integrations

Google Cloud’s customer-centric transformation is being touted as a key factor in recent big wins, and examples below highlight the strategic role the company is enjoying across much of its customer base.  Significant customer wins and partnerships over the past year include:

Exhibit 2:  Customer wins and partnerships

The cloud infra and services market will remain hyper-competitive as AWS continues to dominate, and other tech giants ramp up efforts to gain share in a market that is expected to continue double-digit growth through the medium term.  Google Cloud’s strength comes from its artificial intelligence and machine learning capabilities, which allows the ad side of Google’s business to understand consumers like nobody else.  Google Cloud’s ability to translate this strength to the enterprise will be a major factor in gaining market share, requiring not only an expanded team (the company is looking to triple its sales force over the next two years) but maintenance of the core ‘expertise plus empathy’ culture set forth by CEO Kurian during the company’s transformation last year.  In the end, like all transformation stories, success will depend as much on Google Cloud’s people as it does on their products and processes.

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A hybrid cloud strategy is an enterprise cloud strategy that involves managing and operating workloads across different infrastructure environments, namely, on-premises, private cloud or public IaaS cloud. Enterprises often need to keep confidential data on-premises or in a private cloud. However, other less sensitive data and applications can be maintained in public cloud environments because it can be more cost-effective and offer additional features. Azure Arc has added a further dimension to this hybrid strategy with managing resources across multiple public cloud platforms.

According to Microsoft, Azure services can be enabled on any computing platform, including Windows and Linux servers, located on-premises, in the cloud or at the edge. Any Windows or Linux server, even those running behind a firewall and proxy, can be registered with Azure Resource Manager. VMs running on top of VMware vSphere, Amazon EC2, and Google Compute Engine can also be registered with the Azure Resource Manager.

In addition to this, Microsoft said that Azure Arc can also register Kubernetes clusters. Once registered, any Kubernetes cluster can be managed like Azure’s Kubernetes Service (AKS). Customers have the flexibility to deploy Azure SQL Database and Azure Database for PostgreSQL Hyperscale, where they need it, on any Kubernetes cluster.

From the Azure portal, customers get a unified and consistent view of all their Azure data services running across on-premises and clouds and can apply consistent policies for security and governance across the different environments. Microsoft has a good hold in the enterprise cloud market; however, it has limited visibility among start-ups due to better offerings from AWS and Google Cloud in terms of pricing and services.

AWS’ hybrid cloud solution, Outposts, combines pre-configured hardware and software to the customers’ on-premise data center or co-location space to run applications in a cloud-native manner, without having to operate from AWS data centers. Currently, users can utilize EC2 instances and EBS volumes for storage. At a later stage, Outposts will locally support Amazon ECS and Amazon EKS clusters for container-based applications, Amazon EMR clusters for data analytics, and Amazon RDS instances for relational database services. However, until now, there has not been a multi-cloud solution being provided by AWS.

Google hybrid cloud solution, Anthos, is a combination of Google’s Kubernetes Engine (GKE), GKE on-premises and the Anthos Config Management console for unified administration and security policies across hybrid Kubernetes deployments. It can be run on customers’ existing servers. Anthos will also let users manage workloads running on third-party clouds like AWS and Azure, giving freedom to deploy, run and manage applications on any cloud. However, Google is yet to bring managed database services such as Cloud SQL and Bigtable to Anthos.

Azure Arc has shifted the paradigm of hybrid cloud management, by providing resource management on different types of servers as well as different cloud platforms. This feature will help its customers undertake cloud migration. This will also increase the cloud adoption for enterprises that are yet to migrate. Until now, Google Anthos is the closest competitor to Azure Arc, for example in the way it provides Kubernetes clusters across multiple cloud platforms. However, the absence of managed databases in Anthos gives Azure Arc an edge. AWS must boost its hybrid cloud management services to compete with Microsoft and Google. However, Microsoft will need to capitalize on this opportunity by targeting small and medium businesses as well as start-ups, as its competitors are chasing hard with their own multi-cloud management solutions.

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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.

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AWS (AISPL) PS India team has a stated mission “To make a positive impact to the life of every citizen of India through an AWS engagement by 2021”.

AWS is currently focused on delivering the following goals along with its partners in India including,

• Citizen impact at scale & Empower Society – Example: Projects with CSC (Common Service Center part of e-Governance Services India Limited) and Quantela
• Reinvent the technology experience – Example: Projects with MoHUA (Ministry of housing and urban affairs)
• Create India’s future workforce – Example: Projects with NSDC (National Skill Development Corporation and emerging Edtech start-ups like Kingslearning and Eckovation
• Positive Social outcomes & transforming lives – Example: Projects with promising Agri-tech companies like CropIn & non-profit entities like Wadhwani AI

Below are some of the major points discussed at the summit:

• Cloud adoption will be a key enabler in solving complex problems for the general public and upgrade the standard of living. The most important aspect for this adoption to happen is the generation of new and innovative use-cases, which can impact people’s lives.
• There was a lot of focus on upcoming and innovative startups. Some of the featured startups present in the event were CropIn, Quantela, Minfy Technologies, OrientDB, Intecc (part of the L&T group).
• Government’s focus on digitizing governance under the “Digital India” campaign has positively impacted the cloud adoption. The accessibility of high-speed internet due to the recent 4G boom has also played a part in the government’s outlook to accelerate cloud adoption across its governance methods.
• AWS has been a key partner with different government organizations, supporting in their cloud migration. The key partners featured in the summit were CSC e-governance services India (Ministry of Electronics and Information Technology), Smart Cities Mission (Ministry of Housing and Urban Affairs) and National Skill Development Corporation (NSDC).
• AWS is focused on developing next-gen cloud workforce with its AWS Educate, a “free of cost” cloud education platform, providing cloud content, training, collaboration tools, and a job board. India is now the second-largest user base for AWS Educate after the US.
• Another point of discussion was data security and confidentiality, which is a major barrier in cloud adoption by government’s institutions. To address this issue, a solution was proposed to classify the data, into separate categories, based on the level of confidentiality. The cloud providers will then be required to provide the level of security corresponding to the confidentiality level of the data.

Let’s take a closer look at some of AWS’ customers/startups/Partners present at the summit:

Quantela

Quantela is the US and Hyderabad-based startup providing an integration platform for smart cities based infrastructure and utilities, by acquiring and processing data from sensors and IoT devices to generate insights. These insights are used to manage city operations, efficiently and effectively. It operates through developing partnerships with system integrators. Major use-cases include traffic management, waste management, parking, smart lighting, etc. Quantela has raised US$10 million till date. Quantela’s mission is to revolutionize the way cities are operated and managed, by making autonomous cities a reality. Quantela has been using AWS and its services since inception. Its platform has been designed to scale with a multi-tenanted architecture using AWS services. Key drivers for Quantela’s decision to leverage AWS include a breadth of services, ease of use, ability to scale globally and flexible pay-as-you-use commercial structure. Quantela intends to use AWS as the core Cloud platform as they integrate multiple IT/OT/IoT systems across cities and do AI-based cross-domain analytics.

CropIn

CropIn is an India-based agri-tech startup using AI, machine learning, and data analytics to generate real-time actionable insights on standing crop. Major use-cases include agriculture insurance, crop selection, seed traceability, weather advisory and digitization to provide seamless data from farmers to government. CropIn has raised more than US$11 million till date. With the vision to ‘maximize per acre value’ and the mission to ‘make every farm traceable’, CropIn adds value to agri-businesses by increasing efficiency, scaling productivity, and strengthening sustainability across the board. Thus far, CropIn has digitized over 5.5 million acres of farmland and enriched the lives of nearly 2.1 million farmers, while gathering data on 384 crops and 3,662 crop varieties in 46+ countries. The SaaS solutions offered by CropIn are crop and location-agnostic and are available on web and mobile devices. CropIn started out as a monolith application deployed on EC2 using AWS autoscaling. Since then, its customer and use-cases have grown. CropIn has moved into microservices architecture and runs huge ML workloads (SageMaker), ETL and analytics pipeline on AWS. The company is building a data lake on AWS. It is also deploying its ML trained models on serverless frameworks in AWS (AWS Lambda). The company uses solutions like AWS Athena, EMR (Elastic Map Reduce), Kinesis, Lambda and ECS amongst other offerings from AWS. Notable projects by CropIN in the India Public sector includes World bank & government of Bihar, Government of Karnataka, Government of Punjab amongst others.

Larsen & Toubro

L&T is a Mumbai-based multinational conglomerate with presence in multiple sectors such as construction, manufacturing, infrastructure, engineering, and technology. It’s business segment Smart World and Communication aims at providing smart city solutions and has partnered with multiple government institutions. Major use-cases include traffic management, city security through video analytics, smart grid, waste management, water management, smart buildings, and disaster management. L&T’s AI-based video analytics solution runs on AWS and offers the following use cases,

L&T has deployed ~25K cameras in multiple cities (Nagpur, Allahabad, etc.) and see’s Video AI as a big business opportunity as the scale of cameras being deployed would be no less than China which runs into Millions in each city.

Minfy Technologies

Minfy Technologies is a Hyderabad-based company providing cloud solutions and full-scale cloud migrations. It is an advanced consulting partner in the AWS Partner Network (APN). One of its notable contributions in the public sector is cloud migration of Department of Information Technology, Government of Manipur. This cloud migration made Manipur the first state government in India to transition its IT services to the cloud.        With a team of over 120 certified Cloud Orchestrators, Minfy Technologies has helped provide Cloud solutions to over 525 companies over the past 5 years. One of Minfy’s notable clients is the Department of Information Technology (DIT), Government of Manipur. Realizing that its hardware was becoming obsolete and that compatibility issues severely affected the deployability of its apps and website, Minfy Tech successfully secured the contract to migrate DIT’s applications and website to the cloud against 11 other bidders. The alternative would be to bear the burden of expensive data center upgrades.

AWS Public Sector Summit presented a great opportunity for AWS, its partners, customers as well as government representatives to discuss and deliberate on the need for driving cloud adoption in the public sector. AWS sees India as a big opportunity to drive its public sector work. India also needs a transformation in its public sector and governance methods in issues related to agriculture, education, healthcare, security, infrastructure, and energy. AWS showcased multiple use-cases which helped in transforming lives at mass scale. Migrating to the cloud will certainly help in increasing efficiency, transparency, and effectiveness. The onus lies on the public institutions and the government to accelerate this cloud adoption.

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The key advantage of the platform is that not only it creates a digital twin of assets, but also of the process. With this platform, plant management can track material, man, and machine as well as the process, which drives continuous process improvement. Another advantage is that the platform can integrate data from machines of different manufacturers, ERP, historians and other sources to provide actionable insights and that too, across all manufacturing sectors. The main uses for the Sight Machine platform are quality improvement, predicting asset failure, predictive maintenance, reduce downtime, increasing capacity utilization, reducing scrap, increasing first-pass yield, measure and improve productivity and OEE (Overall Equipment Effectiveness).

Competition  

Sight Machine competes with traditional ERP (Enterprise Resource Planning) and MES (Manufacturing Execution Systems) providers, which are expanding their portfolio by incorporating AI and machine learning to their ERP/MES platform to provide valuable manufacturing analytical insights. Major companies include SAP, Oracle, Netsuite, and Epicor. Other companies providing MES software include ABB, Siemens, Dassault Systemes, Rockwell Automation, etc.

However, Sight Machine claims that none of these companies are competitors, as its platform uses data from all these software to provide optimized manufacturing insights, which is its main advantage. The Sight Machine platform integrates data from these sources and other sensors and systems, aggregates the acquired data on its platform, applies ML and AI algorithms with its test-data, and generates insights to improve production, quality, equipment efficiency, and material flow.

Clients, Partners, and Investors

Sight Machine boasts Fortune 500 clients such as Heineken, Nissan, Westrock Co. and Asian Paints. Its platform can be used for both, continuous and discrete manufacturing industries. Sight Machine is optimized to run on the major cloud platforms including AWS, Google Cloud Platform, and Microsoft Azure. In addition, it has also partnered with system integrators (SI) like Fujitsu to support wide deployments. Sight Machine has raised about $60 million to date from leading venture capitalists such as GE Capital Ventures, E.ON, LS Group, etc. And recently announced an investment from the Sony Innovation Fund.

Sight Machine has made steady progress in the manufacturing analytics and digital twin space, acquiring funding from marquee investors. It has also secured good partnerships and clients. However, to drive further growth, it will need to expand its position in the biggest manufacturing hubs, i.e., China and Vietnam. The future looks bright, however, it needs to move fast by forming strategic partnerships, acquiring smaller players and entering into big manufacturing markets.

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Among the Cloud Services providers who spend for servers and related hardware, Google dominated followed closely by AWS in 2018 (Exhibit 1). According to Counterpoint’s Cloud Services Tracker, Google spent 10% of the overall global spend, followed by Amazon Web Services (AWS) and Alibaba, with 9% and 7% share, respectively, in 2018. Facebook and Microsoft are also spending heavily to increase their datacenter capacities and capabilities. Other notable players are Apple, Intel, IBM, China Telecom, and Equinix.

Exhibit 1: Cloud Infrastructure CapEx Spend – 2018

Further, Counterpoint’s Cloud Services Tracker shows that the combined capital expenditure (CAPEX) of FAMGA (Facebook, Apple, Microsoft, Google, Amazon) increased by 45% year-on-year (YoY) in 2018. Intel’s CAPEX rose by 29% YoY in 2018. Chinese counterparts, BAT (Baidu, Alibaba, Tencent) and China Telecom saw a 24% YoY increase in CAPEX. Combined, FAMGA, Intel, BAT, and China Telecom contributed to 56% of global CAPEX by datacenter and IaaS providers. Among the REITs (Real Estate Investment Trusts), Equinix and Digital Realty are the biggest contributors. However, going forward, we expect the CAPEX of cloud services providers to increase as companies like Google and Microsoft venture into cloud gaming by launching their platforms, Stadia and Project xCloud, respectively.

AWS has the most number (66) of cloud infrastructure locations worldwide with 12 more locations in the pipeline, followed by Google Cloud with 61 such locations. Alibaba has 58 locations worldwide while Microsoft Azure has 20. These cloud giants are expanding globally as they look to increase their market share in the cloud services market. Further, these companies are working to ramp up their product portfolio with innovations and acquisitions and increase their market share by engaging in strategic partnerships.

Google has been quite aggressive in expanding its cloud services through acquisitions. Recently, it has acquired Looker, a big data and analytics platform, for a massive US$2.6 billion. Google’s list of acquisitions includes Qwiklabs, Kaggle, Bitium, Apigee, and Orbitera, among others. AWS is also active in this regard and has acquired companies like 2lemetry, Elemental, ClusterK, Cloud9 IDE, Graphiq and Sqrrl, among others. AWS even acquired Annapurna Labs to boost its internal production of custom chips for cloud infrastructure.

Further, cloud services providers are partnering with Taiwanese/Chinese ODMs to source servers and other components for increasing their capacities. The biggest ODM contributors are Foxconn, Wistron, Wiwynn, Inventec, Quanta providing servers to Google, Facebook, Microsoft, Amazon, and OEMs such as Hewlett Packard Enterprise (HPE) and Dell. Inventec and Quanta have the highest number of partnerships with leading cloud providers. Exhibit 2 shows the customer-ODM relationships.

Exhibit 2: Cloud Provider/OEM – ODM Partnerships

The future looks bright for the ODMs, server OEMs, as well as component makers as cloud providers, continue to expand their consumer base as well as services. Multiple new services such as cloud gaming, service mesh, IoT expansion as well as entry into new geographies will drive the cloud adoption and hence, will increase the infrastructure spend by cloud service providers.

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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%.

The post AMD Q2 2019: Driving High on the 7nm Tech-Train appeared first on Counterpoint.

Key highlights:

• AMD reported revenues of US$1.27 billion, down 23% YoY and 10% QoQ. Gross margin came in at 41%, a 5 percentage point increase YoY. Cash, cash equivalents and marketable securities stood at US$1.19 billion.
• Computing and Graphics segment (client solution processors and all GPUs) net revenue was US$831 million, down 26% YoY. Client Processor ASP was up YoY driven by Ryzen processor sales. GPU ASP was up due to datacenter GPU sales.
• Enterprise, Embedded, and Semi-Custom (custom-made solutions and datacenter CPUs) net revenue was US$441 million, down 17% YoY. However, EPYC processor sales saw an increase.
• International Sales accounted for 77% of total revenues for Q1 2019 as compared to 82% in the same period the previous year.
• Research and Development expenses climbed to US$373 million, an increase of 9% YoY. AMD also said that 7nm product launches are on track.
• AMD amended its WSA (Wafer Supply Agreement) with GlobalFoundries, which allows the company to award contracts to any foundry for their 7nm and thinner nodes.

Counterpoint’s View:

• AMD’s Q1 2019 results are a mixed bag. While revenues are down, margins have gone up. Recent offerings, such as Radeon Instinct datacenter GPUs as well as Ryzen processors, are the key reasons for the high margins. An improved product mix is also aiding AMD.
• AMD is heavily banking on the new launches in Q3 2019. These new launches include the new 7nm Navi GPUs and Rome (EPYC 2) server processors with Zen 2 microarchitecture. AMD has the upper hand on the technology front as Intel will not be able to ship 10nm chips until late 2019.
• AMD is continuously working on building strategic partnerships, which will prove beneficial to the fabless chip maker in the long run. Google has partnered with AMD to use the AMD Radeon datacenter GPUs for the Stadia gaming platform. AWS launched three new EPYC processor powered EC2 instances.
• Financially, the company is performing better. Cash and cash equivalents stood at US$1.19 billion, up from US$1.16 billion in the previous quarter. Total debt was US$1.09 billion, down from US$ 1.25 billion in the last quarter.
• AMD’s amended wafer supply agreement (WSA) with GlobalFoundries will allow the chip maker to expand its partnership with TSMC for sourcing out 7nm based chips. However, according to the agreement, AMD has to pay if it fails to meet the annual wafer purchase target for 2019-21 which poses an operational risk considering its heavy emphasis on the 7nm technology.
• The semiconductor industry had witnessed talent wars over time. In the last two years, Intel has poached three high-level executives from AMD, namely, Raja Koduri (previously SVP, Radeon in AMD), Chris Hook, and Jim Keller (responsible for designing the Zen architecture). AMD has to work on retaining talent to win over the competition in the long run.

Rise from the ashes: Chronology of AMD’s growth from recent history

Expectations for Q2 2019:

• AMD’s Q2 revenue guidance is US$1.52 billion, which is 19% up QoQ and down 13% YoY. However, due to the new launches in Q3 2019, customers may end up waiting for the better 7nm offerings, which may lower sales for the second quarter.
• Blockchain and client GPU products’ sales will continue to dip due to slower demand. Semi-custom revenue will stabilize in the second quarter. However, datacenter GPUs and Ryzen processor will drive up the sales. The unit ASP for processors and GPUs are expected to increase.
• In addition to cloud, building channel partnerships as well as a direct sales force for enterprise sales is a major concern to drive up the revenue in the Enterprise space.

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In a world where smartphones are increasingly becoming indistinguishable, camera features have emerged as the biggest differentiator for smartphone brands. Even in the affordable segments, consumers, especially in India, rate camera features highly when deciding which phone to purchase (Exhibit 1).

While Samsung is no stranger to innovations with camera features, the acquisition of Corephotonics can help it enhance its offerings in future models. The Korean company has long prioritized innovative camera features. In 2018, its Galaxy A7 boasted a triple rear camera setup while the Galaxy A9 in 2018 was a quad-camera smartphone. Both models received a positive response from consumers.

Corephotonics provides end-to-end multi-aperture solutions that improve the image quality and user experience of mobile imaging, dual camera systems, and solutions for other industries. Notably, Corephotonics developed the 5x lossless zoom for OPPO, which was a success for the Chinese brand. Multi-camera competition will likely emphasize optical zoom in 2019 – along with super-wide angle. Samsung’s broad product portfolio in consumer electronics and vertical integration, makes the acquisition a good fit. Samsung is bolstering its capability in camera zoom and AI imaging through this acquisition.

We also believe Samsung will enhance its share in the affordable smartphone segment by introducing superior camera features in its lower priced models. It can disrupt dominant players in the US$75-US$150 segment, forcing them to upgrade their camera specification or lower their prices to compete with Samsung.

Exhibit 1: India Consumer Survey Results – Features

Source: Counterpoint Research: Consumer Lens

However, post-acquisition integration is always challenging. We expect Samsung to use Corephotonics as a Strategic Business Unit (SBU) rather than purely as a captive supplier of R&D for its own smartphones.

Assuming Corephotonics becomes an SBU for Samsung, it can have a positive impact on the image sensor (CMOS Sensor) as well as the camera module market. Samsung can retake some market share from Sony, OmniVision and others. Further, it will also look to put resources toward research and development in order to push for better camera specifications and experience, applicable across multiple industry sectors, not just smartphones.

Over the last few years, Samsung has been acquiring companies to augment its technological capabilities. Its acquisition of SmartThings in 2014, allowed Samsung to venture into consumer IoT. Now, by acquiring Corephotonics, it can leverage advanced optical and video zoom for many IoT applications. For example, it can install camera models in ADT Home Security devices for home security solutions and better monitoring. Moreover, venturing into the automotive space will be easier with TransportEye, an Advanced Driver-Assistance System (ADAS) offering from Corephotonics. These are just a few examples where Samsung can benefit through this acquisition.

Samsung doesn’t have a good track record managing its acquisitions. It will likely keep Corephotonics somewhat independent like Bixby, but with the risk of losing core talent. If that happens Corephotonics will likely lose its competitive edge in as little as 12 months. But if Samsung manages the acquisitions well, it stands to gain a competitive edge in camera innovations, an aspect that, currently, attracts most potential smartphone buyers.

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