AMD: share buybacks are far from the main driver of growth
AMD pleasantly surprised market participants: management announced a $4 billion share repurchase program. Recall that for a long time the company could not become profitable, so the adoption of such a decision, almost immediately after the positive changes, caused a heated discussion.
In 2021, analysts expect net profit to grow to $2.5 billion. According to the results of the first three months, the volume of the “cache" on the balance sheet exceeded $2.8 billion, which means that AMD can safely pull the share buyback. The problem is that after the purchase of Xilix, the company's capitalization should exceed $130 billion, as a result of which the withdrawal of shares will not lead to a tangible effect. However, this step is a confirmation that AMD is confident in the future of its business.
An important point – thanks to Xilix, the combined company will have a higher gross margin. While AMD has a margin of 47%, Xilix has a margin of 70%. The market regularly reviews forecasts for the manufacturer's revenue in 2021, 2022 and 2023: according to new calculations, it can reach $14.68 billion, $16.70 billion and $19.14 billion, respectively. Thanks to the synergy effect, management expects to increase the margin to 55% by the end of 2023.
The high demand for the products continues, so AMD can really increase revenue by 50% from the values of a successful 2020. It is necessary to monitor how the company will manage its funds. The main thing is not to get carried away with buying shares, but to invest in the further development of the business. Otherwise, you can repeat the fate of Intel or even IBM.