Summary
AMD said that its Q3 2022 revenue will be about $5.6 billion, and management had previously forecasted $6.7 billion in sales for Q3 back in August. Rapidly evaporating PC demand was the culprit for the big miss.
AMD is scheduled to release its Q3 results after the market closes on November 1. Analysts anticipate the revenues of AMD to reach $5716 million. It is expected that AMD to post earnings of 0.202 per share.
Latest Results
AMD $(AMD)$ reported second-quarter net income of $447 million, or 27 cents a share, compared with $710 million, or 58 cents a share, in the year-ago period. Adjusted earnings, which exclude stock-based compensation expenses and other items, were $1.05 a share, compared with 63 cents a share in the year-ago period.
The company reported record revenue for an eighth straight quarter: Revenue surged 70% to a record $6.55 billion from $3.85 billion in the year-ago period.
In acquiring Xilinx, AMD brought on board so-called field-programmable gate array, or FPGA, chips that can be configured by a customer or a designer after they are made. Those chips are used as accelerators in data centers to boost computing power and improve power efficiency in existing physical spaces.
Adjusted gross margins came in at 54% for the second quarter, up from 48% in the year-ago and first quarters.
3 Things To Watch Before Q4 Earnings Release
AMD Reports Quarterly Sales Below Guidance
AMD cut its revenue forecast for the most recent quarter citing weaker-than-expected demand for the personal computers that use its chips.
The chip maker, which sells central processing units for laptops and desktops alongside a large videogame graphics chip business, on Thursday said it expected about $5.6 billion of sales in the just-ended quarter, about $1.1 billion less than it previously said it was expecting when it issued a subdued outlook in August.
PC Market Weakened Significantly in Q3
"The PC market weakened significantly in the quarter," AMD Chief Executive Lisa Su said. "While our product portfolio remains very strong, macroeconomic conditions drove lower-than-expected PC demand and a significant inventory correction across the PC supply chain," she added.
PC shipments are suffering some of their steepest declines in years after elevated pandemic-related sales were followed by a slowdown in consumer spending on electronics, including PCs and smartphones.
Global PC shipments are set to decline 12.8% this year, with those of tablets retreating 6.8%, data analysis firm IDC said last month. "Further contraction is also expected in 2023 as consumer demand has slowed, the education demand has been largely fulfilled, and enterprise demand gets pushed out due to worsening macroeconomic conditions," IDC said.
AMD said it expects to book a charge of about $160 million mostly to reflect items such as inventory and pricing issues.
Data-Center Business Remained Strong
Despite the PC market weakness, AMD said its divisions supplying chips to data centers and videogamers remained strong. The data-center business is expected to bring in around $1.6 billion in the third quarter, up 45% from a year ago, while gaming sales are expected to rise 14%, also to $1.6 billion.
While chip companies closely tied to consumer devices have had a rough few months, other semiconductor suppliers are continuing to see robust demand despite the economic challenges. A chip shortage that started during the pandemic hasn't subsided in some parts of the industry, including chip makers that supply the automotive and medical-devices industries.
Weakness in the company's Client and Gaming segments, about half of sales, is likely to carry over for at least the next 2-3 quarters, creating risk for further cuts to sales and earnings in the near term. While Data Center demand has been robust so far, AMD could see a sequential deceleration in 4Q. Excess inventory will be a drag on the company's gross margin as may be the case with its Client and Gaming segments.
What analysts are saying
Following AMD's cut, Bernstein analyst Stacy Rasgon, decided to view it as a possible clearing event.
"While we admit this cut is disappointing and bigger than we would have anticipated it may represent a clearing event at least for PCs (datacenter may remain the sticky point; it looks fine in Q3 but we suspect investors are going to be a bit nervous still until we get more clarity on Q4)," Rasgon said.
Susquehanna's Rolland, who has a positive rating and an $80 price target on AMD, estimates that AMD is posting record highs in share gains in desktops and laptops. Rolland's model indicate AMD catching 29.3% of the desktop market and 22.8% of the laptop market.