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Weak Client Segment Revenues to Hurt AMD Q3 Earnings Growth
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Advanced Micro Devices (AMD - Free Report) forecasted third-quarter 2022 revenues to be approximately $5.6 billion, an increase of 29% year over year, lower than the previously expected rise of roughly 55%.
AMD’s preliminary results reflect lower-than-expected client segment revenues resulting from reduced processor shipments due to weaker demand in the PC market and significant inventory correction actions across the PC supply chain.
AMD expects a non-GAAP gross margin of approximately 50%, down 400 basis points due to lowered client segment revenues.
AMD expected PC sales to decline in the third quarter, which was reflected by the falling PC demand in the prior quarters. Per International Data Corporation, PC sales were down 15.3% year over year to 71.3 million units during the June quarter, which was higher than the first quarter's decline rate of 5.1% and was the worst fall in many years.
Also, rising geo-political tensions between the United States and China, the global supply chain challenges that have hurt the semiconductor industry, the ongoing Russia-Ukraine war, which has caused natural gas prices to surge across Europe, rising inflation globally and the U.S. Federal Reserve’s interest rate hike are expected to have affected AMD’s top-line growth in the third quarter.
The volatile macroeconomic situation has the broader tech sector in the doldrums, specifically reflected by AMD’s semiconductor peers NVIDIA (NVDA - Free Report) and Intel, which also bore the brunt of the situation.
In the year-to-date period AMD, NVDA and Intel shares have all underperformed the S&P 500 index, having fallen 56.9%, 52.9%, and 43.5% reflectively. The S&P 500 Index declined 19.1% in the same period. AMD, currently has Zacks Rank #5 (Strong Sell).
However, AMD expects a significant rise in its high-growth business segments like data center and gaming, in line with its previous guidance. It expects Data Center and gaming business to grow 45% and 14%, respectively, year over year.
Click here to know how AMD’s overall third-quarter performance is likely to be.
Advanced Micro Devices, Inc. Price and EPS Surprise
AMD’s third-quarter results are expected to have benefited, as the company has been diversifying its product portfolio to cater to trending high-growth markets like cloud, gaming, data center and EV.
The company has constantly been improving the performance of its Ryzen processors to help address the increasing proliferation of Artificial Intelligence (AI) and Machine Learning in industries like cloud, gaming and data center.
However, as it ventures into new markets, the company faces rising competition from the likes of NVIDIA.
NVIDIA, AMD’s fellow PyTorch Foundation founding member, partnered with Meta Platforms (META - Free Report) to build an AI research supercomputer, helping META AI researchers to build different AI models crucial for creating the metaverse.
To beat the rising competition and drive top-line growth in the third quarter, AMD also partnered with Meta to venture into the metaverse. AMD’s radio chip Xilinx Zynq UltraScale RFSoC will be utilized to develop multiple Evenstar radio units (RU) to expand 4G/5G mobile network infrastructure, which is crucial for the metaverse.
AMD’s collaboration with Meta will aid the company in transitioning out of the slowing pc market and concentrate on the semi-custom chip business, which will help to expand in high-growth markets like AI and ML.
AMD is also addressing high-performance computing (HPC) in partnership with Hewlett Packard (HPE - Free Report) and the U.S. Department of Energy’s Oak Ridge National Laboratory to build the Frontier supercomputer, which can make 1,000,000,000,000,000,000 calculations per second.
AMD’s partnership with HPE bodes well, as it helped the former to build the world’s fastest supercomputer.
AMD’s third-quarter results are expected to have benefited from its foray into the HPC market as AMD powers five of the top 10 most powerful and eight of the top 10 most energy-efficient supercomputers globally. CSC’s LUMI supercomputer powered by AMD EPYC and AMD Instinct MI200 systems is third on the Top500 list and third on the Green500.
The Top500 and Green500 lists showcase the growing adoption of AMD solutions for building the HPC ecosystem, which is expected to have positively impacted AMD’s top-line growth in the third quarter.
Image: Bigstock
Weak Client Segment Revenues to Hurt AMD Q3 Earnings Growth
Advanced Micro Devices (AMD - Free Report) forecasted third-quarter 2022 revenues to be approximately $5.6 billion, an increase of 29% year over year, lower than the previously expected rise of roughly 55%.
AMD’s preliminary results reflect lower-than-expected client segment revenues resulting from reduced processor shipments due to weaker demand in the PC market and significant inventory correction actions across the PC supply chain.
AMD expects a non-GAAP gross margin of approximately 50%, down 400 basis points due to lowered client segment revenues.
AMD expected PC sales to decline in the third quarter, which was reflected by the falling PC demand in the prior quarters. Per International Data Corporation, PC sales were down 15.3% year over year to 71.3 million units during the June quarter, which was higher than the first quarter's decline rate of 5.1% and was the worst fall in many years.
Also, rising geo-political tensions between the United States and China, the global supply chain challenges that have hurt the semiconductor industry, the ongoing Russia-Ukraine war, which has caused natural gas prices to surge across Europe, rising inflation globally and the U.S. Federal Reserve’s interest rate hike are expected to have affected AMD’s top-line growth in the third quarter.
The volatile macroeconomic situation has the broader tech sector in the doldrums, specifically reflected by AMD’s semiconductor peers NVIDIA (NVDA - Free Report) and Intel, which also bore the brunt of the situation.
In the year-to-date period AMD, NVDA and Intel shares have all underperformed the S&P 500 index, having fallen 56.9%, 52.9%, and 43.5% reflectively. The S&P 500 Index declined 19.1% in the same period. AMD, currently has Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
However, AMD expects a significant rise in its high-growth business segments like data center and gaming, in line with its previous guidance. It expects Data Center and gaming business to grow 45% and 14%, respectively, year over year.
Click here to know how AMD’s overall third-quarter performance is likely to be.
Advanced Micro Devices, Inc. Price and EPS Surprise
Advanced Micro Devices, Inc. price-eps-surprise | Advanced Micro Devices, Inc. Quote
Diversified Product Portfolio Helped in Q3 Growth
AMD’s third-quarter results are expected to have benefited, as the company has been diversifying its product portfolio to cater to trending high-growth markets like cloud, gaming, data center and EV.
The company has constantly been improving the performance of its Ryzen processors to help address the increasing proliferation of Artificial Intelligence (AI) and Machine Learning in industries like cloud, gaming and data center.
However, as it ventures into new markets, the company faces rising competition from the likes of NVIDIA.
NVIDIA, AMD’s fellow PyTorch Foundation founding member, partnered with Meta Platforms (META - Free Report) to build an AI research supercomputer, helping META AI researchers to build different AI models crucial for creating the metaverse.
To beat the rising competition and drive top-line growth in the third quarter, AMD also partnered with Meta to venture into the metaverse. AMD’s radio chip Xilinx Zynq UltraScale RFSoC will be utilized to develop multiple Evenstar radio units (RU) to expand 4G/5G mobile network infrastructure, which is crucial for the metaverse.
AMD’s collaboration with Meta will aid the company in transitioning out of the slowing pc market and concentrate on the semi-custom chip business, which will help to expand in high-growth markets like AI and ML.
AMD is also addressing high-performance computing (HPC) in partnership with Hewlett Packard (HPE - Free Report) and the U.S. Department of Energy’s Oak Ridge National Laboratory to build the Frontier supercomputer, which can make 1,000,000,000,000,000,000 calculations per second.
AMD’s partnership with HPE bodes well, as it helped the former to build the world’s fastest supercomputer.
AMD’s third-quarter results are expected to have benefited from its foray into the HPC market as AMD powers five of the top 10 most powerful and eight of the top 10 most energy-efficient supercomputers globally. CSC’s LUMI supercomputer powered by AMD EPYC and AMD Instinct MI200 systems is third on the Top500 list and third on the Green500.
The Top500 and Green500 lists showcase the growing adoption of AMD solutions for building the HPC ecosystem, which is expected to have positively impacted AMD’s top-line growth in the third quarter.
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