Strong server chip sales drive AMD shares higher, despite weak PC market

Shares of chipmaker Advanced Micro Devices Inc. rose more than 4% in extended trading today after saying it expects strong growth from its server chip business in the coming quarters.

It came even as the company fell short of its third-quarter profit and revenue targets and offered a soft guidance for the coming quarter.

AMD reported earnings before certain costs such as stock-based compensation of 67 cents per share on revenue of $5.57 billion, up 29% from a year ago. The results were below expectations, with Wall Street analysts targeting earnings of 68 cents per share on sales of $5.62 billion.

Overall, AMD reported net income of $66 million in the quarter, up from $923 million a year earlier. The company blamed the decline in profits on the amortization of intangible assets associated with its $50 billion acquisition of Xilinx Inc., which makes programmable computer chips. The deal was closed in February.

The results were more or less in line with a warning issued by AMD on October 6. Then the company told investors it was lagging behind its previous guidance due to lower shipments, which was blamed on a weaker than expected. personal computer market. AMD’s stock fell nearly 14% on the warning.

AMD President and CEO Lisa Su (pictured) reiterated that in her statement, saying the results were below expectations due to the slowing PC market and “substantial inventory reduction actions” taken by the company throughout its PC supply chain.

“Despite the challenging macroeconomic environment, we grew our revenue 29% year-over-year on the back of increased sales of our data center, embedded and game console products,” Su said. . “We are confident that our industry-leading product portfolio, strong balance sheet, and continued growth opportunities in our data center and integrated businesses position us well to navigate the current market dynamics.”

In a conference call, Su told analysts the company expected to weather the “dull” PC market in the next quarter. However, it was still forced to revise downwards its revenue forecast for the full year. He said he now forecast annual revenue of $23.5 billion, down from an earlier forecast of $26.3 billion he provided in August. For the fourth quarter, AMD forecasts sales of between $5.2 billion and $5.8 billion, well below Wall Street’s forecast of $5.85 billion.

There were, however, some reasons for optimism. In the past quarter, AMD’s Data Center business achieved $1.61 billion in revenue, up 45% from a year ago and just below the consensus estimate of $1.64 billion. The segment notably included contributions from Xilinx and another startup the company recently acquired, Pensando Systems Inc. AMD said it has seen strong demand for its server chips codenamed Genoa, and it expects big things from the launch of the new generation of its EPYC. data center chips later this month.

“We’ve made some really good progress across North American cloud providers and we continue to believe that while there may be short-term, let’s call it optimization, or, let’s call it, footprints and efficiencies individual cloud providers, over the medium term,” Su told analysts on a conference call. “As we enter 2023, we expect growth in this market, especially customers moving more than workloads to AMD, just given the strength of our product portfolio.”

In another bright spot, data center segment cloud revenue more than doubled and also grew sequentially. However, sales to server manufacturers that target large enterprises declined sequentially. Su said it was because these customers took longer to make buying decisions and were more cautious with capital expenditures.

AMD’s Gaming segment generated $1.63 billion in revenue, up 14% from a year ago and in line with Wall Street forecasts. AMD said it’s seeing healthy demand for console chips heading into the holiday season. As for the Embedded segment, which also included some Xilinx sales, it added $1.3 billion in revenue, up from $79 million a year earlier and in line with consensus.

The real disaster, of course, was the Client unit, which generated $1.02 billion in revenue, down almost 40% from the previous year. AMD was hit by a significant drop in PC sales. Earlier this month, analyst firm Gartner Inc. said third-quarter PC sales were down 19.5% from a year ago, the biggest drop it has seen. since she started following the market in the mid-1990s.

Of note, AMD’s four business segments generated slightly higher revenue than the company had expected in October.

AMD Chief Financial Officer Devinder Kumar told analysts the company would continue to invest in “strategic priorities” such as data centers, while limiting operating expenses and workforce growth elsewhere.

Photo: AMD Global/Flickr

Show your support for our mission by joining our Cube Club and our Cube Event community of experts. Join the community that includes Amazon Web Services and Amazon.com CEO Andy Jassy, ​​Dell Technologies Founder and CEO Michael Dell, Intel CEO Pat Gelsinger, and many other luminaries and experts.

Sallie R. Loera