AMD follows Intel in warning that the PC market is collapsing

The red-hot PC market is slowing rapidly after surging during the COVID-19 pandemic, and chip players AMD and Intel are feeling the financial pain.

“We have taken a more conservative outlook on the PC business,” said AMD CEO Dr. Lisa Sue, in an earnings call late Tuesday. “So a quarter ago, we would have thought the PC business would have been down, let’s call it single digits [percentage]. And our current view of the computer business is that it will be out of business, let’s call it the mid-teens [percentage].”

PC weakness led AMD to forecast a rare worse-than-expected third quarter, despite appreciating continued strength in data center chip sales. AMD sees third-quarter sales of $6.5 billion to $6.9 billion. The Street had forecast sales of $6.8 billion. AMD forecast third-quarter gross margin at 54, slightly below estimates of 54.2%.

AMD stock fell 5% in premarket trading on Wednesday. The company had the most visited page on Yahoo Finance, underscoring investor concern about AMD’s outlook, which also included a warning that pressure on the PC market would continue into the fourth quarter.

A man checks the power cables on a laptop motherboard at a repair center in Colombo, Sri Lanka October 17, 2017. REUTERS/Dinuka Liyanawatte

A man checks the power cables on a laptop motherboard at a repair center in Colombo, Sri Lanka October 17, 2017. REUTERS/Dinuka Liyanawatte

AMD’s warning comes after Intel rival Intel previously told investors it expected the total addressable PC market this year to sink 10 percent amid a shocking second-quarter profit miss and a full-year profit decline.

“We’ve seen significant inventory corrections on the part of our customers,” Intel CEO Pat Gelsinger said on Yahoo Finance Live.

Gelsinger said he believes the third quarter is the bottom for his business, with trends improving in the fourth quarter as holiday PCs are bought.

Intel stock closed down 8% on Friday after the disappointments.

The unrelenting comments from the two chip giants shed further light on what has been a difficult environment for PC makers and their suppliers. The tightening of PC spending also raises the risk of lackluster quarters and an outlook from PC makers Dell and HP when they report in the coming weeks.

Worldwide shipments of traditional PCs fell 15.3 percent year over year to 71.3 million units in the second quarter, according to IDC data. This marked the second straight quarter of lower PC shipments after two years of growth.

“Fixing PC inventory could [continue] for several quarters, in our view, given the high inventory levels of the PC supply chain for 20+ years,” Baird analyst Tristan Gerra wrote in a note to clients. The seasonality of the first half suggests that there is no near-term PC recovery, resulting in underutilization rates causing gross margin to recover.”

Brian Sozzi is editor-in-chief and Anchor on Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and up LinkedIn.

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