AMD stock slips as revenue forecasts fall below Street consensus

Shares of Advanced Micro Devices Inc. fell in Tuesday’s extended session after the chipmaker’s revenue forecast fell below Wall Street’s consensus after it posted record sales, beat Street expectations and reported a huge increase in data center sales.

“Taking a step back, while there has been additional softness in the PC market in recent months, we believe we are very well positioned to navigate the current environment based on the strength of our existing product portfolio and upcoming product releases,” Lisa Su, AMD CEO told analysts on a conference call.

“Despite the current macro environment, we see continued growth in the last half of the year, highlighted by shipments of next-generation 5nm products and supported by our diversified business model,” Su told analysts.

AMD forecast third-quarter revenue of $6.5 billion to $6.9 billion and restated its forecast for revenue of $26 billion to $26.6 billion for the year.

Analysts polled by FactSet had expected revenue of $6.84 billion for the third quarter and $26.21 billion for the year. The company also backed its gross margin forecast at 54% for the year. In February, AMD forecast gross margins of 51% for 2022 and revenue of about $21.5 billion. At the time, Wall Street analysts had a consensus of $19.29 billion in revenue.

Su told analysts on the call that the third-quarter outlook implies data center sales will drive revenue growth, with PC sales falling into the mid-teens. In the fourth quarter, Su said that the momentum should remain but that AMD will release its new 5nm products in this quarter.

Nanometers, or ‘nm’, denote the size of each transistor that goes into a computer chip, the general rule being that smaller transistors are faster and more efficient at using power. As AMD moves to its 5nm chip, Intel struggles to release its 7nm chip.

Shares fell 4% after rising 2.6% to finish the regular session at $99.29.

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AMD AMD,
+2.59%
reported second-quarter net income of $447 million, or 27 cents per share, compared with $710 million, or 58 cents per share, in the prior period. Adjusted earnings, which exclude stock-based compensation expense and other items, were $1.05 per share, compared with 63 cents per share in the prior period.

The company reported record revenue for the eighth consecutive quarter: Revenue rose 70% to $6.55 billion from $3.85 billion in the prior period.

Analysts polled by FactSet had forecast $1.03 a share on revenue of $6.53 billion, based on AMD’s forecast of $6.3 billion to $6.7 billion.

AMD reported sales based on new product categories, including its data center revenue breakout for the first time. Data center revenue rose to $1.49 billion from $813 million last year, an 83 percent increase.

Last week, Intel Corp. INTC,
-2.57%
reported dismal results and lowered its outlook for the year, reporting a 16% drop in data center sales to $4.6 billion and predicting that data center sales will grow more slowly than the overall market. In other words, as Intel lost about $900 million in data center sales, AMD collected an additional $673 million in data center sales.

Customer sales rose 24% to $2.15 billion from $1.73 billion a year ago. Game sales rose 32% to $1.66 billion from $1.26 billion. and integrated sales rose to $1.26 billion from $54 million in the previous quarter, before the company acquired Xilinx in February.

In acquiring Xilinx, AMD brought in so-called field-programmable gate arrays, or FPGAs, chips that can be configured by a customer or designer after they are manufactured. These chips are used as accelerators in data centers to boost computing power and improve power efficiency in existing physical spaces.

Adjusted gross margins were 54% for the second quarter, up from 48% in the prior year and first quarter. Meanwhile, rival Intel reported gross margins of 44.8% for the second quarter and now expects 49% for the year, down from the 52% to 53% previously forecast by Intel Chief Financial Officer David Zinsner, or “comfortably over 50%” promised. by CEO Pat Gelsinger.

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In June, AMD said at its analyst day that it expects average annual revenue growth of about 20% over the next three to four years.

Over the past 12 months, AMD stock has fallen 8%. During the same period, the PHLX Semiconductor Index SOX,
-0.12%
is down 11%, the S&P 500 SPX,
-0.67%
is down 6%, and the Nasdaq Composite technology index,
-0.16%
has dropped 15%.

Elsewhere in the chip sector this earnings season, Texas Instruments Inc.’s TXN.
-0.88%
results and outlook beat Wall Street estimates at the time, while Qualcomm Inc.’s QCOM
-0.27%
The outlook has weakened due to weakening device sales.

Chip industry supplier Lam Research Corp. LRCX,
-0.03%
beat Wall Street estimates for the quarter and posted an outlook that was mostly above consensus, while rival KLA Corp. KLAC,
-0.76%
issued an outlook range that was partially below Wall Street estimates at the time. Before that, ASML Holding NV ASML,
-2.17%
lowered its revenue forecast for the year after the company said brisk orders would push revenue recognition for those sales into next year.

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