Underscoring a difficult second half of the year and the tech industry as a whole appearing to be shaping up, AMD told investors this afternoon that its quarterly earnings would rise significantly under previous guidance. Became the latest technology company to warn. AMD released its preliminary third quarter earnings report, reporting third quarter revenues of approximately $5.6 billion. This is more than $1 billion below AMD’s previous guidance of $6.7 billion. Driving this unexpected revenue decline is a very weak client market, with revenue down 40% compared to Q3 2021. As a result, revenue, traditionally AMD’s largest market segment, was the smallest in a single quarter.
Broadly speaking, AMD’s situation mirrors the rest of the technology industry, especially other competitors such as Intel and NVIDIA. For a variety of reasons, from declining consumer demand to recession preparedness, PC OEMs are drastically reducing inventories of finished systems and components. OEM inventories were relatively bloated after the pandemic. OEMs surged to meet the surge in demand for new client systems for their newly remote workforce. But as the pandemic subsides, so too has demand for new systems.
As a result of this inventory reduction, OEMs are now ordering relatively few new client processors. This has hit chip suppliers hard as orders from their biggest customers have dropped significantly.
| AMD Q3 2022 Report Segments | |||||
| Q3 2022 (P) | Q/Q | year/year | |||
| data center | ~$1.6 billion | +8% | +45% | ||
| client | ~$1 billion | -53% | -40% | ||
| game | ~$1.6 billion | Flat | +14% | ||
| embedded | ~$1.3 billion | +4% | +1549% | ||
AMD’s result, simply put, was lower client revenue in the third quarter. AMD’s client segment, which covers desktop and mobile CPU/APU sales, is expected to post approximately $1 billion in revenue in the third quarter. That’s a 40% year-over-year decline, and a further 53% decline on a quarterly basis. And while AMD hasn’t issued any formal guidance for any particular segment, meaning we can’t say how far client revenues have strayed from AMD’s expectations, the year-over-year decline has been consistent over the past few years. , is a drastic change for the product segment. We’ve had strong growth in the quarter.
Complicating matters is that AMD has its own stock inventory that it maintains. A sharp drop in OEM CPU orders means AMD will have to reduce the value of its chip inventory to account for the decline in ASP. Especially here, the billing is not only for the client business, but for the “graphics and client business”, and while AMD’s most pressing problems are in the CPU, they also feel some pressure on the graphics business. indicates that there is
As a result of these claims and client revenue declines, AMD’s client segment is now the smallest of the company’s four major segments, trailing its embedded/Xilinx segment. Instead, AMD’s data center and gaming (consumer GPU and console SoC) segments are currently the top divisions, tied at around $1.6 billion each in AMD’s preliminary numbers.
| AMD Q3 2022 Preliminary Results (GAAP) | ||||||
| Q3 2022 (P) | Q3 2021 | Q2 2022 | year/year | |||
| Earnings | ~$5.7 billion | $4.3 billion | $6.55 billion | +29% | ||
| gross profit | ~42% | 48% | 46% | -6pp | ||
Next, the net impact on AMD’s business is that quarterly earnings are about $1.1 billion below AMD’s previous guidance. AMD didn’t report net income/profitability numbers in its preliminary results, but in addition to the immediate revenue decline, GAAP gross margin declined to 42% from 46% in the previous quarter. means Non-GAAP gross margin was 4% below AMD’s guidance for the third quarter.
Nonetheless, AMD’s overall Q3 earnings are about 29% higher than the same period last year, which is the silver lining AMD is currently eyeing. Although lower, AMD’s remaining data center, gaming, and embedded segments all saw “significant year-over-year growth, in line with company expectations,” leading to growth for the company as a whole. In particular, the data center business grew 45% year-on-year. This is a huge leap forward despite the fact that AMD’s current generation of Milan processors is nearing the end of its cycle as AMD prepares to launch its next-generation Genoa processors later. rice field. this quarter.
AMD will fully explain third quarter results on November 1stst, when the company presents a full earnings report. Not only does it provide the final sales numbers and what that means for profitability, but it’s also the first time we’ve seen AMD forecast client demand for the final quarter of the year. Given the nature of , this soft client market is likely not just a one-quarter event for AMD, so it will be interesting to see how this affects operations over the next few quarters.
