Semiconductor gloom as AMD Warns Again, Samsung First Profit Decline in Three Years

Advanced Micro Devices issued preliminary third-quarter results Thursday that are well below its initial guidance from an already weak second-quarter earnings and guidance where AMD slashed its revenue and gross margin guidance for Q3, citing a “significantly” weaker PC market. Now they are saying it’s even worse saying its non-GAAP gross margin is expected to come in around 50%, while it had previously expected gross margin to be closer to 54%.

AMD is seen as having a significant market opportunity as its primary rival for PC and server processors, Intel continues to disappoint. The knock-on effect from AMD’s warnings hit other semiconductor companies hard as a result of the dismal outlook.

AMD Girl

Advanced Micro’s warning shows how quickly things are unraveling with demand collapsing. AMD now expects revenue in its Client segment (chips for PCs, laptops, notebooks) to plunge by 40% yr/yr, causing it to slash its total revenue outlook by around $1.0 bln to $5.6 bln.

AMD Warning Highlights

  • AMD’s Client segment revenue about $1 billion, down 40% year over year.
  • Gaming segment about $1.6 billion in revenue, up 14% year-over-year
  • Data Center business about $1.6 billion in sales for the quarter, up 45% year-over-year.

AMD said the shortfall was a combination of a “weaker than expected PC market and significant inventory correction actions across the PC supply chain.”

Margin are pressured from this combination of lower Client processor unit shipments, falling ASPs, and a $160 mln charge related to inventory. AMD lowered its non-GAAP gross margin guidance to about 50% from 54%.

The boost in its Embedded business, which is primarily the result of acquiring Xilinx earlier this year, generated about $1.3 billion.

Samsung First Quarterly Profit Decline in Three Years

Confirming AMD’s woes last night Samsung reported its first quarterly profit decline in three years. Samsung Electronics on Friday estimated its third-quarter operating profit at 10.8 trillion won ($7.7 billion), down 31.7 percent from a year earlier. Samsung’s sales of 76 trillion won also missed analysts’ estimates.

Samsung is the world’s largest chip maker and serves a wide range of end markets, including smartphones, laptops, televisions, appliances, and automobiles. Given that tis weak performance may be more problematic from a broader macroeconomic standpoint than AMD’s, which solely blamed the eroding PC market for its guidance revision.

Clouds have been a dark shadow over semiconductor companies for a while, especially for companies with heavy exposure to PCs/laptops, such as AMD.

On September 29, memory chip maker Micron (MU) reported Q4 results around expectations, but guided Q1 EPS and revenue far below expectations. Prior to that weak earnings reports/guidance came from NVIDIA (NVDA) in late August, and from Intel (INTC) in late July.

On the market today these chipmakers were all hit as were other PC-centric stocks like Dell (DELL) and Logitech (LOGI) on AMD’s guidance cut and Samsungs results. It is if PC demand has evaporated, leaving OEMs with stockpiles of inventory.

Chip Wreck Friday

Semiconductor Stocks Fallout from AMD Close 10 7 22

Some Areas of Strength for AMD and Chip Makers.

  • AMD estimated that Q3 data center revenue jumped by 45% yr/yr to $1.6 bln, illustrating that enterprises and hyper-scalers haven’t been smashed as macro-related risks increase. This data point is a positive for companies like NVDA (data center 57% of 2Q23 revenue), Marvell (MRVL), and MU. In saying that AMD’s growth is helped by its acquisition of Xilinx, which closed last February.
  • The automotive end market with the electrification and autonomous driving trends continue to evolve. Qualcomm (QCOM), Texas Instruments (TXN), and NXP Semi (NXPI) are a few chip companies that should benefit from robust demand from auto OEMs.
  • Gaming held up reasonably well for AMD, with revenue up by 14% yr/yr. Caution though as the company didn’t break out a specific growth rate for gaming in the year-earlier quarter, management characterized gaming demand as “quite strong”.

Very clearly like the whole market the severity of the destruction has been underestimated in the PC/laptop market. The work-from-home trend created a massive pull forward in demand as people upgraded their devices and electronics, leaving a void in demand that’s expanding as macroeconomic fears intensify.

We will get to see how resilient large enterprises and government entities to economic volatility as Fed and White House seem determine to smash the economy and inflation. Spending on data center investments is ongoing but with liquidity and credit drying up deals are taking longer to close.


Earnings Q2 2022 Recap

Advanced Micro Devices, Inc. NASDAQ: AMD Reported Earnings After Close Tuesday

$1.05 Met $1.05 EPS Forecast and $6.55 billion Beat $6.53 Billion Forecast in Revenue

Earnings

All four of AMD’s major segments grew during the quarter, in which overall revenue soared 70% year over year.

CEO Su said on the earnings call with analysts that AMD believes it is taking market share in the server and PC markets. “We’re pleased that we’re gaining share,” she said.

Highlights

AMD Q2 22 Earnings:

  • Revenue: $6.55B (exp $6.53B)
  • Adj EPS: $1.05 (exp $1.05)
  • Data center sales surged 83% year over year to $1.5 billion. The segment includes chips for cloud computing and large enterprise customers.
  • Strong sales for server processors drove the growth, the company said, adding it doesn’t anticipate a slowdown in demand for these chips.
  • Client segment revenue, which is comprised of PC and laptop chip sales, rose 25% to $2.2 billion during the quarter despite signs that computer sales have been slowing at the end of a two-year pandemic-fueled boom.
  • AMD said the growth was attributable to mobile processor sales, likely for laptops.
  • Gaming segment sales rose 32% year over year to $1.7 billion on sales growth in “semi-custom” chips for consoles. However, graphics processors for gaming PCs declined during the quarter.
  • AMD’s embedded segment, which includes chips for networking or cars, reported $1.3 billion in sales, was boosted by AMD’s acquisition of Xilinx, which was completed in the first quarter
  • AMD said it repurchased $920 million of its stock during the second quarter.
  • Sees Q3 Revenue $6.5B To $6.9B (exp $6.81B).

AMD has partnerships with major game developers including Ubisoft, Capcom and Rebellion to optimize their next generation of games on Radeon graphics in a most competitive marketplace.

Outlook

The chipmaker said it expected $6.7 billion in revenue during the current quarter, plus or minus $200 million. Analysts had expected $6.83 billion.

AMD CEO Lisa Su saw declines in the current quarter for the PC business.

“We have taken a more conservative outlook on the PC business, so a quarter ago we would have thought that the PC business would be down let’s call it high single digits,” Su said. “Our current view of the PC business is that it will be down mid-teens.”

Source: AMD

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