![]() AMD disclosed a gross margin of 50% (non-GAAP) for the third-quarter which is below the 54% gross margin expected in AMD’s previous outlook. This is because contracting gross margins are the result of waning pricing and volume strength which clearly is the case here. But clearly, growth is slowing down hard for AMD and it already created significant headwinds for AMD’s valuation.ĪMD: Q3'22 Preliminary Results Pressured gross margins: the end of the market cycleĭue to the slowdown in the Client business, AMD is seeing a decline in its gross margins… which I have previously singled out as being the canary in the coal mine for chip companies. The Data Center business still generated 45% year over year revenue growth and has a new quarterly revenue baseline of $1.6B. AMD’s $5.6B in Q3’22 revenues still represented 29% year over year growth, however, and the firm’s other segments, especially Data Centers, continued to perform well for AMD. Weakening PC demand was cited by AMD as a top reason for the collapse in revenue growth in the Client business. The latest data from Gartner combined with AMD’s profit warning, however, paints a pretty dark picture of the state of the PC and device markets and things may even get worse for AMD in the short term.įrom Lenovo to Apple, major PC and laptop manufacturers saw significant decreases in PC shipments in Q3’22, indicating that the down-turn is as broad-based as it is steep. According to Gartner’s earlier outlook, the company projected a 9.5% decline in PC shipments in FY 2022 and a 7.6% drop in total device sales (which includes mobile phones). According to the newest data about PC shipments just made available by consulting company Gartner, PC shipments fell significantly in the third-quarter which ties together with AMD’s profit warning.Īccording to Gartner, PC shipments dropped a massive 19.5% in the third-quarter which represented the largest drop since the mid-nineties, indicating that the PC/laptop market is in much worse shape than feared. Since then, however, shipments for PC, laptops and mobile devices have dropped sharply. Demand for processors has waned in FY 2022, largely because PC shipments are falling after the COVID-19 pandemic which saw device sales surge to a record in Q1’21. The Client segment is a new reporting section for AMD which includes the sale of Ryzen desktop and laptop processors. Three months ago, AMD expected revenues of $6.7B +/- $200M due chiefly due to rapidly declining growth in the Client segment. On October 6, 2022, AMD released its Q3’22 results three weeks early due to a major deterioration in operating conditions in the third-quarter.ĪMD disclosed in a release that its revenues in the third-quarter were just $5.6B which was a full $1.1B below the mid-point top line forecast just a quarter ago. For those reasons, I am changing my recommendation to hold. Falling gross margins are a game-changer because they signal the end of the current expansion cycle in the chip industry. While I think that AMD has long term potential, in part related to the enormous metaverse opportunity and AMD’s very successful EPYC data processor series, I think that short term uncertainty and lowered expectations are going to weigh on AMD for a while. ![]() ![]() AMD’s pre-release is quite significant regarding the size of the revenue drop the semiconductor firm experienced in the third-quarter due to a further deterioration in the PC market. ![]() AMD ( NASDAQ: AMD) pre-released earnings for the third-quarter on October 6, 2022, unfortunately just shortly after I wrote “ AMD: Buy When Others Are Fearful”. ![]()
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