AMD Warns of 15% Profit Shortfall, Drags Chipmaker Stocks Lower

After markets closed Thursday, Advanced Micro Devices Inc. (NASDAQ: AMD | AMD Price Prediction) released preliminary third-quarter results that fell far short of prior guidance and send the stock tumbling about 5.7% in after-hours trading.

Rival chipmakers trailed along. Nvidia and Intel dipped by 3.1% and 2.8%, respectively, while Micron slipped by 1.2%. The semiconductor equipment industry also got pushed lower, with Lam Research dropping 1.2% and Applied Materials dipping 1.0%.

Friday’s premarket session did not offer much respite. AMD traded down by 5.7%, Nvidia traded 4.3% lower and Intel was down by about 2.3%.

AMD CEO Dr. Lisa Su noted significant weakness in the personal computer market during the third quarter and said, “macroeconomic conditions drove lower than expected PC demand and a significant inventory correction across the PC supply chain.” AMD revised its revenue guidance down by about 15%, from a prior midpoint of around $6.7 billion to a new forecast of $5.6 billion. The new estimate is 29% higher year over year, but prior guidance had called for a gain of 55%.

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Non-GAAP gross margin, previously forecast at 54%, is now seen to come in at around 50%. AMD said the shortfall was due primarily to lower shipments to PC makers and a lower average selling price. The company expects to take charges totaling approximately $160 million in the quarter related to inventory, pricing and related reserves in the company’s graphics and PC businesses.

Third-quarter results in each of the company’s other businesses (data center, gaming, embedded) is expected to be flat (gaming) or up sequentially and higher year over year. The company’s embedded chip business is expected to post $1.3 billion in quarterly revenue, up more than 1,500% year over year. The jump is largely due to the addition of Xilinx’s embedded chip business. AMD’s data center revenue is expected to rise by 45% year over year, and gaming segment revenue is forecast to rise a more modest 40%.

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However, the 53% sequential drop in the PC business from $2.2 billion in the prior quarter to a forecast $1.0 billion is too big a drop for the other segments to cover.

AMD will report final third-quarter results on November 1, and investors are going to weigh the company’s guidance for the rest of the fiscal year against macroeconomic forecasts and expected supply chain headwinds.

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With 90 minutes to go before Friday’s opening bell, AMD stock traded down about 5.2% at $64.34, in a 52-week range of $62.83 to $164.46. More than 98 million shares traded hands on Thursday, and volume should be at least that high again Friday.