AMD Gives Lackluster Forecast as PC Slump Hurts Sales

(Bloomberg) — Advanced Micro Devices Inc., the second-biggest maker of personal-computer processors, gave a lukewarm sales forecast for the third quarter, indicating that market-share gains against Intel Corp. won’t make up for a decline in PC demand.

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Revenue in the period will be about $6.7 billion, AMD said in a statement Tuesday, compared with an average analyst estimate of $6.81 billion. The chipmaker’s shares fell more than 5% in extended trading following the announcement.

Under Chief Executive Officer Lisa Su, AMD has been taking market share from Intel and benefiting from demand for its new, powerful server chips. But Tuesday’s outlook showed that the company isn’t insulated from the slowing PC industry, which is still the biggest market for its products. That business is now expected to decline more steeply than the company had projected, Su said on a call with analysts.

“We are being more conservative in our PC guidance,” she said. “We continue to see strong demand in the data canter, in our embedded business, in game consoles.”

AMD is now even more pessimistic about PC demand than Intel or market forecasters. The business will decline in the “mid-teen” percentage range, Su said on the conference call. Three months ago, she said the company was expecting shipments in the PC market to drop in the high-single-digit percentage range in 2022.

Last week, Intel downgraded its outlook for the market to a contraction of about 10%. And research firm Gartner Inc. has predicted that PC shipments will shrink 13% in 2022 after two years of growth. Chip revenue from that market will fall 5.4%.

While AMD may be falling short of lofty estimates, its larger rival Intel is faring even worse. That company — once the envy of the chip industry — has suffered rapidly declining revenue in its biggest business and reported a loss in the second quarter. Su predicted that AMD will continue to win share with products it has coming to market this quarter and in the final three months of 2022.

Investors also have been concerned that chipmakers will be left with costly stockpiles of unused chips as orders dry up. AMD’s inventory in the second quarter increased by a third from where it was at the end of 2021, reaching $2.6 billion, though acquisitions contributed to the bulk of the increase.

The company’s shares closed at $99.29 Tuesday in New York, down 31% this year — part of a broader pullback for chip stocks.

AMD has predicted sales would grow about 60% this year, and it stuck by that outlook Tuesday, saying that revenue will be $26.3 billion, plus or minus $300 million. Data-center growth will lead that increase. AMD is finding new customers for server chips, which form the heart of machines that run the internet and corporate networks.

Investors had rewarded AMD’s gains against Intel. The chipmaker’s market value passed that of its longtime rival this year, standing currently at $160.9 billion. Compare that with 2016, two years after Su was promoted to the CEO job, when AMD had a market capitalization of less than $3 billion. Intel’s value at the time was $160 billion.

Some of AMD’s rapid increase in size comes from its acquisition of programmable chipmaker Xilinx Inc., completed earlier this year.

With Tuesday’s report, AMD is breaking down its revenue in a new way, giving investors a clearer picture of how much of its revenue comes from chips used in data centers. It’s dividing up the rest of its sales up between PCs and products used in computer gaming, graphics chips and components of game consoles.

The company’s data center unit delivered revenue growth of 83% in the second quarter, with sales of $1.5 billion. Its operating income more than doubled. The client unit — PC chips — posted growth of 25% to $2.2 billion. That division’s operating income was $676 million, up 26% from the same period a year earlier.

Overall revenue jumped 70% to $6.55 billion. That yielded a profit of $1.05 a share, minus certain items. Those numbers compare with average analyst estimates of $6.53 billion in revenue and $1.05 a share in profit.

(Updates with CEO comments starting in fourth paragraph.)