AMD posts Q3 revenue of $5.6B, up 29% but profits slip 93%

Advanced Micro Devices reported that its third-quarter revenues were $5.6 billion for the three months ended September 30, up 29% from the same quarter a year ago.

The company had said on October 6 that its earnings would be below its previous guidance. Client segment revenue saw a shortfall of $1 billion due to softening PC demand and inventory reductions across the PC supply chain.

AMD was the latest tech company to say it would have a weak quarter, following Nvidia’s announcement that demand in China was falling off a cliff, and it was slowing shipment to clear inventory channels. But AMD has been gaining share in microprocessors against Intel.

“Third quarter results came in below our expectations due to the softening PC market and substantial inventory reduction actions across the PC supply chain,” said AMD CEO Lisa Su, in a statement. “Despite
the challenging macro environment, we grew revenue 29% year-over-year driven by increased sales of our data center, embedded and game console products. We are confident that our leadership product portfolio, strong balance sheet and ongoing growth opportunities in our data center and embedded businesses position us well to navigate the current market dynamics.”

AMD had said earlier it expected to report Q3 revenue of $5.6 billion, down from previous expectations of $6.7 billion. AMD’s stock is up 2.5% in after-hours trading to $61.17 a share. On a GAAP basis, AMD reported net income of 4 cents a share, or $66 million, down 93% from a year ago.

Non-GAAP net income was 67 cents a share, or $1.01 billion, down 8% from the same period a year ago. Non-GAAP revenues were $5.6 billion, up 29%.

Analysts’ diminished expectations were for earnings per share of 68 cents on revenue of $5.62 billion.
For Q4, analysts expected earnings per share of 79 cents on revenue of $5.85 billion.

In Q3, gross margin was 42%, a decrease of 6 percentage points year-over-year, primarily due to amortization of intangible assets associated with the Xilinx acquisition. Non-GAAP gross margin was 50%, an increase of 2 percentage points year-over-year, primarily driven by higher Embedded and Data Center segment revenue. Gross margin and non-GAAP gross margin include $160 million of charges for inventory, pricing, and related reserves in the graphics and client businesses. AMD said its R&D costs in the quarter were higher. AMD has $5.6 billion in cash.

Data Center segment revenue was $1.6 billion, up 45% year-over-year driven by strong sales of Epyc server processors. Operating income was $505 million, or 31% of revenue, compared to $308 million or 28% a year ago.

“We delivered our tenth straight quarter of record server processor sales driven by strong demand for third Gen Epyc processors and initial shipments of our next-generation Genoa CPU to select customers,” Su said in an analyst call.

She said AMD is publicly launching Genoa processors next week and it is ramping production to support initial cloud deployments and the introduction of fourth-generation Epyc processor platforms.

She noted that cloud revenue more than doubled from a year ago and increased sequentially as multiple hyperscale companies expanded their deployments of Epyc processors. But OEM revenue was down in enterprise as server OEMs as the pace slowed. AMD has 2023 processors coming for telco and cloud applications.

Client segment revenue was $1.0 billion, down 40% year-over-year due to reduced processor shipments resulting from a weak PC market and a significant inventory correction across the PC supply chain. Client processor ASP increased year-over-year driven primarily by a richer mix of Ryzen desktop processor sales.

Operating loss was $26 million, compared to operating income of $490 million or 29% a year ago. The decrease was primarily due to lower revenue.

Gaming segment revenue was $1.6 billion, up 14% year-over-year driven by higher semi-custom product sales partially offset by lower graphics revenue. Operating income was $142 million, or 9% of revenue, compared to $231 million or 16% a year ago. The decrease in graphics was primarily due to lower graphics revenue and inventory, pricing and related charges in the graphics business. Operating margin was lower primarily due to lower graphics revenue and higher operating expenses.

Gaming demand saw its sixth straight quarter of record semi-custom chip sales ad demand for game consoles remained strong and Sony and Microsoft prepared for the holiday season. Gaming graphics revenue declined in the quarter based on soft consumer demand and AMD’s focus on reducing GPU inventory, Su said.

Su said the company is preparing to launch its RDNA 3 GPUs later this week combining its high-end graphics architecture and 5-nanometer chiplet designs.

Embedded segment revenue was $1.3 billion, up 1,549% year-over-year driven primarily by the inclusion of Xilinx embedded product revenue. Operating income was $635 million, or 49% of revenue, compared to $23 million or 30% a year ago. Operating income and margin increases were primarily driven by higher revenue.

All other operating loss was $1.3 billion as compared to $104 million a year ago primarily due to amortization of intangible assets largely associated with the Xilinx acquisition.

During the quarter AMD launched the Ryzen 7000 Series processors for desktop, delivering dominant performance and leadership energy efficiency, the company said. Powered by the new “Zen 4” architecture, the Ryzen 7000 Series processors feature up to 16 cores and 32 threads and are built on an optimized, high-performance 5-nanometer manufacturing process node.

“We are well positioned to navigate the current market dynamics based on our leadership product portfolio, strong balance sheet and growth in our data center and embedded segments,” Su said.

Expectations

AMD said it expects Q4 revenue to be approximately $5.5 billion, plus or minus $300 million, an increase of approximately 14% from the same period a year ago and flat sequentially. The Embedded and Data Center segments are expected to grow year over year and sequentially.

The non-GAAP gross margin is expected to be approximately 51%. For the full year ending December 31, 2022, the company expects revenue to be $23.5 billion, plus or minus $300 million, an increase of 43% over 2021 led by growth in Embedded and Data Center. Non-GAAP gross margin is expected to be approximately 52% for the full year.