AMD Falls on Weak Revenue Projections, In-Line Earnings

First-quarter server chip shipments tripled from a year ago, but revenue for the division that makes them fell 21%, hurt by declining demand for custom Xbox and PlayStation chips.


April 29, 2020

3 Min Read
AMD's second-generation Epyc server processor, codenamed "Rome"
AMD's second-generation Epyc server processor, codenamed "Rome"AMD

Ian King (Bloomberg) -- Advanced Micro Devices Inc. gave a lackluster forecast for the current period, disappointing some investors who had projected the chipmaker would benefit more from a surge in spending on computers to support working from home.

Second-quarter revenue will be about $1.85 billion, Santa Clara, California-based AMD said Tuesday in a statement. That compares with the average analyst estimate of $1.88 billion, according to data compiled by Bloomberg. The company said it expects annual sales growth of about 25%. The lowest end of the forecast would be 10 percentage points lower than the top end of its previous guidance from January.

“While demand indicators across commercial, education and data center infrastructure markets are strong, we expect some softness in consumer demand in the second half of the year depending on how overall macro-economic conditions evolve,” Chief Executive Officer Lisa Su said on a conference call. Su said AMD is gaining market share against larger rival Intel Corp.

AMD’s stock fell about 4% in extended trading. The shares, which traded at $2.87 at the end of 2015, closed at $55.51 Tuesday in New York. AMD was the best performer on the S&P 500 Index in 2019.

AMD entered 2020 offering new products that it says outperform those from Intel, whose processors have dominated computing over the last decade. The chipmaker’s task of clawing back market share has been complicated by the Covid-19 pandemic, which shut down much of the personal computer supply chain and is still confining consumers around the globe to their homes.

Intel last week reported a strong first quarter, boosted by sales of laptop and server chips. Companies have purchased notebooks to help their employees work at home and providers of computing over the internet have ordered chips to boost the output from data centers to help meet the new demand. The world’s largest chipmaker nevertheless withdrew its annual revenue prediction, creating concern that a weakening economy will reduce computer sales.

Related:AMD Tunes New Epyc 2 Chips for Key Enterprise Data Center Workloads

Investors are trying to determine AMD’s progress in making gains against Intel, a company whose server chip division gets more revenue in a quarter than the total the smaller company racks up in a year. AMD has said it’s targeting double-digit market share in servers by the middle of this year after dropping to less than 1% before introducing new products in 2017. Server computers are the backbone of corporate networks and the giant data centers that run the internet.

First-quarter server chip unit shipments tripled from a year ago, AMD said. But revenue for the division that produces them fell 21%, hurt by declining demand for custom chips used in game consoles from Microsoft Corp. and Sony Corp. New versions of the Xbox and PlayStation coming in the second half of the year will help that recover, Su said.

She cautioned analysts that the company was still in the early stages of re-entering the server market with new products and that AMD’s progress will likely be slow and steady.

The company’s computing and graphics unit reported a sales increase of 73% from a year earlier in the first quarter. New notebook and graphics processing chips helped and AMD said it picked up more orders from makers of corporate machines.

In the period ended March 28, AMD reported net income of $162 million, or 14 cents a share, compared with $16 million, or 1 cent, in the same period a year earlier. Revenue rose 40% to $1.79 billion. Profit, excluding certain items, was 18 cents. Analysts estimated profit of 18 cents on sales of $1.78 billion.

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