Advanced Micro Devices Inc. gets to show Wall Street if it “certainly” ended 2022 in a better place, after the price of clearing inventory helped gut results from rival Intel Corp.
AMD
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is scheduled to report earnings after the close of markets on Tuesday.
AMD Chief Executive Lisa Su said three months ago that the company’s outlook, which fell below Wall Street estimates at the time, included the cost of clearing out inventory, and that the company would “certainly exit the year in a better place.” Su also said that data-center sales were “expected to grow.”
Doubts about data-center demand and the cost of excess inventory have grown though, after Intel
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reported earnings that showed inventory clearance was gutting gross margins as the CPU maker faced the worst PC shipment declines in recorded history. Additionally, Intel said it expected the overall data-center market to fall at “an accelerated rate.”
Bernstein analyst Stacy Rasgon, who downgraded AMD to market perform from outperform recently, said AMD had “no margin for error” in its report, and this was before he saw Intel’s “astonishingly bad” outlook fail to beat already low expectations “with revenues and gross margins collapsing amid a further weakening environment and an absolutely massive inventory flush.”
Rasgon said the PC market has worsened considerably, to the point where his “belief that AMD would prove relatively more immune to channel degradation proved unfortunately incorrect.”
And with jammed channels, another analyst’s forecast from nearly two years ago appears to be coming to fruition: Intel is resorting to a price war, or what Rasgon called “Intel’s semi-destructive behavior as of late as they use both price and capacity as a strategic weapon.”
“In response, we have seen AMD’s new client parts available at heavy discounts at retail less than 2 months after launch (much deeper, and much more rapidly than the prior generation),” Rasgon said.
Opinion: Intel just had its worst year since the dot-com bust, and it won’t get better soon
AMD, Intel, and Nvidia Corp.
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had all poured new models of gaming cards into the holiday channel at a time when PC shipments are dropping at their steepest recorded rates and a wave of secondhand graphics-processing units, or GPUs, hit the market as unprofitable cryptocurrency-mining operations folded.
“AMD stock should be bigger focus and PC fears are high there despite share gain expectations in server,” Mizuho desk analyst Jordan Klein said in emailed comments. “My view is buyside wants AMD to guide maybe flat growth for ’23 vs cons 5% due to PC flush, then start to slowly buy that weak guide.”
This will be the first report for AMD since it announced the hiring of Jean Hu from Marvell Technology Inc.
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as its new chief financial officer. Hu started at AMD on Jan. 23, succeeding the retiring Devinder Kumar.
Read More AMD overcame long odds to reinvent itself over the past several years, with its Ryzen microprocessors helping to deliver a profitable and successful mature company. Now, with its most recent earnings season on the horizon, the pressure is even greater for AMD as Intel has issued an “astonishingly bad” outlook for its fiscal year.
The news from Intel, which shocked analysts and shareholders, could spell trouble for the archrival AMD, which is scheduled to report its second-quarter financial results on July 30. Intel’s forecast pointed to a significant slowing in PC demand and a drop in cloud revenue, signaling an overall weakening of the tech sector.
Despite Intel’s dismal outlook, there is still reason to be optimistic about AMD’s second-quarter performance. Analysts point to continuing market share gains in desktop processors and the continued growth of its data center business as bright spots. AMD’s graphics processing unit (GPU) business, which is experiencing robust demand, is also expected to boost the company’s second-quarter results.
However, there are also some worrisome signs for AMD, as weak demand in Europe and China could still hinder performance. Additionally, the company has seen increased competition from Intel and Nvidia, who have both released new products in the past few months. The company is also facing pressure from other chip makers, such as Qualcomm, who are looking to grab a larger share of the market.
Analysts and investors will be closely watching AMD’s earnings report later this month, as the company’s success could help counter some of the gloomy news from Intel. Already, the stock has seen an uptick in recent weeks, suggesting that investors remain optimistic about AMD’s longer-term prospects.
Ultimately, AMD’s success in the second quarter could provide a much-needed shot in the arm to the tech sector. The company’s report could help alleviate some of the gloominess surrounding Intel’s outlook and could provide an indication of the future for the tech sector overall.
