AMD Downgrades Q3 Revenue by $1.1 Billion, Cites Weak PC Market

Lisa Sun

(Image credit: AMD)

AMD today pre-announced portions of its third-quarter earnings performance and revised its guidance to $5.6 billion in revenue from $6.7 billion in the quarter, a decrease of $1.1 billion. AMD also warned investors that its non-GAAP gross margin would be 50%, down from its guidance of 54%. The company cited lower-than-expected sales in the consumer PC market and significant inventory corrections in the PC supply chain. However, it noted that its data center, gaming, and embedded device segments are still performing.

AMD’s warning cuts its revenue projections from a 55% annual growth rate to 29%, meaning the company will continue to expand despite the headwinds. AMD specifically cited lower shipments and lower average selling prices (ASPs) for its client processors as the cause of the loss in revenue. This problem has also angered other semiconductor manufacturers such as Intel and Nvidia due to bulging inventories as demand slows.

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The excess inventory then forces retailers and OEMs to lower prices to move inventory, leading to reduced ASPs. The reduced ASPs also factor in AMD’s lower gross margin, which is now expected at 50% instead of 54%. AMD also takes on $160 million in fees for “inventory, pricing, and related reserves in the graphics and customer business.”

AMD’s underperforming follows an impressive second-quarter performance that saw revenue jump 70% year over year as Intel continues to take market share, even as desktop CPU sales were at their lowest in 30 years. However, the company’s Q2 releases pointed to potential problems – most analysts felt that the company’s Q3 forecasts were already below expectations.

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(Image credit: AMD)

AMD’s revised guidance calls for its client division, which includes its consumer CPU business, to decline 53% quarter-on-quarter and 40% year-on-year. Meanwhile, the gaming business, which includes running consumer GPUs, will stagnate.

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