AMD forecasts strength in its data center business

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AMD forecasts strength in its data center business
AMD forecasts strength in its data center business

While AMD’s 4Q22 sales outlook was below consensus expectations, we believe investors are somewhat relieved that AMD expects its data center and embedded businesses to grow sequentially

On Tuesday, Advanced Micro Devices Inc. (AMD) forecasted some strength in its data center business and promised to be careful with spending, sending shares up despite business being hit by a deepening PC market slump.

AMD forecasted fourth-quarter and full-year revenue below Wall Street estimates, but Kinngai Chan, an analyst at Summit Insights Group, suggested investors had braced for worse.

“While AMD’s 4Q22 sales outlook was below consensus expectations, we believe investors are somewhat relieved that AMD expects its data center and embedded businesses to grow sequentially,” Chan said.

In after-hours trade, shares rose 6.3 per cent.

Rival Intel Corp. has seen its shares slip even in its latest earnings reported, while AMD has been growing its market share quickly in the data center.

“We expect AMD’s share gains to continue, as the company’s upcoming, next-generation server CPUs are expected to outperform Intel’s lineup across price and performance metrics,” said Nathaniel Harmon, analyst at YipitData.

Noting the eight per cent quarter-to-quarter growth in the third quarter compared with the growth rate a year ago in the same period of 36 per cent, Still chip analyst Dean McCarron at Mercury Research cautioned AMD is not immune to the slowdown in the data center market.

On the earnings call, AMD executives said they were controlling expenses and slowing down hiring to cope with the macroeconomic headwings.

As inflation hurt consumer demand for laptops and other gadgets, prompting electronics makers to cut orders for its chips, AMD, which makes CPUs and graphics processes for PCs and data centers, has also been hit hard.

That led AMD to lower its forecast for third-quarter revenue by about $1 billion last month.

PC shipments will decline 13% this year, according to Counterpoint Research.

2023 PC business outlook should be modeled on a 10% drop of total PC unit sales, AMD Chief Executive Lisa Su told analysts.

Though Su did not expect significant recovery of the China data center market in 2023, she added the North American cloud market was the most resilient of the data center market segments.

The company expects current-quarter revenue to be $5.5 billion, plus or minus $300 million. Analysts on average expect revenue to be $5.85 billion, according to Refinitiv data.

AMD expects revenue to be approximately $23.5 billion, plus or minus $300 million for the full year 2022, up 43% from 2021, versus analyst expectations of $23.9 billion.

Revenue at its client segment, which includes chips for desktops, fell 40% to $1 billion during the third quarter. While its Data Center revenue was $1.6 billion, up 45% year-on-year.

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