AMD also has problems. Revenue Well Below Expectations, Ryzen Sales Tumble 53%

Unsurprisingly, the economic situation has hit AMD as well as Intel and Nvidia and suddenly have much worse sales and profits. But for the company, sales of Ryzen processors have suddenly dropped to less than half the previous three months, which is quite a shock.

We have seen in the second quarter The sudden drop in Intel sales a then also Nvidia. Oddly, it avoided AMD at the time, although the reasons should lie (i) in the general state of the market and the macroeconomic situation. However, the company will now choose the “hangover” that will come after the boom during the pandemic and the cryptocurrency bubble in the third quarter results. These are going to be much worse than expected, so the company has issued a stunning pre-warning, which is always worrying news in the equity markets.

Yesterday, AMD issued a press release announcing that its third quarter financial results will be significantly lower than the outlook it shared two months ago when it announced its second quarter results. In early August after announcing $ 6.55 billion in revenue in the second quarter AMD expected third quarter sales to be the same, or even slightly higher, at around $ 6.7 billion (more precisely, in the range of $ 6.5 billion to $ 6.9 billion).

Now, however, the company has announced that, in the preliminary results, its overall sales are only around 5.6 billion dollars. While this is still good by AMD’s previous standards, it is a billion below the level of the forecast issued at the turn of July and August (i.e. in a third of the quarter for which this result is). This is a very large decline, quite comparable to what Intel hit in the second quarter.

That is why the company has issued this preliminary notice (similarly as in August Nvidia), although the final results will not be available for about a month from now. Revenue of $ 5.6 billion would represent a 29% improvement over the same period in 2021, however the previous estimate would have been a 55% increase …

This decline in sales is said not to affect the server (Epyc), embedded (FPGA Xilinx) segment, where sales are in line with expectations and increased 8% and 4% from the previous quarter. And this should also apply to the Gaming segment, where sales will be more or less the same as in the second quarter. This is interesting, because in this segment AMD has included Radeon GPUs, which we would only expect to have a similar problem with sales and a realistically “recoverable” price drop as Nvidia has. But this segment also includes semi-custom APUs for consoles (Sony PlayStation, Microsoft Xbox, Valve Steam Deck). Maybe they did well in those and the sales volume was simply diluted by the decline in sales of Radeon gaming graphics cards.

Revenues for Ryzens are suddenly less than half

According to AMD, the cause of the brutal drop in sales is mainly the “Customer Segment”. The company showed a preliminary sales table for each segment and “Client,” which is the sale of Ryzen processors for “client computers,” or PCs and laptops, has only $ 1 billion in revenue. In the second quarter, revenue in this category was $ 2.152 billion, which means AMD suddenly had 53% worse revenue in the PC market. The deterioration is also against the sales of this segment in the third quarter of last year, even by a terrifying 40%.

It could also be the effect of PC OEMs slashing their sales forecasts and reducing production. As a result, they now have too much stock and thus cancel most of the new orders (the “benefit” would be that this stock reduction lasts for a limited time, after which sales will increase again). Furthermore, of course, there may also be a decline in interest in Ryzen processors (and a decrease in their prices due to discounts) in the retail market for individual components, but this only makes up a small part of the PC business.

Profits will also decrease

Gross margin will also be worse than expected, instead of 54% it should be only 50% in non-GAAP accounting, but also only 42% in normal GAAP accounting. This should be due to the fact that fewer PC processors were sold (thus increasing the share of low-margin console chips in sales). At the same time, however, AMD reports that the average selling prices of the processors have also been worse than expected, which is once again a sign that sales are going badly and the company needs to discount. AMD has also written off about $ 160 million in inventory value and due to falling product prices. This should already apply to both Ryzen processors and Radeon GPUs (where there will likely also be inventory cancellations and graphics price reductions similar to what Nvidia is forced to do due to the collapse of the cryptocurrency bubble).

More detailed information with all accounting data will be available when the final results are announced. The company won’t release them until November 1, and at this time the market situation and what it means next will likely be discussed on a conference call.

With the third quarter results, AMD is also expected to release sales forecasts for the fourth quarter and full year, so it may be clearer if this was a one-off decline and the company will grow again, or if AMD it reached a peak in the first half of the year, which again will not be repeated anytime soon.

Source: AMD