Advanced Micro’s (AMD) Guidance Cut Slams Semiconductor Space As PC Demand Continues To Unravel
2:21 pm Friday, October 07th, 2022
It’s no secret that the PC market has deteriorated in recent months, but Advanced Micro’s (AMD) steep Q3 guidance cut shows that conditions have gone from bad to worse as demand collapses. Due to this weakness, the chip maker now expects revenue in its Client segment (chips for PCs, laptops, notebooks) to plunge by 40% yr/yr, causing it to slash its total revenue outlook by about $1.0 bln to $5.6 bln. A combination of lower Client processor unit shipments, declining ASPs, and a $160 mln charge related to inventory, pressured margins, causing AMD to lower its non-GAAP gross margin guidance to about 50% from 54%.
AMD wasn’t the only major semiconductor company to provide a gloomy outlook last night. Samsung (SSNLF) piled on the bad news, reporting that Q3 operating profit declined by 32% — its first quarterly profit decline in three years — as sales of 76 trillion won also missed analysts’ estimates. As the world’s largest chip maker, SSNLF serves a wide range of end markets, including smartphones, laptops, televisions, appliances, and automobiles. Therefore, its bleak performance may be more worrisome from a broader macroeconomic standpoint than AMD’s, which solely blamed the eroding PC market for its guidance revision.
Clouds have been gathering in the semiconductor space for some time, especially for companies with heavy exposure to PCs/laptops. On September 29, memory chip maker Micron (MU) reported decent Q4 results, but guided Q1 EPS and revenue far below expectations. This was preceded by weak earnings reports/guidance from NVIDIA (NVDA) in late August, and from Intel (INTC) in late July. Unsurprisingly, NVDA, INTC, and other PC-centric stocks like Dell (DELL) and Logitech (LOGI), are getting hit today on AMD’s guidance cut.
What’s catching the market off-guard is the speed and the severity of the downturn. It was well understood that the work-from-home boom would eventually fade, leading to a normalization of demand for PCs/laptops. However, even though it’s clear that inflation has caused consumers to pull back on spending, few imagined that PC demand would completely evaporate, leaving OEMs with stockpiles of inventory.
