MW AI for us is broader than cloud, AMD CEO tells analysts, but chip maker still needs PC recovery to improve margins
6:25 PM ET 5/2/23 | MarketWatch
By Wallace Witkowski
Wall Street estimates $5.5 billion in second quarter sales while AMD forecasts between $5 billion and $5.6 billion
Advanced Micro Devices Inc. shares fell in the extended session Tuesday as the chip maker highlighted its AI and data-center products for the second half of the year, but admitted it will take a rebound in the PC market to improve gross margins.
AMD (AMD) shares fell more than 6.5% after hours, following a 0.3% rise to close the regular session at $89.91, less than 0.1% above what they were 12 months ago.
AMD forecast second-quarter revenue of $5 billion to $5.6 billion, while analysts had estimated $5.5 billion, and estimates a second-quarter gross margin of about 50%.
Shares are up 39% year to date, while the PHLX Semiconductor Index is up 19%, the S&P 500 index has gained 7%, and the tech-heavy Nasdaq Composite Index has risen 16%.
Last quarter, AMD said it would keep taking data-center share away from Intel Corp. (INTC), which last week reported its largest quarterly loss ever. Intel, however, saw its shares rise because PC and data-center sales, while on the decline, had come in better than expected The chip maker also lowered expectations on its forecast.
And like Nvidia Corp. (NVDA), AMD has been swept up in the hype of artificial-intelligence technology going mainstream amid the popularity of Microsoft Corp. (MSFT)-backed OpenAI's ChatGPT generative AI, as all those large-language models and other AIs require a lot of computing power from data centers.
AMD Chair and CEO Lisa Su told analysts on a conference call that the company's enterprise business would be mixed, but that she felt "very good" about the company's product roadmap in the data-center business, especially as it relates to AI, or artificial intelligence.
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At CES in Las Vegas in January, Su introduced the MI300 graphics processing unit/central processing unit intended for supercomputing applications, and it is expected to be released in the fourth quarter.
"We're really excited about the AI opportunity," Su told analysts. "I think that is success for us, having a significant part of the AI overall opportunity.
"AI for us is broader than cloud," Su told analysts. "I mean, it also includes what we're doing in client and embedded, but specifically as it relates to MI300.
"MI300 is actually very well-positioned for both [high-performance computers] or supercomputing workload as well as for AI workloads," Su said. "And with the recent interest in generative AI, I would say the pipeline for MI300 has expanded considerably here over the last few months, and we're excited about that."
Data-center sales for the first quarter barely rose to $1.3 billion from $1.29 billion in the year-ago period, while analysts expected $1.5 billion, the company reported. Meanwhile, embedded sales rose to $1.56 billion from $595 million a year ago, while the Street had forecast $1.43 billion.
AMD's data-center and embedded offerings were turbocharged from its acquisition of Xilinx, which closed in mid-February 2022.
Gross margin improvement depends on PC recovery
Regarding the 50% gross margin forecast, Chief Financial Officer Jean Hu said gross margin is primarily driven by mix, with the strongest gross margins in the data-center and embedded businesses.
"Going to the second half we do expect gross margin improvement because data center is going up and embedded continues to be relatively strong," Hu said. "The pace of improvement in the second half actually will be largely dependent on the client segment."
The client, or PC, business saw sales drop to $739 million from $2.12 billion a year ago, while the Street had estimated $859.4 million. AMD said the drop was largely part of its underselling into the channel to clear inventory.
"We think client segment gross margin is also going to improve, but overall it's going to be below corporate average," Hu told analysts. "So the pace of improvement of gross margin could depend on the pace of the client business recovery in the second half."
AMD reported a first-quarter loss of $139 million, or 9 cents a share, versus net income of $786 million, or 56 cents a share, in the year-ago period. Adjusted earnings, which exclude stock-based compensation expenses and other items, were 60 cents a share, compared with $1.13 a share in the year-ago period. Gross margins came in at 50%, down from last year's 53%.
Revenue fell to $5.35 billion from $5.89 billion in the year-ago quarter, with more than half of that coming from data-center and embedded sales.
Analysts surveyed by FactSet had forecast 56 cents a share on revenue of $5.31 billion. AMD had forecast revenue of $5 billion to $5.6 billion for the first quarter, with declines in client and gaming offset by gains in data-center and embedded sales, and a gross margin of 50%.
Gaming sales declined to $1.8 billion from $1.89 billion in the year ago period, while analysts were expecting $1.5 billion.
Late Monday, auto chip supplier NXP Semiconductor NV(NXPI) topped Wall Street expectations, and shares rallied Tuesday, while last week, another big supplier to the auto market, Texas Instruments Inc. (TXN) said that sales to the auto industry remained strong
-Wallace Witkowski
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