AMD Beats Profit Estimates as It Pushes Deeper Into Servers

(Bloomberg) -- Advanced Micro Devices Inc. climbed in late trading after an expansion into server processors helped offset a slumping personal-computer market last quarter and the chipmaker vowed to make further gains.

Profit topped analysts’ predictions in the third quarter, with sales coming in roughly in line with projections. In the current period, revenue will be approximately $5.5 billion. Though that missed the average estimate of about $5.9 billion, it represents an increase at a time when several of AMD’s peers are suffering contractions.

Chief Executive Officer Lisa Su assured investors that a long turnaround of the chipmaker is still on course, helped by market-share wins. The company expects sales to increase about 14% in the fourth quarter, in contrast with double-digit declines at rivals Intel Corp. and Nvidia Corp.

“We believe we will continue to gain share” in the data-center market, Su told analysts on a conference call. “We’re planning for a weaker PC environment in the fourth quarter,” meanwhile, as customers cut inventory and the company ships fewer parts, she said.

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Underlining how important servers are becoming to AMD’s finances, the company’s data-center unit posted a revenue increase of 45% from a year earlier. That helped cushion the impact of a 40% drop in its personal-computer chip revenue. Strong demand for game-console parts -- it supplies Microsoft Corp. and Sony Group Corp. with custom chips -- helped boost sales for AMD’s gaming division by 14%.

Related:AMD Ships First Server CPUs Built With 3D Die Stacking

The results helped send the shares up as much as 7.1% in extended trading. 

AMD had warned in October that its third-quarter performance would fall short of projections, and other chipmakers -- including Intel and Nvidia -- have provided gloomy outlooks for the industry. Facing a shaky economy and soaring inflation, consumers and corporations have turned away from buying computers.

Against that backdrop, AMD’s numbers were a bit better than expected. Profit was 67 cents a share in the period, excluding some items. Analysts had estimated 65 cents. 

Investors have been seeking signs of whether the steep PC decline will continue -- and take the market back to pre-Covid depths -- or settle at the higher level. A rebound to the heights of the early pandemic is now looking increasingly unlikely. Su said that the company is assuming that the PC market will decline about 10% in 2023. 

In the third quarter, PC shipments fell 15% to 74 million from the same period a year earlier, according to IDC. The industry had enjoyed a resurgence during the pandemic, when the work-from-home trend fueled demand for equipment. 

Under Su, AMD had proven less susceptible to market fluctuations because it’s taken share from larger rival Intel with new products. But in the third quarter, Intel said it took back share in PCs. Su said that AMD had decided to not match some of the price cuts offered by its competitor. 

Su’s biggest coup, though, has been the breakthrough in the profitable market for processors that run server machines. In that area, AMD has gone from a share of less than 1% to a double-digit percentage. Su’s counterpart at Intel, Pat Gelsinger, said last week he expects tough competition in servers to continue.

AMD shares closed at $59.66 in New York on Tuesday, leaving them down 59% this year. With fears of a deepening slowdown weighing on the company, AMD has been one of the worst-performing semiconductor stocks in 2022 following a four-year surge.