AMD ekes out a Q4 profit amid slowing game graphics chips and PC sales

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Advanced Micro Devices reported a slight net profit in the fourth quarter, with strong performance in data centers but weakening sales of chips for game graphics and consumer PCs.

AMD said growth was driven by embedded and data center chip segments, offset by slower sales of client PC and gaming chips. Among its gaming segment, semi-custom console chip sales rose but gaming graphics chips for PCs weakened.

AMD started feeling the effects of a slowdown back in October, when it noted that demand in the PC market was softening. Last week, rival Intel said it saw the effects of a macroeconomic slowdown in Q4 and was taking actions to reduce costs.

AMD’s stock is up 3% in after-hours trading to $77.80 a share. On a GAAP basis, AMD reported net income of 1 cent a share, or $21 million, down 98% from $974 million a year ago.

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Non-GAAP net income was 69 cents a share, or $1.1 billion, flat from the same period a year ago. Non-GAAP revenues were $5.59 billion, up 16% from $4.83 billion a year ago.

Overall, AMD had a strong year in 2022, with revenues up 44% as it took market share from Intel.

“2022 was a strong year for AMD as we delivered best-in-class growth and record revenue despite the weak PC environment in the second half of the year,” said AMD CEO Lisa Su, in a statement. “We accelerated our data center momentum and closed our strategic acquisition of Xilinx, significantly diversifying our business and strengthening our financial model. Although the demand environment is mixed, we are confident in our ability to gain market share in 2023 and deliver long-term growth based on our differentiated product portfolio.”

AMD said earlier it expected Q4 revenue to be approximately $5.5 billion, plus or minus $300 million, an increase of approximately 14% from the same period a year ago and flat sequentially.  The embedded and data center segments were expected to grow year over year and sequentially for Q4 2022.

Intel has more than 70% of the market for server processors, according to Mercury Research. But Intel has been losing share as it was slow to introduce new products in the recent past. The big difference between the companies is that Intel makes its own chips in-house, while AMD uses contract manufacturers like TSMC. This strategic difference has served AMD well lately.

In Q4, AMD’s GAAP gross profit margin was 43%, down 7% from a year earlier, partly due to amortization of intangible assets associated with the Xilinx acquisition. Non-GAAP gross margin was 51%.

AMD reported an operating loss of $149 million, compared with an operating profit of $1.2 billion a year earlier. AMD had $5.9 billion in cash and short-term investments in the quarter.

Data center revenue totalled $1.7 billion in the quarter, up 42%. Operating income for the segment was $444 million, up from $369 million a year ago.

Client PC revenue was $903 million, down 51% from a year ago due to reduced shipments from a weak PC market and an inventory correction across the PC supply chain. Average selling prices were flat year over year, but AMD reported an operating loss of $152 million in comparison to operating income of $530 million a year ago.

Gaming segment revenue was $1.6 billion, down 7% from a year ago. Lower sales of gaming graphics cards were partially offset by higher semi-custom product revenue. Operating income was $266 million, down from $407 million a year ago.

Embedded segment revenue was $1.4 billion, up 1,868% from a year ago, thanks to the inclusion of the acquired Xilinx embedded revenue. Operating income was $699 million, compared with $18 million a year ago.

AMD Outlook

For the first quarter of 2023 (ending March 31), AMD expects revenue to be $5.3 billion, plus or minus $300 million. This is down 10% from a year ago.

Year-over-year the client and gaming segments are expected to decline, partially offset by embedded and data center segment growth. AMD expects non-GAAP gross margin to be approximately 50% in the first quarter of 2023.

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