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Table of Contents

AMD Profit Will Probably Decline for First Time in 3 Years

Focus on AMD data center revenue

Two people walking into an office with an AMD sign out front

Justin Sullivan / Getty Images

Key Takeaways

  • Analysts estimate adjusted EPS of $0.71 vs. $0.73 in Q3 FY 2021.
  • Revenue is expected to grow at the slowest pace in more than two years.
  • Data center revenue is expected to grow at its slowest quarterly rate in nearly three years.

Advanced Micro Devices, Inc. (AMD), the sixth-largest U.S. semiconductor company by market value, will probably post its first profit decline in more than three years as revenue slows thanks to a global slump in PC sales and chip inventory correction.

AMD will probably say adjusted earnings per share (EPS) excluding certain items dropped 3% to $0.71, the first decline in 13 quarters. Revenue is expected to increased 32% to $5.7 billion, the slowest pace in more than two years, according to an average estimate from Visible Alpha. Analysts' revenue number is in line with AMD's preliminary announcement in early October that third-quarter revenue would be $1.1 billion lower than its previous forecast of $6.8 billion.

AMD and other semiconductor makers are grappling with slumping PC sales, supply chain disruptions and an industrywide inventory correction. Those trends have been amplified by rising inflation and recession fears, which are further slowing demand. To be sure, the industry will get help from the U.S. Chips and Science Act of 2022, which will funnel over $50 billion to U.S. semiconductor companies to shift production from Asia to the U.S. Those funds, though, aren't likely to immediately offset the drop in PC demand.

A key metric of AMD's success is data center revenue, including sales to large data centers, cloud services operators, and similar businesses that have seen demand skyrocket in recent years. Analysts expect $1.6 billion in data center revenue, the highest level in more than six years, though it will rise at barely a third of the pace of the prior-year quarter.

AMD shares have fallen 49% in the last year relative to a drop of 15% for the S&P 500.

1-year trailing total return for AMD and the S&P 500
Source: TradingView.

AMD Earnings History

AMD's adjusted EPS surged early in the pandemic, more than doubling year-over-year for five out of six quarters through the second quarter of 2021. The pace of growth slowed during the following four quarters. In this year's second period, profit rose 66%, the slowest growth rate in seven quarters.

AMD posted revenue gains in each of the last 12 quarters through the second period of this year, when it reported a 70% increase to $6.6 billion.

AMD Key Stats
  Estimate for Q3 FY 2022 Q3 FY 2021 Q3 FY 2020
Adjusted Earnings Per Share ($) 0.71 0.73 0.41
Revenue ($B) 5.7 4.3 2.8
Data Center Revenue ($B) 1.6 1.1 0.5

Source: Visible Alpha

The Key Metric

AMD's data center segment includes server CPUs, data center GPUs, Pensando and Xilinx data center products. Data center revenue is a key metric for AMD because it has become a large portion of the company's total revenue and represents an expansion beyond traditional PC graphics processing unit markets. AMD's data center business has grown along with overall demand for cloud and data center services across industries in the last several years. Beginning in this year's second quarter, data center operations were separated out from AMD's old Enterprise, Embedded, and Semi-Custom segment.

AMD's data center revenue was retroactively adjusted following the division of company segments earlier this year. It doubled during each quarter in 2021 and the first quarter of 2022. Data center revenue in the second period was the highest since late 2015, even though it slowed by about a fifth compared to the prior-year period.

Article Sources
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  1. Yahoo! Finance. "What Awaits Advanced Micro Devices (AMD) in Q3 Earnings?"

  2. "Largest semiconductor companies by market cap."

  3. Visible Alpha. "Financial Data."

  4. AMD. "AMD Announces Preliminary Third Quarter 2022 Financial Results."

  5. ComputerWorld. "PC Sales Fall Off a Cliff."

  6. Wall Street Journal. "What’s Happening With the U.S. Semiconductor Market."

  7. Advanced Micro Devices Inc. "AMD Reports Second Quarter 2022 Financial Results."

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