AMD posts fourth-quarter profit amid slowing sales of PC and gaming graphics chips

Advanced Micro Devices reported a slight net profit in the fourth quarter, with strong data center performance but weakening sales of consumer PC and gaming graphics chips.

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

AMD began to feel the effects of a slowdown in October, when it noticed that demand in the PC market was weakening. Last week, rival Intel said it had seen the effects of a macroeconomic slowdown in the fourth quarter and was taking steps to cut costs.

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

Non-GAAP net income was 69 cents per share, or $1.1 billion, equal to the same period last year. Non-GAAP revenue was $5.59 billion, up 16% from $4.83 billion a year ago.

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

“2022 was a strong year for AMD, as we delivered best-in-class growth and record revenue despite a weak PC environment in the second half of the year,” AMD CEO Lisa Su said 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 achieve long-term growth based on our differentiated product portfolio.”

In an analyst call, Su said AMD now powers more than 100 of the world’s fastest supercomputers and 15 of the world’s 20 most energy-efficient supercomputers. He said AMD’s latest Epyc server processors are 80% more energy efficient than the chips Intel just introduced.

She said that more than 600 publicly available instances among hyperscalers are using AMD Epyc processors. She said the company has more than 250 ultra-slim gaming and business laptop designs powered by Ryzen 7000 Series CPUs.

While gaming was weak overall, due to weaker demand for PC graphics chips, he said demand for game consoles was strong over the holidays. AMD is also releasing PC graphics chips right now as it has a new generation of Radeon chips ready.

AMD previously said it expected fourth-quarter revenue to be about $5.5 billion, plus or minus $300 million, up about 14% from the same period a year ago and flat sequentially. The integrated and data center segments were expected to grow year-over-year and sequentially by the fourth quarter of 2022.

Intel has more than 70% of the market for server processors, according to Mercury Research. But Intel has been losing share because 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 of late.

In the fourth quarter, AMD’s GAAP gross profit margin was 43%, down 7% from the prior year, in part due to the 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 totaled $1.7 billion in the quarter, up 42%. Segment operating income 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 compared 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 revenue from semi-custom products. Operating income was $266 million, down from $407 million a year ago.

Integrated segment revenue was $1.4 billion, up 1.868% from a year ago, thanks to the inclusion of integrated revenue acquired from Xilinx. Operating income was $699 million, compared with $18 million a year ago.

AMD perspective

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

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

Su said there are elevated inventory levels with some cloud customers and that could lead to a soft first half and a stronger second half. His anticipates that the PC market will fall 10% in 2023.

“Over the next few years, one of our biggest growth opportunities is in AI, which is in the early stages of transforming virtually every industry product and service,” Su said.