By Senad Karaahmetovic
Shares of Advanced Micro Devices (NASDAQ:AMD) are up over 4% in pre-open Wednesday despite the chipmaker posting mixed Q3 results and slashing its outlook.
AMD reported third-quarter earnings per share of $0.67 on revenue of $5.6 billion, which compares to the consensus that called for EPS of $0.68 on revenue of $5.62 billion. The company’s Data Center business generated $1.61 billion in revenue.
“Third quarter results came in below our expectations due to the softening PC market and substantial inventory reduction actions across the PC supply chain,” said AMD Chair and CEO Dr. Lisa Su.
“Despite the challenging macro environment, we grew revenue 29% year-over-year driven by increased sales of our data center, embedded and game console products.”
For this quarter, AMD sees revenue between $5.2 billion and $5.8 billion, missing the $5.85 billion estimate. The adjusted gross margin is expected at 51%, again lower than the 52.4% estimate.
On a full-year basis, AMD sees revenue between $23.2 billion and $23.8 billion, implying a growth rate of about 43% at the midpoint of the guidance. Still, the new outlook represents a big cut given that the prior was standing at $26.3 billion (the midpoint). Analysts were expecting AMD to guide to $23.89 billion in full-year revenue.
Piper Sandler analysts reiterated an Overweight rating and said the Q3 results show that inventory clearing is progressing.
“We believe AMD is going through a bottoming process with its revenues and earnings now. We anticipate a seasonally weak March followed by significantly better trends in June 2023,” they said in a client note.
Deutsche Bank analysts are more cautious as they reiterated a Hold rating and cut the price target to $68 per share from $70.
“We are confident that AMD’s business will show a rebound in 2023, and can understand the attraction of that inflection to investors with shorter time horizons. However, we believe the aggregate revenue growth at AMD slowing to closer to 10% over the next few years, combined with the likelihood of increasing competitive intensity will likely limit valuation upside,” they wrote in a note.