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Chipmaker Advanced Micro Devices, Inc (AMD) became the latest semiconductor company to fall in the face of weakening product demand in a turbulent macroeconomic environment. AMD, which has managed to weather the storm its larger rivals Intel Corporation and NVIDIA Corporation have faced throughout the course of this year, revealed in a filing with the Securities and Exchange Commission (SEC) at market close today that its revenue from its client computing group will face significant annual and sequential drops. The company reported that it expects to now grow its revenue by 29% annually as opposed to the 55% annual growth that it had projected in its guidance provided with the earnings results of the second fiscal quarter of 2022.
AMD Now Expects To Earn $5.6 Billion In Revenue In Its Third Fiscal Quarter of 2022
The filing came in the form of AMD announcing its preliminary third quarter earnings results today, becoming the second of the big three American chip designers to do so. Earlier in the year, NVIDIA Corporation followed a similar approach when it chose to soften the blow to investors and shared striking drops in its revenue before its official results were due. This came after Intel surprised analysts with its earnings report, in a move that was chastised by analysts.
AMD's preliminary results show that the firm now expects to earn $5.6 billion for its third fiscal quarter of 2022. Prior to today's filing, the firm's guidance given at the end of its Q2 2022 results expected it to earn $6.7 billion in revenue alongside a strong 54% gross margin.
The bulk of the revenue drop is courtesy of AMD's Client segment. After the firm reorganized its reporting segments earlier this year, the Client segment represents AMD's central processing units for traditional desktop platforms and laptops. However, apart from Client, AMD's Data Center segment performed strongly year-over-year, but all of its segments, including Data Center saw their sequential growth either remain flat or turn negative.
The tricky PC environment right now also led to higher inventory and other charges, including those for reserves, reflect themselves in AMD costs, as they increased by $160 million.
Its chief executive officer Dr. Lisa Su ascribed the revenue shortfall to poor macroeconomic conditions and a supply chain correction. This correction has been on analysts' minds since the start of this year, and as part of the preliminary results, Dr. Su outlined that:
The PC market weakened significantly in the quarter. While our product portfolio remains very strong, macroeconomic conditions drove lower than expected PC demand and a significant inventory correction across the PC supply chain. As we navigate the current market conditions, we are pleased with the performance of our Data Center, Embedded, and Gaming segments and the strength of our diversified business model and balance sheet. We remain focused on delivering our leadership product roadmap and look forward to launching our next-generation 5nm data center and graphics products later this quarter.
AMD's acquisition of field programmable gate array (FPGA) firm Xilinx boosted its Embedded revenue segment by a whopping 1,549% during the quarter, as it enabled the firm to maintain its revenues at a time when consumers are struggling with new computing purchases as inflation bites into their purchasing power. The firm has also added more than $2 billion of debt to its balance sheet this year.
Its shares dropped by as much as 6% in aftermarket trading but are now down by only 3%. Year to date, the stock has dropped by 55%, as technology stocks face an investor rout in the wake of rising interest rates and a stronger U.S. dollar, which also affects AMD and other firms' exports.
