Despite an otherwise solid quarter, AMD shares tank on weak server chip sales
Semiconductor firm Advanced Micro Devices Inc. saw its share price crash by about 8 percent in after-hours trading on Monday after reporting lower-than-expected first-quarter revenue in its server chip business.
AMD’s server business, which makes microchips for both servers and gaming consoles, saw revenues increase by 5 percent from a year ago, to $391 million. However, that fell some way short of Wall Street’s estimated $442.1 million in revenues, prompting investors to panic. Update: Investors slept on it and woke up in an even worse mood. In midday trading Tuesday, shares were falling almost 19 percent.
The poor performance of AMD’s server unit overshadowed a solid quarter in the company’s computer and graphics chip businesses, which saw gains driven by high demand for its new Ryzen processors and graphics chips.
In total, AMD’s businesses reported a loss of 4 cents per share on sales of $984 million for the first quarter, before certain costs such as stock compensation. That compared with a loss of 12 cents per share on sales of $832 million a year ago. That was largely in line with Wall Street’s expectations of a 4-cent loss on sales of $948.38 million.
Another positive was AMD’s revised guidance. The company said it expects second-quarter revenues to rise around 12 percent year-over-year. Analysts were expecting a revenue increase of 9 percent to $1.12 billion.
AMD’s main rivals are Intel Corp. in the computing chips market for personal computers and servers and Nvidia Corp. in the graphics chip market.
The company recently launched its new Ryzen processors targeting the PC market in an effort to challenge Intel’s growing dominance. AMD’s graphics processors are also making inroads in the gaming console market, and in low-end-to-midrange PCs used for gaming, though its rival Nvidia still dominates in higher-end machines.
“We achieved 18% year-over-year revenue growth driven by strong demand for our high performance Ryzen CPUs [central processing units] as well as graphics processors,” said AMD Chief Executive Lisa Su in a prepared statement. “We are positioned for solid revenue growth and margin expansion opportunities across the business in the year ahead as we bring innovation, performance and choice to an expanding set of markets.”
On a conference call, Su said there was good reason for optimism as the company plans to roll out several new products in the coming months. These include its Naples chips targeted at the server market in the second quarter, and also its high-end Vega GPUs for both consumer and enterprise markets. In addition, the Ryzen chip will be featured in desktops, notebooks and mobile devices by the second half of this year.
Patrick Moorhead, an analyst from Moor Insights & Strategy, told The Register that he largely agreed with Su’s assessment. “Considering Ryzen was only in the market a month in Q1 and with Ryzen 5 ramping hard, I’m expecting an even bigger desktop ASP [average selling price] and revenue improvement in Q2,” Moorhead said. “AMD may see a small lift with Vega graphics in Q2, but I’m not expecting a big ramp until Q3.”
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