Shares of the chipmaker Advanced Micro Devices Inc. rose by more than 4% in extended trading today after it said it’s expecting strong growth in its server chip business in the coming quarters.

That happened even as the company missed its third-quarter earnings and revenue targets and offered soft guidance for the coming quarter.

AMD reported earnings before certain costs such as stock compensation of 67 cents per share on revenue of $5.57 billion, up 29% from a year ago. The results were lower than expected, with Wall Street analysts targeting earnings of 68 cents per share on sales of $5.62 billion.

Overall, AMD reported a net profit of $66 million in the quarter, down from $923 million a year earlier. The company blamed the smaller profit on the amortization of intangible assets associated with its $50 billion acquisition of Xilinx Inc., which makes programmable computer chips. The deal was completed in February.

The results were more or less in line with a warning issued by AMD on Oct. 6. Then, the company told investors that it was lagging some way behind its earlier guidance due to fewer shipments, which were blamed on a weaker-than-expected personal computer market. AMD’s stock fell almost 14% on that warning.

AMD Chairwoman and Chief Executive Lisa Su (pictured) reiterated that in her statement, saying the results came in below expectations because of the softening PC market and “substantial inventory reduction actions” made by the company across its PC supply chain.

“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,” Su said. “We are confident that our leadership product portfolio, strong balance sheet and ongoing growth opportunities in our data center and embedded businesses position us well to navigate the current market dynamics.”

In a conference call, Su told analysts that the company has made plans to deal with the “lackluster” PC market over the next quarter. However, it was still forced to trim its full-year revenue forecast. It said it now sees full-year revenue of $23.5 billion, down from an earlier forecast of $26.3 billion that it provided in August. For the fourth quarter, AMD expects sales of between $5.2 billion and $5.8 billion, some way below Wall Street’s forecast of $5.85 billion.

There were some reasons for optimism, though. In the quarter just gone, AMD’s Data Center business pulled in $1.61 billion in revenue, up 45% from a year ago and just below the consensus estimate of $1.64 billion. The segment notably included contributions from Xilinx and another startup the company recently acquired, Pensando Systems Inc. AMD said it has seen strong demand for its server chips code-named Genoa, and it’s expecting big things from the launch of the newest generation of its EPYC data center chips later this month.

“We’ve had very good progress at the North American cloud vendors and we continue to believe that although there may be some near-term, let’s call it optimization, of, let’s call it individual footprints and efficiencies at individual cloud vendors, over the medium term,” Su told analysts on a conference call. “As we go into 2023, we expect growth in that market, particularly customers moving more workloads to AMD, just given the strength of our product portfolio.”

In another bright spot, the data center segment’s cloud revenue more than doubled and also increased sequentially. However, sales to server makers that target big enterprises were down sequentially. Su said that was because those customers were taking more time to make buying decisions and were more conservative with capital expenditures.

AMD’s Gaming segment delivered $1.63 billion in revenue, up 14% from a year ago and in line with Wall Street’s forecast. AMD said it was seeing healthy demand for console chips in the run up to the holiday season. As for the Embedded segment, which also included some Xilinx sales, it added $1.3 billion in revenue, up from $79 million a year earlier and in line with consensus.

The real disaster was, of course, the Client unit, which delivered $1.02 billion in revenue, down almost 40% from a year before. AMD has been hit by a significant decline in PC sales. Earlier this month, the analyst firm Gartner Inc. said third-quarter PC sales were down 19.5% from a year ago, the steepest decline it has seen since it started tracking the market in the mid-1990s.

It’s notable that AMD didn’t do quite as bad as it expected either, with all four of its business segments delivered slightly more revenue than what the company forecast in October.

Charles King of Pund-IT Inc. told SiliconANGLE that AMD’s performance reflects the strategic shift taken by the company under both Su and her predecessor Rory Read. “When Read was named CEO in 2011, the company derived 95% of its revenues from PCs,” King said. “But by the time he left for Dell, PCs represented just half of AMD revenues.”

The analyst said that shift was accelerated under Su, who brought in a number of high profile executives from IBM Corp. and other companies, including the likes of Mark Papermaster, who is now AMD’s chief technology officer, and Forrest Norrod, the current senior vice president and general manager of AMD’s data center business. With those arrivals, King said AMD has evolved from a “PC wannabe player” into a company that owns multiple substantial and sustainable businesses that span consumer products, business systems, data center servers, cloud solutions and edge computing devices.

“What this means is that if or when one of AMD’s target markets hits the skids, the company has more than enough business going on elsewhere to avoid a complete disaster,” King explained. “AMD isn’t immune to systemic market issues or economic trends, but Su and her team have designed a company that is built to last and to win. That’s why, even on the heels of a quarter as tough as this one has been, the response of shareholders is relatively benign.”

Holger Mueller of Constellation Research Inc. concurred, saying AMD is a brilliant example of a company that has successfully diversified its business. “When your main business is tanking 40% and you still come out with a small profit, that means you have diversified pretty well,” Mueller said. “Despite a weak PC performance, AMD grew on the strength of its data center business, which has now overtaken the PC segment. EPYC was epic once again, and it’ll be interesting to see if this is just a temporary swing, or if data center revenue is destined to be AMD’s No. 1 segment in the long-term.”

AMD Chief Financial Officer Devinder Kumar told analysts that the company will continue to invest in “strategic priorities” such as the data center business, while keeping a lid on operating expenses and headcount growth elsewhere.

Photo: AMD Global/Flickr