Advanced Micro Devices Inc. faces a sobered Wall Street when the chip maker reports its earnings Tuesday, after analysts reacted to Intel Corp.’s quarterly report by scaling back expectations.
AMD
AMD,
however, still has very little room for error given it predicted it would exit the year in a good place, after turning in a weak outlook last quarter that factored in inventory costs. Analysts are expecting AMD to issue a weak 2023 forecast after Intel
INTC,
reported earnings that showed how much inventory clearance was gutting gross margins as the CPU maker faced the worst PC shipment declines in recorded history. Intel also warned of a contracting data-center market.
In-depth: AMD earnings face even more scrutiny after ‘astonishingly bad’ Intel outlook
Here’s what Wall Street expects to see from AMD on Tuesday.
What to expect
Earnings: AMD on average is expected to post adjusted earnings of 67 cents a share, down from the $1.13 a share expected at the beginning of the quarter, and down from the 92 cents a share reported in the year-ago period, according to a FactSet survey of 34 analysts. Estimize, a software platform that crowdsources estimates from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of 69 cents a share.
Revenue: AMD, on average, is expected to post revenue of $5.51 billion, according to 31 analysts polled FactSet, down from the Street’s forecast of $7.08 billion at the start of the quarter, but up 14% from a year ago. Estimize expects revenue of $5.55 billion.
While the larger sales number from analysts has remained the same, analysts have been fine-tuning their segment estimates in recent days, according to FactSet data. This is how Wall Street expects AMD’s sales to break down following Intel earnings: Data center sales of $1.71 billion down from $1.72 billion last week; client sales of $988.7 million from $1.02 billion a week ago; gaming sales of $1.52 billion from $1.53 billion, while embedded sales estimates have crept up to $1.34 billion from $1.33 billion last week. Apples-to-apples comparisons from a year ago are difficult given that AMD instituted a new business segment reporting structure that finally split data-center-sales from gaming chip sales.
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Stock movement: In nine of the past 10 quarters, AMD earnings and sales have both topped Wall Street estimates, but share movement the next day isn’t as predictable, with shares closing down in six of those quarters.
AMD shares were crushed with a 55% price decline in 2022, while the PHLX Semiconductor Index
SOX,
dropped 35.8%, the S&P 500 index
SPX,
finished the year down 19.4%, and the tech-heavy Nasdaq Composite Index
COMP,
shed 33.1%.
Over the fourth quarter, those drops reflected a bounce off October lows on the year. AMD shares advanced 2.2% for the quarter, the SOX index rose 9.8%, the S&P 500 gained 7.1%, and Nasdaq slipped 1%.
Read: TSMC’s U.S. stock rallies as Wall Street talks about bottom in the chip sector
What analysts are saying
Morgan Stanley analyst Joseph Moore, who has an overweight rating and calls AMD his “top pick,” said he expects near-term weakness in data center to weigh on AMD’s first-quarter outlook, and he lowered his expectations for the year.
“Our initial assumption that the company can guide the full year to roughly consensus numbers might be at risk given Intel issues and new CFO,” Moore said. “But the opportunity remains significant.”
Read: ‘It’s not an earnings release, it’s a crime scene’: Analysts, and social media, react to Intel’s awful quarter
Cowen analyst Matthew Ramsay, who rates AMD an outperform stock, expects a “strong but beatable 2023 outlook,” but he also suggested that figuring out the right numbers is both an art and science.
Ramsay said macro risks for the March-ending quarter are well known, and that while AMD’s negative pre-announcement back in October and soft fourth-quarter guidance “came as a disappointment,” they served to de-risk the stock.
Data-center growth will not be as strong as expected, Ramsay said, but then again, “AMD has transformed itself from a company on the brink, to a solid second source to Intel, to now unequivocally leading the market in datacenter CPU performance.”
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Susquehanna Financial analyst Christopher Rolland said he expects the full-year outlook to disappoint Wall Street, and he also anticipates gross margins to be in the 50% to 53% range. What investors are struggling with is how long AMD will take to unload its inventory.
Any inventory struggles could show up in AMD’s forecast. Analysts surveyed by FactSet forecast, on average, first-quarter earnings of 68 cents a share on revenue of $5.5 billion, and 2023 earnings of $3.58 on revenue of $24.77 billion.
Credit: marketwatch.com