AMD Drops 24% After Low Revenue And Guidance, Crypto Crash

AMD's third-quarter earnings report wasn't as promising as expected, which sent shares tumbling 24% in after-hours trading. AMD blamed the lower-than-expected revenue and guidance on a sharp downturn in the graphics market, which was largely fueled by the collapse of the cryptocurrency/blockchain market. The massive downturn in GPU sales left AMD's channel overstocked with inventory, which AMD CEO Lisa Su says could take 'several quarters' to correct. This comes after the company largely avoided the pitfalls of the crashing cryptocurrency market earlier this year. Overall, the company's $1.65B in revenue represented a 4% year-over-year (YoY) increase, but a 6% decline over the previous quarter. 

AMD also predicted $1.45B in revenue next quarter, which falls short of consensus estimates of $1.6B.

AMD's Computing and Graphics (C&G) business raked in $938 in revenue during the quarter but missed the consensus $1.05 billion estimate. Su attributed the low revenue to a $150 million shortfall in GPU sales, while the company had only planned for a $50 million decline. Nvidia did launch its own graphics cards recently, but AMD attributed the slowdown "almost entirely" to the crypto/blockchain crash.

Last year, Su stated that the company had boosted GPU production despite risks of a blockchain/crypto crash. At the time, Su cited several factors that would shield the company from oversupply in the event of a decline, but it is unclear if the boosted production played a role in the current glut. Su did state that it would take "several quarters" for its graphics segment to return to normal. The company also experienced a downturn in its semi-custom business as the market for aging consoles continues to decline. That trend is expected to continue into the seasonally-weak Q4 console season.

Sales of Ryzen processors were an expected bright spot. Su claimed the company gained share in the client market during the quarter and that Ryzen chips now comprise 70% of the company's revenue from processors. The company also achieved its highest processor unit shipments since Q4 2014. That's driving a richer mix, higher ASPs (Average Selling Price), and improved margins. AMD is working steadily towards its long-term margin expansion goals, reaching 40% gross margin in the quarter. That's up 4% year-over-year.

Su also stated the company had witnessed "pockets of shortages" in the processor market, almost assuredly in reference to Intel's production shortage, and says the company has boosted production in response. Su said the company is benefiting "a bit" from the shortages but didn't elaborate.  

There are plenty of promising signs ahead for AMD. The company is already sampling its 7nm EPYC 2 CPUs and GPUs. Su said the company had sold $20 million of its next-gen 7nm GPUs to data centers this year, with more expected as the company moves into next year. AMD will also ship its EPYC 2 "Rome" processors for revenue in 2019.

AMD's existing EPYC data center processors are still on track. The company cited a double-digit increase in both revenue and shipments over the prior quarter. Su said the processors would reach mid-single digit share this year and accelerate to double-digit market share next year.

AMD also made $68 million in IP income, which is largely a byproduct of its licensing agreement with Chinese companies to produce x86 processors. Those processors are coming to market quickly. AMD also isn't seeing any material impact of the tariffs yet, but the company is adjusting its supply chain, which is already multi-source, to reduce the impact of further hikes.

The lucrative holiday season awaits. That could bode well for AMD's sales as Intel continues to grapple with a production shortage, but as we've covered, market share growth takes time. AMD isn't forecasting a drastic upswing in sales during the next quarter, either. AMD's continued focus on improving profitability and focusing on a richer product mix will pay off in time, but investors are obviously looking for shorter-term gains. AMD still hasn't given us a hint when its mainstream 7nm processors will debut, but that will be a critical factor as the company tries to fend off Intel's 9th Generation processors.