AMD’s PC chip revenue have taken a major hit, but the Ryzen designer still managed to grow sales in the double digits in the third quarter of this year, thanks in good part to continuing demand for its Epyc server processors.
The company said Tuesday that revenue for the three months to September 24 grew 29 percent year-over-year to $5.6 billion, the number it predicted when it last month revised its Q3 forecast to $1.1 billion less than its previous prediction of $6.7 billion revenue.
That 29 percent revenue growth is less than half the 70 or so percent growth AMD reported in the previous two quarters, and less than it posted in several prior quarters, but contrasted well with the 20 percent drop Intel reported for its third-quarter revenue last week.
Epyc stays strong thanks to the cloud
AMD’s datacenter business grew 45 percent year-over-year to $1.6 billion, largely driven by a doubling in revenue from hyperscalers like Microsoft and Amazon adopting its Epyc processors. Server CPU sales to enterprises fell from the previous quarter due to third-party supply and macroeconomic issues. Meanwhile, datacenter GPU sales were down “significantly,” which AMD attributed to the “substantial shipments” that supported last year’s build-out of the Frontier supercomputer.
Despite the drop in sales to enterprise customers, AMD CEO Lisa Su said she believes her corporation will continue to gain x86 CPU market share in both the cloud and enterprise markets.
On the company’s earnings call, Su said that while hyperscale customers are doing some “optimization” in the near term — meaning less spending on servers — AMD is confident the cloud market will continue to drive demand for Epyc CPUs in the next several months.
“What we’re seeing is North America cloud is probably the most resilient out of the segments within the datacenter market. And this is where AMD is the strongest,” she said.
Su added that the “very strong” total cost of ownership and power efficiency attributes of AMD’s server silicon are helping sales in the cloud market, “given the cost of power and energy around the world.”
AMD began initial shipments of its next-generation Epyc CPUs, code-named Genoa, to select customers in the third quarter, Su added. However, she said, Genoa will “coexist for quite some time” with the current Milan generation of Epyc products, “given how competitive both are.” Su did admit that Genoa will take longer for customers to qualify because of new technologies it supports like DDR5.
The Register reported earlier today that AMD is likely to beat Intel to the market with new server chips since Hewlett Packard Enterprise plans to launch Genoa-based systems later this month while Intel plans to launch its next-generation Xeon chips early next year.
PC biz takes an expected hit, Xilinx costs drag down profits
While Epyc fared well in Q3 2022, AMD’s PC chip business did poorly in the quarter. The company’s client processor revenue in the period was $1 billion, down 40 percent from the same period last year, because, as we have written about many times already, personal computing sales have slumped.
AMD’s PC chip sales plunge was more than double the decline experienced at Intel, percentage wise.
“Our third quarter revenue and gross margin came in below our expectations due to softening PC demand and substantial inventory reduction actions across the PC supply chain,” Su said.
Despite the dive in revenue, Su expressed optimism that the company’s new and upcoming chips would find favor in the PC market:
AMD’s other businesses did better. The company’s gaming segment growing 14 percent year-over-year to $1.6 billion, thanks to higher game console chip sales against “lower graphics revenue.” As for the embedded segment, AMD said sales went up by 1,549 percent to $1.3 billion, which would be a mind-boggling growth rate except for the fact that this represents the business AMD brought in through its Xilinx acquisition.
Speaking of Xilinx, while the acquisition is propping up AMD’s embedded business and giving its AI strategy an extra shot in the arm, the deal is not helping the company’s profitability or margins.
AMD said the “amortization of intangible assets associated with the Xilinx acquisition” was the main reason for its gross margin dipping by six percentage points year-over-year to 42 percent. The Xilinx takeover also resulted in an overall operating loss of $64 million, compared to an operating income of $948 million a year ago, and a net income of $66 million, compared to $923 million in the same period last year. That’s a 93 percent drop in profit, year on year.
The company now expects full-year revenue to be roughly $23.5 billion, plus or minus $300 million. That would mark an approximately 43 percent increase in revenue over last year. Contributing to that forecast is its expectation to grow sales 14 percent year-over-year in the fourth quarter.
Even though those figures are reflective of AMD operating in a weaker economy, investors were still impressed with the overall picture, sending the company’s shares up more than four percent in after-hours trading on Tuesday. ®