AMD is riding high on the hype generated by its recent Zen 4 launch—or at least, it was riding high two weeks ago. Now it seems some of the air has been let out of AMD’s balloon. The company has released preliminary financial results for the third quarter, and they’re pretty grim. Though it’s holding it down in data center and other business groups, its client revenue fell off a cliff. It’s important to note this is early guidance for investors, not the final, actual numbers. Those will be delivered on Nov. 1, but they’re unlikely to tell a different story.
Third-quarter earnings were off from its forecast by just a smidge. That’s sarcasm, as AMD missed its target by over a billion dollars. It had projected it would earn $6.7 billion total, and came up with just $5.6 billion. Although it’s a diversified company, it places the blame for the drop primarily on its client business. That includes CPUs and APUs made for desktops and laptops. The reduction in client revenue was balanced out by data center, gaming, and embedded revenue. AMD says those business groups have grown year-over-year along with expectations. Despite the setback, its year-over-year earnings have increased 29 percent; good, but it had projected an increase of 55 percent. The pandemic-fueled, PC-buying extravaganza is officially over.
As the chart shows, earnings were up in almost every business unit besides “client” for the quarter. We say “almost” because the gaming division was “flat,” but still up 14 percent YoY. Client revenue was down 53 percent quarter-over-quarter and 40 percent year-over-year. This gives us a very clear picture of how the pandemic affected the PC market. “The PC market weakened significantly in the quarter,” said AMD’s CEO Dr. Lisa Su in remarks via Techspot. “While our product portfolio remains very strong, macroeconomic conditions drove lower than expected PC demand and a significant inventory correction across the PC supply chain.”
Several likely causes are to blame for the sudden downturn. The global economy is still jittery in the face of a possible recession. It was also widely known AMD was on the cusp of releasing its Zen 4 platform in September. This could have caused some PC builders to hold off on CPU upgrades. Still, according to Bloomberg, the entire chip industry is bracing for tough times ahead. It notes AMD is not alone in feeling some pain these days. Samsung also recently reported a staggering 32 percent drop in earnings. An additional factor differentiating this downturn is the US government’s efforts to restrict the sale of chips from US companies to China.
The situation is equally tenuous at its rival Nvidia. The company experienced a dramatic 44 percent quarterly decline in its gaming revenue for Q2. However, it’s in a similar situation as AMD is now with its next-generation products primed for launch. Nvidia’s CEO said he hoped the launch of its RTX 40-series would right the ship, especially as it’s perfectly timed for the holiday shopping season. AMD just launched Zen 4 and is about to launch RDNA3 GPUs on November 3rd. It’ll be interesting to see if consumers were just waiting for new hardware to arrive, or if the larger forces at work will continue to suppress enthusiasm for PC upgrades.