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Advanced Micro Devices Inc. shares fell in the extended session Tuesday after the chip company admitted that the COVID-19 pandemic would trim its growth in 2020.
AMD US:AMD, which has not rescinded annual guidance like many others companies have, eased its expectations for 2020 sales, and now expects revenue to grow 20% to 30% from 2019, after previously projecting 28% to 30% revenue growth. The company maintained its guidance for adjusted gross margin of 45%.
“Unlike many, AMD is providing a guide for 2020 with 25% growth, which I believe shows the conservativeness of the forecast,” said Patrick Moorhead, principal analyst at Moor Insights & Strategy, in emailed comments. “AMD’s consumer bend to most of its client computing sales warrants the +/-5% guard rails and at the same time I am pleased at the 45% gross margin target.”
Shares fell more than 4% after hours, following a 1.7% decline in the regular session to close at $55.51. In comparison, the PHLX Semiconductor Index US:SOX fell 0.7%, the S&P 500 index US:SPX declined 0.5%, and the tech-heavy Nasdaq Composite Index US:COMP sank 1.4%.
Shelter-in-place measures from the COVID-19 pandemic have handed AMD the strongest notebook portfolio the company has ever had, said Chief Executive Lisa Su on the analyst call, but the pandemic does pose a headwind.
“The only place where perhaps we see a little bit of a slowdown is, as I said, on some of the transactional business which we had planned to grow as we go through this year, and that might grow more slowly just as people aren’t focused on new infrastructure right now,” Su said.
“But in terms of cloud and large enterprise, there continues to be good activity,” Su told analysts.
The company reported first-quarter net income of $162 million, or 14 cents a share, compared with $16 million, or a penny a share, in the year-ago period. After adjusting for stock compensation and other factors, AMD reported earnings of 18 cents a share, compared with 6 cents a share in the year-ago period. Revenue rose to $1.79 billion from $1.27 billion in the year-ago quarter.
Analysts surveyed by FactSet had forecast adjusted earnings of 18 cents a share on revenue of $1.78 billion. For the second quarter, AMD expects revenue of $1.75 billion to $1.95 billion, in line with the average analyst estimate of $1.88 billion.
AMD has yet to ease up on its release of new chips this year, with the recent launch of consumer desktop chips in its third-generation Ryzen line, and three new Epyc-branded processors for the database, commercial high-performance computer and hyperconvergence markets. Some analysts have cautioned of a possible drop-off in chip sales brought on by recessionary concerns, but so far the sector has benefited from millions of people having to work and entertain themselves from home because of the coronavirus pandemic.
AMD reported a 73% increase from last year in computing and graphics chip sales to $1.44 billion, while analysts expected a 58% surge to $1.31 billion.
The company also reported a 21% decline in enterprise embedded and semi-custom chip sales — the unit that includes data-center and gaming-console chips — to $348 million, while analysts expected a 4% rise to $458.7 million. Like three months ago, AMD said a drop in gaming console sales were to blame for the segment’s performance.
“Sony US:SNE and Microsoft US:MSFT both reduced inventory in advance of next-generation console launches, we expect semi-custom revenue to increase in the second quarter and be heavily weighted toward the second half of the year as we ramp production to support holiday launches of the new Playstation 5 and Xbox series X consoles,” Su said on the analyst call.
Of the 40 analysts who cover AMD, 18 have overweight or buy ratings, 19 have hold ratings, and three have sell ratings, with an average price target of $50.21, according to FactSet data.
