AMD’s Q1 2023 Revenue Beats Expectations But Guidance Falls Short

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Chip designer Advanced Micro Devices, Inc reported its earnings report for the first quarter of 2023 earlier today. AMD brought in $5.4 billion in revenue for the first quarter, marking a slight 9% annual growth compared to rivals, with the figure sitting above the high end of analyst guidance. The firm's bottom line suffered a major beating, though, with GAAP earnings per share dropping by a stunning 116% but the non GAAP EPS down by a relatively less 47%. AMD's GAAP EPS consists of non core expenses such as acquisition costs, and analysts typically focus on the GAAP results.

The big ticket item from AMD's earnings report is the firm's Client computing segment. This division deals with the firm's personal computing products, and as was widely expected before today's report, the segment was in for a bloodbath. AMD's Client segment raked in $739 million in revenue during the quarter, marking a 65% drop by becoming the worst performing division for the company.

This led it to report a $172 million loss as the products' costs outstripped their net sales. At the same time, a slowing economy also hit AMD's data center segment. Datacenter has been one of the stronger performing business divisions of late, but it's appearing as if higher costs of capital and other factors are constraining corporate spending in the segment. AMD's data center revenue was $1.3 billion in the quarter, remaining flat annually. However, at the same time, an inflationary environment also drove down operating income from the segment, which stood at $148 million during the quarter as opposed to the $427 million in the year ago quarter.

Commenting on the results, AMD's chief financial officer Ms. Jean Hu shared that data center is now the firm's biggest earner. Ms. Hu also had some sobering news for AMD's PC fans this quarter, as she added that during the current quarter, the growth that her firm is expecting in data center spending can be offset by a drop in the client computing segment. These are sequential growth/drop figures, indicating that perhaps there's one more quarter left before AMD's personal computing segment enters the proverbial bottom from where there's no way but up.

Diving deeper into data center, not all portions of the crucial segment were poor performers. Demand for cloud computing products boomed during the quarter, as it ended up boosting the segment's revenue. However, processor shipments declined, and as a whole, this growth and drop ended up canceling each other as the sector remained flat annually.

On the client computing front, inventory problems in the channel are still present. AMD confirmed that it is still under shipping processors in the market to ensure that the current retail inventory continues to be digested. The first quarter was also the first full first quarter, where AMD's embedded revenue accounted for Xilinx's revenue. This naturally aided the segment's performance, with Embedded growing its sales 163% annually, which stood at $1.6 billion.

Finally, for the full year guidance, it appears as if AMD is uncertain whether sales from the Client segment will grow as the firm's guidance only expects growth from Datacenter and Embedded. The firm's shares are down 6.6% in aftermarket trading at the time of publishing. The firm's revenue guidance for the current quarter sits at $5.3 billion, below Wall Street forests of $5.5 billion, indicating that a slowdown in the semiconductor market is deeper than initially feared.