AMD forecasts misses estimates, shares drop

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By Chavi Mehta and Stephen Nellis

(Reuters) -Chip designer Advanced Micro Devices forecast fourth-quarter revenue and gross margins below Wall Street estimates on Tuesday, hurt by a weak gaming market as well as a decline in demand from some industries for its programmable chips.

Shares of the Santa Clara, California-based company fell as much as 4.6% in trading after the bell. They come as the company is readying a chip called the MI300X that it hopes will compete against Nvidia in the market for data center artificial intelligence chips to create technologies similar to ChatGPT.

Before Tuesday, AMD had told investors to expect as much as $300 million in sales from those chips in the last quarter of 2024. But weakness in other segments left the company short of Wall Street expectations for the fourth quarter.

While the PC market is in recovery mode, demand for programmable chips used by industries such as wireless communications, healthcare and automotive has slowed down.

Intel last week said it expects demand from that segment to decline and stay down for the “next few” quarters. That same slowdown appears to be hitting AMD’s Xilinx business for programmable chips, which is known for its high margins.

Analysts said the recent expansion of U.S. sanctions on chip exports to Beijing will require AMD to seek licenses to sell its most high-end artificial intelligence chips to China, which it plans to launch and ramp only in the fourth quarter.

Moreover, capital spending cuts by key customer Meta Platforms could also weigh on the company.

The company forecast current-quarter revenue of about $6.1 billion, plus or minus $300 million. Analysts polled by LSEG expect revenue of $6.37 billion. AMD forecast adjusted gross margins of 51.5%, slightly below estimates of 52.1%, according to LSEG data.

Adjusted revenue in the third quarter rose 4% to $5.80 billion, compared with estimates of $5.70 billion. Adjusted profits were 70 cents per share, above analyst estimates of 68 cents per share, according to LSEG data.

Revenue at its data center business was roughly flat at $1.6 billion in the third quarter, while sales at its client segment, which caters to the PC market, rose 42% to $1.5 billion, signaling rebound in demand.

Revenue at Embedded segment, housing programmable chips, fell 5% to $1.2 billion, while gaming revenue fell 8% to $1.5 billion.

(Reporting by Chavi Mehta in Bengaluru; Editing by Krishna Chandra Eluri and Jonathan Oatis)

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