AMD (NASDAQ:AMD) Misses Q3 Analysts' Revenue Estimates

Jabin Bastian /
2022/11/01 4:25 pm EDT

Computer processor maker AMD (NASDAQ:AMD) fell short of analyst expectations in Q3 FY2022 quarter, with revenue up 29% year on year to $5.56 billion. Guidance for the next quarter also missed analyst expectations with revenues guided to $5.5 billion at the midpoint, or 7.34% below analyst estimates. AMD made a GAAP profit of $66 million, down on its profit of $923 million, in the same quarter last year.

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AMD (AMD) Q3 FY2022 Highlights:

  • Revenue: $5.56 billion vs analyst estimates of $5.64 billion (1.49% miss)
  • EPS (non-GAAP): $0.67 vs analyst expectations of $0.70 (4.87% miss)
  • Revenue guidance for Q4 2022 is $5.5 billion at the midpoint, below analyst estimates of $5.93 billion
  • Free cash flow of $842 million, roughly flat from previous quarter
  • Inventory Days Outstanding: 110, up from 77 previous quarter
  • Gross Margin (GAAP): 49.7%, up from 48.3% same quarter last year

“Third quarter results came in below our expectations due to the softening PC market and substantial inventory reduction actions across the PC supply chain," said AMD Chair and CEO Dr. Lisa Su.

Founded in 1969 by a group of former Fairchild semiconductor executives led by Jerry Sanders, Advanced Micro Devices or AMD (NASDAQ:AMD) is one of the leading designers of computer processors and graphics chips used in PCs and data centers.

The biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.

Sales Growth

AMD's revenue growth over the last three years has been exceptional, averaging 57.4% annually. But as you can see below, last year has not been especially strong, with quarterly revenue growing from $4.31 billion to $5.56 billion. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

AMD Total Revenue

Despite missing analyst estimates this quarter, 29% revenue growth for AMD's was still solid.This marks 13 straight quarters of revenue growth, which means the current upcycle has had a good run, as a typical upcycle tends to be 8-10 quarters.

However, AMD believes the growth is set to continue, and is guiding for revenue to grow 13.9% YoY next quarter, and Wall St analysts are estimating growth 10.3% over the next twelve months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

AMD Inventory Days Outstanding

This quarter, AMD’s inventory days came in at 110, 26 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.

Key Takeaways from AMD's Q3 Results

With a market capitalization of $96.9 billion, more than $5.59 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

It was good to see AMD deliver strong revenue growth this quarter. And we were also glad to see the improvement in gross margin. On the other hand, it was unfortunate to see that AMD's revenue guidance for the full year missed analyst's expectations and the revenue guidance for the full year was downgraded. Overall, it seems to us that this was a complicated quarter for AMD. The company is up 2.54% on the results as the numbers were pre-announced and the market was expecting a difficult quarter.

AMD may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.