AMD Sales Outlook Showcases PC Industry Concerns

Andrew Klips  |

Only a few weeks after Intel Corp. (INTC) cut its third quarter sales projections, fellow chipmaker Advanced Micro Devices Inc. (AMD) followed suit much to the dismay of shareholders who have watched shares of AMD erode by about 60 percent in the last six months.  Shares tumbled more than 10 percent in after-hours trade to under $2.90 per share for the first time since March of 2009 with the sales cut.

Sunnyvale, California-based AMD projected a 10 percent decline in sales for the third quarter from the second quarter, citing “weaker-than-expected demand across all product lines caused by the challenging macroeconomic environment.”  Previously, the semiconductor maker said it expected a sequential decline of 1 percent, plus or minus 3 percent, for the third quarter.

The warning is less than a month behind the September 17 departure of Chief Financial Officer Thomas.

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AMD also cut its gross margin projections for the quarter from 44 percent to 33 percent, largely because of a $100 million inventory write-down related to a weak demand outlook for certain products.  This is in line with Intel’s lowered expectations which also included overstuffed inventory.

AMD officially reports earnings on October 18.  Analysts were originally anticipating a 2 percent drop in sales.  Based on second quarter filings and a 10 percent drop, AMD should report revenue of approximately $1.29 billion, which will come up well shy of Wall Street’s call of $1.38 billion.

Weakness in the PC space has been widely acknowledged for the last half-year with mobile devices continually growing in popularity and fleeting global economies choking sales, but the stark drop in revenue during Q3 comes as a bit of a surprise.  Normally, back-to-school and early holiday shoppers give sales a lift during the third quarter as compared to the second.

The sales slump further underpins concerns about PC versus tablet wars and will heighten awareness about Microsoft’s much-anticipated launch of Windows 8 later in October, which could be causing a pause in sales.

Stoking the bearish fire engulfing the PC markets, on Researchers IDC and Gartner Inc. (IT) said PC shipments dropped more than 8 percent in the third quarter compared to the year prior period, representing the steepest plunge in 11 years.

IHS iSuppli has rung-in with a projection that PC shipments for 2013 would decline for the first time since the dot-com balloon burst in 2001.

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