Why Advanced Micro Devices Fell 5.2% in October - The Motley Fool

What happened

Shares of Advanced Micro Devices (AMD 3.46%) fell 5.2% successful October, contempt the wide S&P 500 expanding 8%, according to information from S&P Global Market Intelligence. AMD faced a slew of headwinds during the quarter, including a cratering PC marketplace and the unveiling of caller restrictions connected precocious semiconductor income to China. The banal took a large downturn erstwhile it pre-announced third-quarter gross and net that missed the people by a wide margin.

So what

On Oct. 6, AMD absorption pre-announced its third-quarter results arsenic gross and net coiled up coming successful acold beneath their projections connected the second-quarter league call. Typically, erstwhile determination is simply a wide spread betwixt anterior guidance and what really happens, a institution volition pre-announce.

In the lawsuit of AMD, it pre-announced third-quarter gross of $5.6 cardinal versus anterior guidance of $6.7 billion, needless to say, a beauteous wide chasm. Strikingly, the shortfall occurred truly successful 1 segment, the PC market, which came to an implicit standstill during the 2nd fractional of the summer.

AMD yet reported a dismal 40% diminution successful its lawsuit conception (PCs), which accounted for beauteous overmuch the full shortfall. That monolithic diminution was really capable to nonstop that conception to a flimsy operating nonaccomplishment and for the lawsuit conception to autumn beneath some the endeavor and gaming segments.

AMD was surely not alone; conscionable astir each institution progressive successful the PC marketplace has taken a monolithic hit. According to IT probe steadfast Gartner, PC shipments were down a stunning 19.5% twelvemonth implicit twelvemonth successful the 3rd 4th -- the steepest diminution since Gartner began tracking results successful the mid-1990s!

On the upside, the endeavor conception reported beardown 45% maturation and came successful astatine $1.6 billion, gaming gross was up 16% to $1.6 billion, and embedded spot gross from the Xilinx acquisition came successful astatine $1.3 billion, which was successful enactment with archetypal guidance.

So it wasn't a full catastrophe for AMD; however, fixed that lawsuit gross was the largest conception anterior to past quarter, its monolithic diminution greatly affected AMD's wide gross and profitability.

Now what

There's thing peculiarly incorrect with AMD's execution oregon its plan chops -- the October weakness was truly astir the macroeconomic representation and, specifically, the PC market. Therefore, the broader system volition apt impact its destiny implicit the adjacent term.

The origin is the imaginable worsening of the economical slowdown, affecting adjacent the beardown information halfway segment. However, commentaries from ample tech companies inactive bespeak they volition proceed to walk connected information centers and artificial quality (AI) successful the upcoming year. The investors of the large FAANG names didn't truly admit that connected their net calls, but that is bully quality for AMD's information halfway segment. Of note, AMD volition unveil its newest EPYC information halfway chips connected Thursday, November 10.

Another origin is China. While Lisa Su said caller restrictions connected income of chips to China would person lone a "minimal" interaction successful the caller third-quarter net release, the caller rules unveiled successful aboriginal October didn't assistance sentiment. However, China income person been precise weak, which explains overmuch of the PC shortfall. Should China reopen its system and halt the endless COVID-19 lockdowns, that could beryllium a positive. However, that apt wouldn't hap until spring.

Overall, determination is inactive a batch of uncertainty surrounding the macroeconomic representation and China. However, AMD's banal terms has fallen truthful overmuch -- down 59% implicit the past twelvemonth -- that it whitethorn beryllium charismatic to investors with a longer clip horizon. However, AMD shareholders should conscionable beryllium prepared for a rocky roadworthy successful the adjacent term.