Advanced Micro Devices (AMD) reported that it broke fourth-quarter earnings despite continued weakness in the PC market, indicating that the semiconductor company has the wherewithal to continue to grow and gain market share. has the Revenue rose 16 percent year over year to $5.599 billion, beating analysts’ expectations for $5.5 billion, according to estimates compiled by Refinitiv. Adjusted earnings per share (EPS) fell 25 percent to 69 cents per share, slightly more than the 67 cents per share expected by analysts. With fourth-quarter results, AMD Holdings Club expects annual revenue of $23.60 billion in 2022, with earnings per share of $3.50, helped by the merger of semiconductor company Xilinx. The $35 billion price tag for that acquisition, first announced in October 2020, was admittedly steep. But the deal was ultimately necessary for AMD, as it helped it expand its data center business, increase margins and create a wider variety of PCs. Shares of the chipmaker were up slightly after hours, up nearly 4 percent on today’s move and up 16 percent for the year. The Bottom Line Despite facing industry-wide headwinds, including chip saturation and soft demand for PCs, AMD managed to beat low expectations. More importantly, AMD appears to be nearing the end of its PC business cycle, known as its consumer unit, a key milestone that could signal the end of the revenue decline that has characterized its growth story for the past year. Derailed. But as one point of pain seems to be coming to an end, a new one may be emerging. The company’s management said on Tuesday that some of its cloud customers are currently digesting inventory, meaning they are working on what they currently have and reducing new orders. We’ll monitor cloud spending over the next few months, but it’s unlikely that AMD’s cloud business or data center unit will experience the same inventory correction as the PC segment, which experienced a significant boost in demand from Covid. 19- The spread of this digest seems to be temporary in nature and management looks quite bullish in the second half of 2023 based on conversations with clients. This indicates that the company expects to increase its production as demand increases. As AMD continues to gain market share in its cloud operations and its embedded franchise – which sells less complex processors to end markets such as the communications, industrial, healthcare, automotive and aerospace sectors – long-term drivers This is a growth story. remain intact. The quarter and future guidance were far better than rival Intel’s dismal quarter it reported last week – with AMD continuing to dominate the market once held by Intel. We maintain a 2 rating on the stock, which means we’re waiting for a pullback before buying given the stock’s nearly 16% year-to-date gain. However, we are lowering our price target from $130 to $100 per share to reflect lower market multiples and some of the downward revisions made in recent months. Data center revenues rose 42% in Q4, but were slightly below analysts’ expectations. However, AMD saw strong demand in the cloud space, especially from North America’s so-called hyperscalers, or heavy cloud users, who shift more of their workloads to AMD processors. Client was a clear source of weakness in the quarter as revenues nearly halved and profits fell due to ongoing inventory corrections in the PC market. The good news is that this PC nightmare may soon be over, with CEO Lisa Su predicting on Tuesday’s earnings conference call that the first quarter of 2023 should be the lowest level for the business since It will grow. We’ll have to see it to believe it, but it’s a key piece of detail we’ve been waiting for, given that free-falling PC sales have been the biggest driver of the revenue decline. Gaming revenue fell 7 percent as lower game graphics were more than offset by higher-end semi-custom chips sold into video game consoles. Gaming was a big source of growth this quarter, but we think the market is unlikely to give AMD much credit for that given the late stage of the video game console cycle. AMD makes custom chips that go into the latest versions of the Xbox and PlayStation. Both launched in 2020 and have been in tremendous demand for a few years, so this console cycle has already reached its peak. Embedded revenues are up significantly from last year, but that’s purely a function of adding to the Xilinx business. It’s important to see continued revenue growth for this business as it generates higher margins than AMD’s other divisions. AMD’s outlook provided a first-quarter 2023 outlook, and while it was slightly below analysts’ forecasts, it was still better than Wall Street’s worst fears — especially given Intel’s disastrous guidance last week. AMD expects first-quarter revenue of roughly $5.3 billion, compared to the consensus estimate of about $5.5 billion, a charge or take of $300 million. This figure represents a year-over-year decline of about 10 percent, driven by declines in PCs and gaming units, partially offset by growth in the embedded and data center segments. Embedded revenues are expected to gradually increase and increase slightly, while gaming and PC revenues are expected to decline seasonally. The data center business should be closely monitored as revenues are expected to decline as some cloud customers work through high levels of inventory. No specific financial guidance was provided for the full year 2023, but management expects the data center and embedded segments to grow year over year. AMD expects operating margins to be around 50% in the first quarter of 2023. The slight decline in margins from Q4 2022 is mostly due to product mix and cloud revenues are expected to be lower sequentially. This is a minor disappointment, but as the business progresses through the year, margin development looks promising. AMD expects flat margins to expand in the first half, followed by the second half — a function of growth in the higher-margin cloud and embedded segments, as well as the normalization of the PC business. (Jim Cramer’s charitable trust is long AMD. See here for a full list of stocks.) As a subscriber to CNBC’s Investment Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. After sending a trade alert, Jim waits 45 minutes before buying or selling stocks in his mutual fund portfolio. If Jim has discussed a stock on CNBC, he waits 72 hours after issuing a trade alert before placing a trade. 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Lisa Su, President and Chief Executive Officer of Advanced Micro Devices Inc. (AMD).
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Advanced micro devices ( AMD ) reported Tuesday that it beat fourth-quarter earnings despite continued weakness in the PC market, suggesting the semiconductor company can continue to grow and gain market share.