Underscoring a difficult second half of the year that seems to be shaping up for the entire tech industry, AMD this afternoon has become the latest tech company to warn investors that revenues for the quarter are going to come in significantly under previous guidance. Releasing a preliminary third quarter financial results statement, AMD is reporting that revenues for the quarter will come in at around $5.6 billion, which is over $1 billion below AMD’s previous guidance of $6.7 billion. Driving this unexpected drop in revenues is an exceptionally weak client market, with revenues down 40% versus Q3’21 and resulting in what’s traditionally AMD’s largest market segment by revenue becoming their smallest in a single quarter.

At a high level, AMD’s situation mirrors the rest of the tech industry, particularly other chip rivals like Intel and NVIDIA. For a multitude of reasons from reduced consumer demand to preparations for a likely recession, PC OEMs are significantly reducing their stockpiles of completed systems and parts. OEM inventories had become relatively bloated following the pandemic, as OEMs surged to meet the spike in demand for new client systems for a newly-remote workforce. But as the pandemic has subsided, so has the demand for new systems.

As a result of these inventory drawdowns, OEMs are currently ordering relatively few new client processors. Which in turn is hitting chip suppliers hard as orders from their biggest customers are in a heavy decline.

AMD Q3 2022 Reporting Segments
  Q3'2022 (P) Q/Q Y/Y
Data Center ~$1.6B +8% +45%
Client ~$1.0B -53% -40%
Gaming ~$1.6B Flat +14%
Embedded ~$1.3B +4% +1549%

The result for AMD is that, simply put, client revenue for the third quarter has cratered. AMD’s client segment, which covers desktop and mobile CPU/APU sales, is expected to book about $1B in revenue for Q3. This is down 40% on a year-over-year basis, and an even larger 53% on a quarterly basis. And while AMD doesn’t issue formal guidance for specific segments – meaning that it’s not possible to say how far off client revenues were from AMD’s expectations – the year-over-year drop is a sharp change for a product segment that for the last several quarters has been seeing strong growth.

Complicating matters, AMD has their own inventory stockpiles to manage. The precipitous drop in OEM CPU orders means that AMD is having to write-down the value of their chip inventory to account for lower ASPs, which will be reflected as a further $160 million charge in their Q3 earnings. Notably here, the charge is not just for the client business, but rather “the graphics and client businesses”, indicating that while the bulk of AMD’s immediate pain is in CPUs, they are also feeling some pressure on the graphics business.

As a result of these charges and drop in client sales is that, by revenue, AMD’s client segment is now the smallest of the company’s four primary segments, coming in below even the embedded/Xilinx segment. In its place, AMD’s Data Center and Gaming (consumer GPUs & console SoCs) segments are now their top divisions, each tied at about $1.6B apiece under AMD’s preliminary numbers.

AMD Q3 2022 Preliminary Financial Results (GAAP)
  Q3'2022 (P) Q3'2021 Q2'2022 Y/Y
Revenue ~$5.7B $4.3B $6.55B +29%
Gross Margin ~42% 48% 46% -6pp

The net impact to AMD’s business, in turn, is that revenue for the quarter is coming in at about $1.1 billion below AMD’s previous guidance. AMD isn’t reporting any net income/profitability figures with their preliminary results, but it does mean that, besides the immediate revenue drop, the GAAP gross margin is dropping to ~42% – down from 46% in the previous quarter – while the non-GAAP gross margin is 4% below AMD’s guidance for Q3.

Despite all of that, however, AMD’s overall revenue for Q3 is still around 29% higher than the year-ago quarter, which is the silver lining that AMD is focusing on for now. While the client segment significantly underperformed for Q3, AMD’s remaining Data Center, Gaming, and Embedded segments all “increased significantly year-over-year in-line with the company’s expectations”, leading to the company’s overall growth. The Data Center business in particular was up 45% year-over-year, a significant jump that comes despite the fact that AMD’s current generation of Milan processors are nearing the end of their cycle as AMD prepares to launch their next-gen Genoa processors later this quarter.

AMD will have a full accounting of its third quarter results on November 1st, when the company presents their full earnings report. Besides providing finalized revenue numbers and a look at what it means for profitability, it will also be our first look at what AMD expects for client demand in the final quarter of the year. Given the nature of inventory drawdowns, this soft client market is likely not going to be a single-quarter event for AMD, so it will be interesting to see what this means for their operations for the next few quarters.

Source: AMD IR

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  • trivik12 - Thursday, October 6, 2022 - link

    Where does Xilinx revenue fit in? It was part of AMD only from Q2.
  • Ryan Smith - Thursday, October 6, 2022 - link

    It's part of the Embedded segment.
  • trivik12 - Thursday, October 6, 2022 - link

    Thank you. Then DC numbers are phenomenal to grow 8% Q on Q.
  • Samus - Friday, October 7, 2022 - link

    Also huge margins compared to client. Not sure how margins are in gaming - though they have no competition, Sony and Microsoft are probably receiving a volume discount that gets contractually renegotiated every so often.
  • ilt24 - Saturday, October 8, 2022 - link


    Xilinx revenue is split between DC and Embedded. From the last earnings report:

    “ Data Center segment includes server CPUs, data center GPUs, Pensando and Xilinx data center products.

    Client segment includes desktop and notebook PC processors and chipsets.

    Gaming segment includes discrete graphics processors and semi-custom game console products.

    Embedded segment includes AMD and Xilinx embedded products.”
  • Ryan Smith - Saturday, October 8, 2022 - link

    Ahh, you are correct. Thanks!
  • Techie2 - Thursday, October 6, 2022 - link

    40 year high inflation in the U.S., $5/gal. gas and a 20% increase in rent certainly has not helped U.S. sales. It looks like we're in for a rough ride at least until 2024 after all of the economic damage being imposed.
  • meacupla - Thursday, October 6, 2022 - link

    It's not only that. 2019 and 2020 where when client PC sales were booming, as a lot of people needed to a PC that could handle remote work. Now, covid19 is not over yet, but people don't need to renew their 2019~2021 PCs just for remote work. There is just no demand for new client PCs, inflation or not.
  • Threska - Thursday, October 6, 2022 - link

    VR as a growth market. ;-)
  • Samus - Friday, October 7, 2022 - link

    Spot on. Realistically anybody who bought a PC in the last few years has no reason to upgrade unless they need bleeding edge performance.

    The sad thing is I suspect sheep will line up in droves for the RTX 4080 launch next month ready to pay $900-$1200 for a 80-series card, that while faster than the 3080, is like comparing a Ferrari to a Lamborghini; both will be CPU limited in most games unless you are actually playing 4K+ with full RTX and detail where they might be a bottleneck.

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