AMD Hopes For Rebound In The Second Half Of The Year As Q2 Profits Plunge 94%

AMD crawled back to profitability in the second quarter of 2023, reporting net income of $27 million – a drop of 94 percent from this time last year, but a sight better than the $139 million loss the chipmaker sustained in Q1.

The fabless chip design outfit's revenues also took a hit in Q2, falling 18 percent year-over-year to $5.35 billion and remaining flat compared to the first quarter, but the biz predicted better times lie ahead.

"We executed well in the second quarter, launching multiple leadership products, significantly expanding our AI engagements, and ramping our latest gen-four Epyc and Ryzen product families," CEO Lisa Su said on Tuesday's earnings call.

AI is an area of particular interest for AMD, which recently detailed its MI300-series GPUs and APUs during its datacenter event in June. According to Su, the announcements have attracted a fair bit of interest in AMD's AI roadmap and drove a seven-fold increase in customer engagements compared to Q1.

"While we are still in the very early days of the new era of AI, it is clear that AI represents a multibillion-dollar growth opportunity for AMD," Su enthused. "In the datacenter alone, we expect the market for AI accelerators to reach over $150 billion by 2027."

The chief executive also took the opportunity to highlight adoption of the flagship Epyc 4 processors, which debuted last November and were expanded to include cloud and HPC-centric offerings late this spring. "Although market demand remains mixed, 4th-gen Epyc CPU adoption accelerated in the quarter with revenue nearly doubling sequentially as cloud providers expanded deployments," Su explained.

However, the latest chips haven't been enough to offset weak demand for AMD's previous generation of products and the resulting elevated levels of inventory, which contributed to an 11 percent year-over-year decline in datacenter revenues to $1.3 billion [PDF].

Quarterly revenue for AMD's client segment fared even worse – sliding 54 percent year over year to $998 million. Execs blamed the decline on tepid PC demand and an ongoing market correction. However, compared to Q1, things are looking up – shipments of Ryzen 7000 consumer CPUs increased by 35 percent.

The chip shop expects both its client and datacenter groups to rebound in the second half of 2023, with CFO Jean Hu predicting the client division would see double-digit sequential gains in Q3.

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However, AMD's outlook for its gaming division – which includes the company's consumer GPUs and contracts for custom console chips from Microsoft, Sony, and Valve – isn't looking nearly so good. Revenues slid four percent year-over-year and 10 percent sequentially to $1.6 billion during the second quarter. Making matters worse, Hu warned analysts that gaming revenues would likely remain down through Q3.

According to AMD, while console-related sales remained strong during the quarter, sales were offset by gamers' general ambivalence toward its dedicated GPUs.

AMD's embedded business was Q2 bright spot, growing 16 percent year over year to $1.5 billion. AMD credited strong demand for Field Programmable Gate Arrays across the industrial, vision, healthcare, automotive, test, and emulation markets. Unfortunately, the segment is also showing signs of weakness – revenues are down seven percent from Q1, due to softness in the comms market. Hu noted that this trend is likely to continue this quarter.

AMD predicted Q3 will bring positive revenue growth, forecasting $5.7 billion – give or take $300 million. That would represent an increase of about 2.5 percent year over year. ®