AMD’s stock plunges after company predicts lower sales

Investors don’t like forecast, even though tech firm beat expectations on revenue, profit in third quarter.

Posted October 24th, 2017

Investors sent AMD’s stock down 10 percent in after-hours trading after the technology company predicted its sales would decline in the fourth quarter. 

The company had a strong third quarter, with its sales and profit coming in higher than analysts expected. 

“Throughout 2017, we have delivered significant year-on-year revenue growth and margin expansion as we achieved multiple major product, customer, and market milestones,” CEO Lisa Su said during a conference call with analysts.

AMD reported revenue of $1.64 billion, up 26 percent from the year-ago quarter. 

The sales gains were driven by the company’s computing and graphics division, which reported a sales gain of 74 percent from the previous year. But its division that makes chips for servers and video game consoles reported flat revenue in the third quarter.

Financial analyst Patrick Moorhead said that despite reporting higher sales and profit, AMD investors were “disappointed by the fourth quarter forecast,” and despite it being in line with forecasts, it was below what Wall Street had built into the share price, Moorhead said.

AMD’s stock closed at $14.25 on Tuesday, which was up 26 percent from the start of the year.

Advanced Micro Devices primarily makes computing and graphics processors that are used in computers, video game consoles and servers.

The chipmaker is in the midst of a major turnaround after not reporting a profitable year since 2011 as it battles a decline in the PC market and robust competition from its main competitors, Intel and Nvidia.

RELATED: Why AMD’s biggest investor is selling their shares

AMD has released new computer, server and graphics processors this year as part of the rollout of its much-praised new chip architecture. Its new chip design is called “Ryzen” and Su said the company is “really pleased” with how it is performing in the market.

The company released a new family of microprocessor for servers in June, an ambitious undertaking given that Intel has a near-monopoly on this market. But this type of processor is highly profitable and could be an important revenue stream for AMD.

Though the company said the new server microprocessors helped stabilize its third quarter revenue, the best was yet to come. The server chips should be a “sizeable portion” of their revenue in 2018, Su told analysts.

AMD’s profit in the third quarter was $71 million, or 7 cents a share. The same quarter a year ago the company reported a loss of $406 million.

When adjusted for one-time costs and gains, the company reported profit of $110 million, or 10 cents a share, which is an improvement of 300 percent from the same quarter a year ago.

AMD said its revenue for the year should come in higher than it initially expected -- an increase of about 30 percent from the year before. 

“The third quarter was a strong quarter, and we are pleased with the momentum of our new premium products,” said CFO Devinder Kumar.

 AMD is officially based in California, but it employs 1,500 people at its campus in Austin and most of its senior executives work and live in Austin.