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Jul 30, 2019

AMD’s sales forecast misses on tepid game-console chip demand

An Advanced Micro Devices Inc. AMD-A10-4600M Series APU computer chip is displayed at the AMD booth at Computex Taipei 2012 in Taipei, Taiwan.

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Advanced Micro Devices Inc. (AMD.O), the No. 2 maker of computer processors, gave a disappointing third-quarter sales forecast, indicating lower-than-expected orders for game-console chips from Microsoft Corp. and Sony Corp., two of its biggest customers.

Revenue in the current period will be about US$1.8 billion, Santa Clara, California-based AMD said Tuesday in a statement. That missed the average of analysts’ projections of US$1.94 billion, according to a survey by Bloomberg. The company also pared its forecast for annual revenue, and shares tumbled in extended trading.

Chief Executive Officer Lisa Su is trying to remake her company into more than just a purveyor of cut-price alternatives to Intel Corp.’s PC chips. While sales of PC-related products are improving, the company said revenue is taking a hit because demand from game-console makers is falling short of its original forecasts this year. In the second quarter, revenue in the division that includes server processors and custom chips for consoles declined 12 per cent, AMD said.

The company’s second-quarter net income fell to US$35 million, or 3 cents a share, compared with US$116 million, or 11 cents, a year earlier. Excluding certain items, profit in the recent period was 8 cents, matching analyst predictions. Revenue in the period was US$1.53 billion, 13 per cent lower than a year earlier but topping analysts’ average projection of US$1.52 billion.

Gross margin, or the percentage of sales remaining after deducting the cost of production, was 41 per cent in the second quarter, in line with the average analyst estimate.

AMD said it now expects full-year revenue to gain at a percentage in the mid-single digits, compared with an earlier prediction for annual sales to rise in the high single digits. Analysts had projected an annual sales increase of about 6 per cent. At the same time, the company slightly raised its forecast for gross margin for all of 2019, to 42 per cent.

AMD shares fell about 7 per cent in extended trading after the report, after earlier climbing 1.2 per cent to US$33.87 at the close in New York. The stock has been on a tear this year, gaining 83 per cent so far.