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AMD’s Third-Quarter Earnings Hit by Weak Cryptocurrency Demand

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Dec. 4 2020, Updated 10:52 a.m. ET

AMD and the cryptocurrency demand

Generic chipmakers such as Texas Instruments (TXN) and Microchip Technology (MCHP) have started to feel the pinch of the US-China trade war. However, specialized chipmaker Advanced Micro Devices (AMD) hasn’t been hit by the trade war, according to its CEO Lisa Su during its third-quarter earnings call. Instead, it has been hit by the end of the cryptocurrency boom, which made GPU (graphics processing unit) sales to cryptocurrency miners nearly vanish.

Since specialized chipmakers are more vulnerable to demand swings and competition, AMD reported weak earnings and guidance, which made the stock fall 28%. The overall weakness in cryptocurrency-related demand also made Nvidia (NVDA) stock fall 14%.

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AMD’s third-quarter earnings

In the third quarter, AMD’s revenue rose 4.4% YoY (year-over-year) but fell 6.3% sequentially to $1.65 billion. That was lower than analysts’ estimate and its own guidance of $1.7 billion. In its third-quarter revenue guidance, AMD expects zero revenue from cryptocurrency-related GPUs. The decline in revenue indicates that those sales accounted for more than what AMD had estimated. It brought an end to its double-digit YoY revenue growth trend in the last eight quarters.

While AMD’s revenue fell, its non-GAAP gross margin improved 300 basis points sequentially to 40%, with 200 of those basis points coming from IP (intellectual property) licensing revenues. Excluding licensing, its gross margin was 38% due to an increasing mix of Ryzen PC and EPYC server CPUs (central processing units), which have a gross margin of more than 50%.

The increase in its gross margin was offset by an increase in its operating expense ratio to 29% in the third quarter. The ratio increased since its revenue declined 6.3% and its operating expense rose 2% sequentially. That reduced AMD’s EPS by 7.1% sequentially to $0.13, which was in line with analysts’ estimates.

Even though AMD reported an improvement in its profit margin, the stock fell significantly since investors valued the stock more on sales than earnings.

Next, we will look at AMD’s guidance for the fourth quarter.

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