The chip space is having an extremely rough week. Earlier today, we posted a piece on Advanced Micro Devices, Inc. (NASDAQ:AMD), noting that TXN had massively lowered the bar for guidance perception, giving AMD (and INTC and XLNX) an edge in terms of positively surprising the market.
However, AMD hadn’t read that script because they came out with Q4 guidance way below expectations – they limbo danced well under that lowered bar. The stock was crushed in after-hours action. Interestingly, we didn’t see INTC move lower with it at all following the AMD report.
Advanced Micro Devices, Inc. (NASDAQ:AMD), as we noted earlier today, bills itself as a semiconductor company worldwide. It operates in two segments, Computing and Graphics; and Enterprise, Embedded and Semi-Custom.
The company’s products include x86 microprocessors as an accelerated processing unit (APU), chipsets, discrete and integrated graphics processing units (GPUs), and professional GPUs; and server and embedded processors, and semi-custom System-on-Chip (SoC) products and technology for game consoles.
In addition, it provides embedded processor solutions for interactive digital signage, casino gaming, and medical imaging under the AMD Opteron, AMD Athlon, AMD Sempron, AMD Geode, AMD R-Series, G-Series, and AMD Embedded Radeon brands; consumer graphics under the AMD Radeon brand; and semi-custom SoC products.
Shaking the Tree
The specifics on the guidance for AMD were as follows: “Co issues downside guidance for Q4, sees Q4 revs of $1.40-1.50 bln vs. $1.59 bln S&P Capital IQ Consensus. Sees non-GAAP gross margin to increase to approximately 41 percent, driven by sales growth of Ryzen, EPYC and datacenter GPU processor sales. For comparative purposes, Q4 2017 revenue was $1.34 billion, adjusted for the ASC 606 revenue accounting standard, and included blockchain-related GPU sales of approximately low double-digit percent of overall AMD revenue.”
However, as you might expect, management commentary was calm and straightforward.
“We delivered our fifth straight quarter of year-over-year revenue and net income growth driven largely by the accelerated adoption of our Ryzen, EPYC and datacenter graphics products,” said Dr. Lisa Su, AMD president and CEO. “Client and server processor sales increased significantly although graphics channel sales were lower in the quarter. Looking forward, we believe we are well positioned for further market share gains as we continue making significant progress towards our long-term financial targets.”
The stock will likely open tomorrow around $17-18, near a test of its 200-day simple moving average, which crosses the chart around $16.85 at this point. Interestingly, shares of AMD are still up over 60% for 2018, massively outperforming the overall stock market (the S&P just crossed into the red for the year this afternoon).
While the action today was hard to swallow for shareholders (of anything in the chip space), it is necessary to shake the tree from time to time. The cycle is important, but the secular story would seem to still in place.
With shares now down more than 50% from their 2018 highs, we may finally now be at attractive levels for new exposure.