By Wallace Witkowski, MarketWatch
MarketWatch photo illustration/iStockphoto
This article is part of a series tracking the effects of the COVID-19 pandemic on major businesses, and will be updated. It was originally published on April 16.
Advanced Micro Devices Inc. is expected to withstand the COVID-19 pandemic because it serves two areas in demand for millions of people being confined in their homes — work and play — but a prolonged economic downturn could muddle that outlook.
AMD /zigman2/quotes/208144392/composite AMD -2.08% has become a fierce contender in the CPU market dominated by Intel Corp. /zigman2/quotes/203649727/composite INTC +0.73% and the GPU market dominated by Nvidia Corp. /zigman2/quotes/200467500/composite NVDA -0.68% with its new 7-nanometer line of chips, and its position improved even more following Intel’s recent announcement that its 7-nm chip would be delayed until at least late 2022.
Even before the COVID-19 pandemic ramped up, AMD was forecasting strong growth, especially in its data-center business, where it was competing with Intel again after many years of avoiding the server-chip business. With millions of people working from home and millions more confined due to extant shelter-in-place orders, increased demand for chips that power data centers and cloud services has held up, as well as the devices on the other side of the internet connection.
Business in the age of COVID-19: Read profiles of how other large companies will be affected by the coronavirus
AMD has continued launching new products during the pandemic, following an ambitious multiyear road map that was publicly disclosed in early March. The chip maker is scheduled to release a further update in second-quarter earnings late Tuesday.
In the second half of the year, some analysts are cautious about the extent of business spending given recessionary concerns, but AMD has yet to backtrack from its long-term outlook as it banks on its continued rollout of 7-nanometer-based chips. Speaking for the broader chip sector, Cowen analyst Matthew Ramsay said he does not expect a slowdown in data-center sales — as some investors fear — given the big ramp-up from widespread working and learning from home because of COVID-19.
“Our industry contacts indicate there may be some inventory adjustments at certain hyperscalers around DRAM in particular, and we do expect eventually softer enterprise/government server spending, but so far our own checks do not point to softer cloud spending or a repeat of 2H18/1H19 server ‘digestion,’” Ramsay said.
DRAM, or dynamic random access memory, is the type of memory commonly used in PCs and servers. Major DRAM supplier Micron Technology Inc. /zigman2/quotes/205710729/composite MU +0.51% said at the end of June that it expects cloud memory sales to remain healthy for the year.
What the numbers are saying
Revenue: AMD forecast second-quarter revenue of $1.75 billion to $1.95 billion in April, and analysts surveyed by FactSet at that time forecast $1.85 billion. The average Wall Street projection has declined from $1.92 billion since the end of March. For the full year, analysts expect sales of $8.4 billion, down from an estimate of $8.56 billion at the end of March.
Analysts expect a 45% surge in computing and graphics chip sales to $1.36 billion in the first quarter, but an 18% decline in enterprise embedded and semi-custom chip sales — the unit that includes data-center and gaming-console chips — to $485.5 million.
Earnings: Analysts expect earnings of 16 cents a share from AMD, down from 21 cents a share expected at the end of March. For the full year, analysts expect earnings of $1.02 a share, down from $1.11 a share at the end of March.
Stock movement: In the second quarter, AMD shares gained 16%, compared with a 32% gain in the PHLX Semiconductor Index /zigman2/quotes/210598361/realtime SOX +1.50% , a 20% gain in the S&P 500 index /zigman2/quotes/210599714/realtime SPX +1.22% , and a 31% gain in the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +0.72% . Over the past month, however, AMD shares have rallied 31%, while the SOX index has gained 5%, and both the S&P 500 and the Nasdaq have advanced about 4%.