AMD reports lagging demand for desktop processors late in Q2

July 20, 2012 — Semiconductor maker AMD (NYSE:AMD) reported a “challenging” end to Q2, with president and CEO Rory Read citing "overall weakness in the global economy, softer consumer spending and lower channel demand for [AMD] desktop processors in China and Europe.”

Other chipmakers reporting: Intel, IBM.

AMD pulled in $1.41 billion in revenue for Q2 2012, net income of $37 million, or $0.05 per share, and operating income of $77 million. The company reported non-GAAP net income of $46 million, or $0.06 per share, and non-GAAP operating income of $86 million. Get all the details from AMD’s Q2 report here.

The company expects Q3 to bring a 1% decline, ±3%, sequentially. For the issues within AMD’s control, the company is taking “definitive steps” to improve, Read said, adding that he sees the industry at a new “baseline.”

Analysts’ takes:

FBR Capital Markets pointed to intense competition with Intel, channel supply execution issues, and supply chain de-stocking ahead of the Win8 launch, along with the macroeconomic trends Read referenced. While revenues were “disappointing,” gross margins were “respectable,” FBR said.

Some of the Q2 shortfall occurred when AMD’s Llano APU supply became available for distributors, but the channel and motherboard partners did not have the right motherboard mix, FBR reported from AMD’s investor call.

Barclays Capital analysts balk at the AMD’s low guidance for Q3 and beyond, blaming “AMD’s weakening PC share in a maturing market” up against Intel’s more aggressive pricing for lower-end components, Nvidia’s growing share in discrete GPUs, and limited traction in servers for AMD.

Gross margins will decrease 1.5% in Q3 as “AMD gets more aggressive” with its inventories, FBR said. Barclays Capital predicts pricing pressure on AMD in the near term. Barclays sees Intel as less exposed to weakness in PCs, especially as it is competing on price in lower-end notebooks.

With inventories growing by 37 days in Q2 (to 99 days), and AMD’s take-or-pay foundry agreement with GLOBALFOUNDRIES, FBR sees this as a concerning area for the chip company. AMD says the inventory is of a current-generation product.

Despite its difficulties, AMD continues to generate cash and profits even at lower revenue levels, FBR noted.

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