AMD expects flat sequential growth in Data Center business, eyes on AI PCs

Despite growing revenue and a surge in operating income and profit, AMD gave a disappointing flat guidance for the current quarter. The company expects the emerging AI PCs to lead to growth in the PC market.

AMD released the earnings report for the quarter that ended in December, reporting a 10% rise in revenue, reaching US$6.17 billion. AMD's quarterly operating income and net income grew by 329.5% and 3,076%, respectively. Revenue for the full year of 2023 decreased by 4% year-over-year to US$22.7 billion as growth in Embedded and Data Center segment revenue was more than offset by lower Client and Gaming segment revenue. AMD also saw declining full-year performances in gross profit, operating income, and net income.

By segment, the Data Center revenue for the fourth quarter grew by 38% year-on-year and 43% quarter-on-quarter to US$2.3 billion. Full-year sales for the segment increased by 7% from 2022. The Client segment reported a 25% fall in full-year revenue while posting a 62% growth for the fourth quarter. The Gaming and Embedded segments recorded falling performance in quarterly and yearly data. The Data Center and Embedded segments accounted for over half of AMD's revenue.

AMD expects the first-quarter revenue to be between US$5.1 billion and US$5.7 billion. Sales for the Data Center segment are expected to be flat, with a seasonal decline in server sales offset by a robust Data Center GPU ramp. Still, AMD CEO Lisa Su said at the earnings call that in the Data Center segment, the GPU revenue is expected to grow sequentially in the first quarter and exceed US$3.5 billion in 2024. Meanwhile, Client, Embedded, and Gaming segment sales are expected to decline sequentially, with semi-custom revenue expected to decline by a significant double-digit percentage.

At the earnings call, AMD expected the gaming segment revenue to decline by a significant double-digit percentage year-on-year in 2024, with overall Embedded demand expected to remain soft through the first half of 2024.

Bloomberg quoted Truist Securities' analysis saying that the outlook is below consensus despite financial performance for the last quarter being in line. Bloomberg Intelligence released a note saying that the lower-than-expected first-quarter sales, specifically the guidance around a sequentially flat Data Center business and a significant decline in gaming, add to lower-than-seasonal demand trends in non-AI servers, FPGAs, and enterprise markets.

Su said at the earnings call that the company made significant progress with our supply chain partners and has secured additional capacity to support upside demand, adding that supply capacity for the first half of 2024 is tight and more will come on in the second half of 2024.

For the PC business, Su said consumer demand for AI PCs is expected to ramp up in the second half of 2024, leading to modest growth in the PC TAM. She added that millions of AI PCs powered by Ryzen processors have shipped to date, and Ryzen CPUs are powering more than 90% of AI-enabled PCs currently in the market.

Source: AMD, January 2024

Source: AMD, January 2024