AMD is facing a 'pretty sizable' earnings mess, analyst says

  • AMD will likely have a “pretty sizable mess” when its fourth-quarter earnings come out on January 29, an analyst said.
  • The crypto boom in 2017 led chip giants to overproduce graphic processing units for crypto mining, causing an inventory problem when digital currencies crashed in 2018, and AMD has no place to hide, he added.
  • The inventory problem is visible in the selling prices of AMD’s mid-range chip RX 580 on secondary platforms.
  • Meanwhile, the market has a lot of hope around AMD’s central-processing-unit business versus Intel‘s, which means any decent ramp in the coming financial release will turn into a disappointment, said another analyst.
  • Watch AMD trade live.

AMD‘s fourth-quarter results are likely to be a disappointment when they come out in late January, an analyst says.

“It’s gonna be a pretty sizable mess for either Q4, Q1, or both.” Christopher Rolland, a semiconductor analyst at Susquehanna International Group told Markets Insider.

According to Rolland, the high-flying cryptocurrencies in 2017 led chip giants to overproduce graphic processing units for crypto mining, causing an inventory problem when digital currencies crashed in 2018 – and AMD has no place to hide.

In May, AMD warned that its crypto businesses would fall to near zero as the boom turned into a bust. In October, AMD’s results fell short of Wall Street estimates, but the chipmaker didn’t mention the impact from crypto. A month later, rival Nvidia posted brutal third-quarter earnings, largely attributing underwhelming financial results to its overproduction of GPUs for crypto mining.

“Remember that Nvidia is a month further in the reporting process versus AMD,” Rolland said. “Nvidia has already confessed fully to the amount of inventory that’s out there. AMD has only half confessed.”

The inventory problem is visible in the selling prices of AMD chips on secondary platforms such as Newegg, Amazon, and eBay. According to RBC’s tracking of data, AMD’s mid-range chip, the RX 580, was selling at $US249 to $US299 on Amazon a month ago, but is now priced at around $US189.

“The GPU market is flushed by monster post crypto-frenzy inventories and parts coming back through the second hand market,” Pierre Ferragu, an analyst at New Street Research, told Markets Insider. He agrees that AMD will start the year on a tough note.

“At the other end, expectations around server CPU share gains are so high that even a decent ramp will turn into a disappointment,” Ferragu added. The market has a lot of hope around AMD’s scheduled rollout of its 7 nm chips in the first quarter of 2019 after rival Intel struggled with 10-nanometre chip production late last year.

AMD is set to report fourth-quarter results on January 29, with analysts surveyed by Bloomberg expecting adjusted earnings of $US0.08 a share on revenue of $US1.45 billion.

Their average price target is $US26- 43% above where shares are trading on Friday.

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