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The COVID-19 pandemic has created a litany of questions for companies around the world, but for chip maker Advanced Micro Devices Inc., there is only one uncertainty: Will people want to buy computers in the second half of the year?
AMD AMD, -1.73% revealed strong first-quarter results Tuesday, and tweaked its annual guidance to give itself a little wiggle room as it continues to face the coronavirus pandemic spreading across the globe. In a conference call Tuesday afternoon, Chief Executive Lisa Su voiced confidence in all of the company’s core businesses in the second half of the year except for personal computers, which could be up to the whims of the overall economy and consumers’ willingness to spend on computers in the back-to-school and holiday seasons.
Full coverage: AMD earnings hit target, but annual forecast trimmed as business spending slows
“We are potentially expecting some weakness in the second half due to consumer spending,” Su said in response to an analyst question. “You sort of have two forces at work there — one, is there a pull with the strong work-from-home trends, but then there’s also the view from a macro standpoint we’ll be weaker in the second half of the year.”
AMD increased the range on its forecast for full-year revenue in response, now predicting sales will grow 20% to 30% this year instead of 28% to 30%. Considering most other companies are rescinding annual guidance and providing quarterly forecasts only — including rival Intel Corp. INTC, -1.21% — the wider range could actually be seen as a confident move from the chip maker.
The rest of AMD’s business appears strong enough to deserve that confidence. The company reported growth of more than 70% from last year in its core business of chips for personal computers and gaming, with expectations that growth will continue at least into the second quarter due to needs for work-from-home laptops and entertainment like videogames for consumers stuck at home.
AMD’s other business segment, which focuses on custom work for manufacturers and its growing server business, surprisingly declined in revenue year-over-year, but AMD executives insisted the important Epyc data-center business still grew by double-digit percentages sequentially. Executives especially stressed that demand from cloud-computing providers was strong in the first quarter, with Su saying unreservedly that COVID-19 is “positive for the data-center market.”
AMD in the Age of COVID-19: AMD is set up to withstand coronavirus in the short term
Several cloud providers accelerated their infrastructure deployment to address rising demand from the growing number of users working and schooling from home,” she said in prepared remarks Tuesday. “One of our large cloud customers was able to deploy 10,000 second-gen Epyc servers in less than 10 days to support surge in demand for their collaboration services.”
The business that dragged that segment down was largely expected, as the company ramps up to provide the guts for two new videogame systems. AMD is providing computing power to the new videogame consoles from Sony Corp. SNE, -0.83% and Microsoft Corp. MSFT, -2.43% , which are expected to launch the PlayStation and Xbox devices later this year. That should provide a nice boost no matter how well PCs sell in the second half.
AMD entered this earnings report with the question of what the second half will look like. With a boost from the Xbox and PlayStation launches and continued growth of the server business in the second half, as well as on-track introductions of new products, executives answered as best they could Tuesday. Investors must now ask themselves if they want to bet on consumers being willing to buy new computers later this year.
