AMD on Tuesday revealed its financial results for the third quarter of 2022. The company's revenue totaled $5.6 billion primarily because of weak sales of AMD's CPUs and GPUs for the client segment. Meanwhile, sales of AMD's data center products set another record as demand for EPYC CPUs, Pensando DPUs, as well as Xilinx field programmable gate array products remained strong.
"Third quarter results came in below our expectations due to the softening PC market and substantial inventory reduction actions across the PC supply chain," said Dr. Lisa Su, the head of AMD. "Despite the challenging macro environment, we grew revenue 29% year-over-year driven by increased sales of our data center, embedded and game console products. We are confident that our leadership product portfolio, strong balance sheet, and ongoing growth opportunities in our data center and embedded businesses position us well to navigate the current market dynamics."
Strong Data Center and Gaming Revenue
AMD's Q3 2022 revenue reached $5.565 billion, up 29% year-over-year but down $985 million compared to the previous quarter. The company's gross margin dropped to 42%, down from 48% in the same quarter a year ago. As for net income, it cratered to $66 million from $923 million in Q3 2022, whereas the company's earnings per share declined to $0.04, down from $0.75 a year ago. AMD stressed that its profitability decreased due to the amortization of Xilinx acquisition-related intangible assets and increased R&D investments, partially offset by a $135 million tax benefit in the quarter.
Demand for client processors and chipsets got significantly lower in the third quarter, which is why AMD's Client Computing revenue fell to $1.022 billion in Q3 2022, or a whopping 40% year-over-year. In addition, the company's client business unit lost $26 million during the quarter as the company's clients were trying to clear out inventory. Therefore AMD needed to offer specific incentives to sell products sitting in the company's stock.
AMD's Gaming business — which includes client GPUs and console system-on-chips — continued to demonstrate mixed results during the quarter. The business unit earned $1,631 billion during the third quarter, up 14% year-over-year. But AMD's Gaming BU thrived not because demand for its Radeon RX 6000-series graphics processors was particularly strong but because Microsoft and Sony prepared for the holiday season and bought a boatload of system-on-chips for their Xbox and PlayStation game consoles in Q3 2022.
AMD's Datacenter business unit has been the company's main success story in recent years. The third quarter was not an exception; the BU's sales totaled $1,609 billion, up 45% year-over-year, whereas its operating income topped $505 billion, a 64% YoY increase. It is particularly important that while AMD began shipments of its next-generation EPYC 'Genoa' processors to select customers in Q3, those volumes were barely significant. The company said that its Datacenter business unit was supply constrained during the quarter and that in Q4 2022, those constraints will be less severe, allowing the company to grab some additional market share from its arch-rival Intel.
AMD's Embedded business, which sells products developed by AMD and various solutions designed by Xilinx, earned $1.3 billion, up 1,549% year-over-year since in Q3 2021, AMD's Embedded BU only sold the company's CPUs and GPUs, which are not particularly popular.
Cautious Outlook
Although AMD is optimistic about the performance of its data center and embedded businesses in the fourth quarter, it does not expect much from Q4 2022. First, the fundamental weakness of the client PC market will hardly let the company sell loads of its client CPUs. Meanwhile, sales of console SoCs will be down sequentially. Higher sales will unlikely offset them if AMD's discrete graphics processors as the company typically ramp up its GPUs very slowly.
For Q4 of 2022, AMD expects revenue to be approximately $5.5 billion ± $300 million, an increase of around 14% YoY and flat sequentially. For the full year 2022, AMD projects revenue to be approximately $23.5 billion ± $300 million, an increase of about 43% over the previous year, primarily driven by the success of AMD's data center and embedded products.
