Chip designer Advanced Micro Devices, Inc. (AMD) posted a mixed bag of earnings today as its EPS missed analyst estimates while its revenue topped them. AMD reported $7.6 billion in revenue and $0.48 in EPS, while analysts had pencilled in $7.4 billion and $0.49. Crucially, however, the firm's guidance of $8.4 billion to $9 billion for the current quarter beat analyst estimates of $8.3 billion, but was insufficient to stem a 4.2% share price drop in aftermarket trading after the earnings report hit the wires.
AMD Posts Operating Loss In Q2 As High Costs Of Goods Sold Bite Into Firm's Margins
The gist of AMD's earnings report lay in its income statement, which saw the firm's cost of goods sold jump by a whopping 59% annually. Yet, AMD's revenue during the same time period grew by 32%, with the large discrepancy leading to the firm's gross margin dipping by nine percentage points annually. The higher costs flowed throughout its income statement and led to an operating loss of $134 million for the firm in the second quarter. AMD had posted $259 million in operating income in its year-ago quarter and a much stronger $806 million in its March quarter.
However, AMD did turn an operating profit after reconciling its income statement to non-GAAP figures. The non-GAAP operating profit sat at $897 million but nevertheless marked a 29% annual drop. Sequentially, the drop was even steeper as it sat at 50%, which effectively halved AMD's operating income over the previous quarter.
In a note part of its earnings release, AMD explained that the non-GAAP measures enable a comparison of its performance across reporting periods on a consistent basis by "excluding items that it does not believe are indicative of its core operating performance and for the other reasons described in the footnotes to the selected data tables."
Yet the firm added that the non-GAAP figures "should be viewed in addition to and not as a substitute for or superior to AMD’s reported results prepared in accordance with GAAP."
While AMD did report a GAAP operating loss, the firm's $7.7 billion revenue marked a 32% annual growth to set a new record. The non-GAAP gross margin, which fell by ten percentage points to 43% was "due to the $800 million inventory and related charges associated with US export control restrictions on Instinct MI308 products," said the firm.
AMD added that: "Excluding this charge, non-GAAP gross margin' would have been ~54%Excluding this charge, non-GAAP gross margin' would have been ~54%." Gross margin is the percentage of the firm's post-direct cost revenue to the total sales.
The firm also attributed its operating income decline to "the inventory and related charges associated with US export control restrictions." However, AMD did not share what its operating income would have been had it not been for the export control restrictions, or whether it would have posted an operating profit otherwise. The firm, like larger rival NVIDIA, scored a win earlier when the Trump administration allowed it to sell its MI308 AI chips to China.
For the current quarter, AMD expects revenue to sit at $8.7 billion with a 50% gross margin. The firm's shares extended their losses to 4.8% in aftermarket trading before making some gains and being down by 3.8% at 4:45 p.m. Eastern Time.
About the author: Ramish is a seasoned technology writer and editor with more than a decade of experience. He specializes in semiconductor fabrication and market analysis. With a background in finance and supply chain management - via his bachelors in Finance and a micromasters in supply chain management from MIT - Ramish combines financial rigor with deep industry insight to deliver accurate and authoritative coverage.
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