AMD issued a revenue warning today for the third quarter of 2012 that ended on September 29. The previous guidance of a 1% sequential decline plus or minus 3% (thus allowing for a 4% decline in the worst case) was adjusted to a 10% sequential decline. The company blames this on weak demand caused by the challenging macroeconomic environment.
As a result their margin dropped down to 31%, down from the previously expected 44%. This was primarily caused by a $100 million inventory write-off "due to lower anticipated future demand for certain products". Back when we discussed the Llano sales slip after AMD’s Q2 call, we already pointed out that piled-up Llano inventory is a possible explanation for the delayed launch of Trinity for the desktop aside from OEMs. Now it appears AMD had to write-off these chips as they won’t be able to sell them at their projected value.
The lower than expected demand also had an adverse effect on average selling prices (ASPs) and subsequently caused lower than expected utilization of its back-end manufacturing facilities. Since AMD spun off their manufacturing, this statement primarily concerns their assembly and test facilities. On the plus side, AMD was able to cut operating expenses by 7% sequentially, primarily due to tight management of expenses. This can probably be attributed to the former CFO Thomas Seifert who left the company at the end of the quarter.
On the stock market the company already took a beating, with their share price dipping below $3 apiece. Pre-market, their price dropped by approximately 11%.
AMD will hold a conference call to announce their third quarter results next Thursday, October 18, where we will learn more details about what went wrong with their business and their outlook for the fourth quarter. Before that, Intel will hold their call on Tuesday, October 16. Needless to say, it will be an interesting week.