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The chip maker Advanced Micro Devices Inc. Wednesday stirred the market in the semiconductor sector by announcing a glut of graphics chips that are no longer a flagship product for cryptocurrency miners.
Wednesday, AMD
AMD -9.17%
AMD -9.17%
INTC, -4.67%
Manufacturing errors may not be as large as expected.
The company said its Epyc server chips continued to progress and maintained their goal of reaching 5% of the Intel-dominated market. But data center gains were not enough after AMD's discovery of the GPU overabundance, which seemed to be coming from the same slowdown in Nvidia Corp.
NVDA, -9.79%
reported in August.
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AMD chief executive, Lisa Su, told analysts that her graphics chips business had lost about $ 100 million more than expected due to slower sales of crypto-mines.
"We expected the segment to be down, but we were probably expecting a drop of about [$50 million] or so, "said Su, when the actual drop was $ 150 million. "And if you look at this difference from the beginning of this quarter, it's just the GPU channel."
During the fourth quarter and first quarter of 2018, AMD experienced a sharp increase in sales of its graphics chips to cryptocurrency miners. In the first quarter, AMD reported that crypto-mining sales accounted for approximately 10% of its total business turnover, a larger part than he had seen in previous quarters. But in August, after a sharp decline in the price of Bitcoin
BTCUSD, -0.67%
Nvidia said the cryptography boom was over and she should no longer contribute to the turnover.
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"The disappointment is all the crypto-GPU burden," said Christopher Rolland, an analyst at Susquehanna Financial Group, who predicted headwinds in GPUs, in an email. "Since Ethereum
ETHUSD, -1.34%
prices have gone down … the channel is packed with GPU inventory. "
The fall of the crypto, although larger than expected, was not a shock after Nvidia's warning. The big surprise was a forecast that did not include significant gains while the big rival Intel is facing supply constraints for its PC chip manufacturing process.
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Su's most direct comment on the opportunity to take advantage of Intel's problems was that AMD had found some pockets of constraints in the supply chain around the PCs. "We saw it towards the end of the third quarter," said Su. "We are increasing our production so that we can meet some of this demand. And I think it's a short-term statement.
Any chip maker that talks about inventory glut and low demand will be viewed harshly in this environment, where fears of slowing chip sales were already being stoked by Texas Instruments Inc.
TXN, -8.22%
Add to that the relationship between AMD and Wall Street and the huge stock gains in the last quarter, and you have a recipe for exactly the kind of big decline that AMD has suffered as a result of the release of these results.
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