The greatest days for chipmaker Advanced Micro Devices, Inc. (AMD) are over, according to financial firm Northland in an investor note published shortly before the company is scheduled to announce its third-quarter earnings report today. The company’s pre-release, which saw it lower its revenue projection for the quarter due to a slowdown in the personal computer market, will be followed by AMD’s earnings.
As Chinese demand slows and Intel catches up in the technological race, Northland predicts that AMD’s growth will slow down in the future. This slowdown has also hurt other chip companies, including Intel and NVIDIA.
The research note from Northland offers some of the market’s lowest forecasts for AMD because it thinks that the company’s earnings projections for the following year, which AMD will announce in January, will be a crucial thing to pay attention to. According to the research firm, AMD will generate $24 billion in revenue in 2019 and post $2.45 in non-GAAP earnings per share (EPS). This is much less than AMD’s current Wall Street consensus projection of $3.96 EPS and $26 billion in revenue, both of which are $3.96 per share.
According to Northland, a variety of variables are responsible for this decline. The main factor is a slowdown in Chinese business spending due to a decline in demand. Additionally, British design business Arm Ltd. is designing processors, notably for the server sector, which has resulted in AMD losing market share. This fact is supported by the Chinese government’s aim to phase out foreign source technology from its infrastructure by 2025.
Furthermore, it’s thought that Intel is catching up to AMD in terms of transistor development.
By the second half of next year, according to Northland, Intel will have switched to 4-nanometer transistor technology for its desktop processors, while AMD will be using TSMC’s 5-nanometer devices. The company’s problems are made worse by TSMC’s delays in moving to 3-nanometer manufacturing, which the Taiwanese company has repeatedly denied while reiterating that the process technology is on track and that customer interest in the technology is still high. In a similar vein, it predicts that AMD will switch to 4-nanometer manufacturing in 2024.
In addition, Northland notes that TSMC’s gate all-around (GAA) transistors are the reason Intel’s comparable products are behind them. TSMC will use this new transistor technology in its 2-nanometer products that are scheduled to enter commercial production in 2025. It increases the surface area for the internal components’ ability to conduct electricity. The research company points out that Intel was the first to improve its transistors, first to high-K metal gates and later to FinFET, and that the company is currently led skillfully by Mr. Patrick Gelsinger, its current chief executive officer.
Since the sales for field programmable gate array (FPGA) businesses often arise at the early stages of new technology rollouts, the acquisition of Xilinx will not do much to aid AMD either. Finally, since new game consoles haven’t been released in a while, the majority of expenditure on updates is behind schedule. Due to all of these considerations, Northland reduced AMD’s share price objective from $80 to $60 and changed the stock’s rating from Outperform to Market Perform. Shares of the chip business have lost 60% of their value this year as investor confidence has been undermined by a downturn in the personal computing sector and a challenging macroeconomic climate.
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