"Rejoicing to the heavens, saddened to death", this quote from Goethe's tragedy "Egmont" is probably the best description of the current situation in the semiconductor industry. Initially, the wave of digitization triggered by Corona created a veritable chip boom. However, disrupted supply chains and sharply rising raw material and logistics prices subsequently put the brakes on the sector. On top of this, demand for PCs and smartphones collapsed due to the sharp rise in inflation. This mix of factors is causing a real hangover among chip manufacturers.
This chagrin is reflected in the books of the leading semiconductor manufacturers. For example, sales of industry leader Intel fell by a fifth last quarter, and profits by as much as 85%. In wise foresight, the group had already conceded its annual forecast at the end of the first half of the year. Arch-rival AMD is not faring much better. Due to a weakening growth dynamic, Advanced Micro Devices also retreated from its targets. Instead of a revenue increase of 60% in 2022, 43% is now estimated. The Californian chip designer sees the gross margin at around 52%, after previously assuming 54%. AMD also fell short of estimates with its forecast for the final quarter. Sales are expected to reach USD 5.5 billion, give or take USD 300 million, while analysts had previously had USD 5.85 billion on the cards.
The fact that growth has already stalled was evident from July to September. In this quarter, AMD generated revenues of USD 5.56 billion. Although this is an increase of 29% compared to the same period of the previous year, the rate is significantly lower than in the previous quarters. In addition, the comparison with the second business period even shows a minus of USD 1 billion. The processor manufacturer also had to make cuts in profitability. The gross margin fell from 48% in the previous year and 46% in the previous quarter to currently 42%. On the earnings side, AMD even slipped into the red with an operating loss of USD 64 million. "The third quarter results fell short of our expectations due to the weakening PC market and the extensive measures to reduce inventories throughout the PC supply chain," admitted CEO Lisa Su. The AMD CEO does not expect a quick turnaround. In her view, the PC market will shrink by another tenth in 2023.
However, the chip manufacturer can also come up with positive news. In the third quarter, for example, the group took market share from its competitor Intel in the lucrative data center business. The rising demand for semiconductors for server processors also cushioned the slump in the PC business somewhat. AMD remains positive for this data center segment. In the fourth quarter, the company expects sales growth of 14%, while Intel anticipates declining business. However, not all is sunshine in this area either. Customers Alphabet and Microsoft, for example, have recently warned of a slowdown in demand for their cloud and data center products due to rising inflation.
"Although the chip shortage is easing, the global semiconductor market is entering a period of weakness that will last until 2023", says Richard Gordon of market researcher Gartner. The expert expects that global semiconductor sales will probably decline by 2.50%. However, ups and downs in the chip industry are basically nothing new; the sector has already experienced numerous boom and bust cycles in the past decades. And not all segments are equally affected. For example, the data center market is expected to remain robust for a longer period of time due to continued investment in cloud infrastructure. The consultancy is also optimistic about the automotive electronics sector and expects continued double-digit growth over the next three years. The reason: chip content will increase from USD 712 in 2022 to USD 931 in 2025 per vehicle, given the shift to electric and autonomous vehicles.
AMD's stock has already lost more than half of its market value this year, so it may have already priced in the bulk of the bad news. This is supported by the fact that the stock is currently attempting to bottom out in the USD 60 range. Analysts even see an entry opportunity at the current price level. With a 12-month price target of USD 85, which corresponds to a potential of 35%, the consensus rating of 39 studies is "buy".
However, investors don't have to go full risk in order to make profits worth watching with AMD stock. The new Softcallable Barrier Reverse Convertibles promise double-digit percentage returns even in the event of price stagnation or even moderate setbacks. The two products, which are offered in CHF and USD, each have a risk buffer of a comfortable 45%. If the barrier remains intact during the maximum term of 15 months, the maximum yield is achieved. The coupons amount to an above-average 15.00% p.a. for the CHF variant and even 19.00% p.a. for the USD product. After half a year at the earliest, the issuer has the right to call the Barrier Reverse Convertibles prematurely.
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