Advanced Micro Devices, Inc. (NASDAQ: AMD) stock plunged 14.7% on 25th October, 2018 (As of 10:53 AM GMT-4; Source: Google finance) on the back of a weak outlook for its fourth quarter as the chipmaker has been facing dwindling demand from cryptocurrency miners for its high-margin graphic processors and excess inventory. AMD’s net income climbed to $102 million in the third quarter ended Sept. 29 from $61 million a year earlier. Cash, cash equivalents and marketable securities were $1.06 billion at the end of the quarter. Cash flow from operating activities was $95 million as compared to $66 million a year ago. Free cash flow was $62 million, up from $32 million a year ago.
AMD and Nvidia, its main rival in the gaming chip market, were the biggest beneficiaries of a cryptocurrency boom last year as miners invested in new networks to keep up with demand. However, with cryptocurrency prices in free fall, mainly due to regulatory worries, demand for the chips have declined. Graphic Processing Units like AMD’s Radeon provide the high computing abilities required for cryptocurrency mining.
AMD in the third quarter of FY 18 has reported the adjusted earnings per share of 13 cents, beating the analysts’ estimates for the adjusted earnings per share of 12 cents. The company had reported the adjusted revenue growth of 4 percent to $1.65 billion in the third quarter of FY 18, missing the analysts’ estimates for revenue of $1.71 billion. Gross margin grew to 40 percent, up 4 percentage points year-over-year, primarily driven by the ramp of new products, including Ryzen and EPYC processors. On a sequential basis, gross margin was up 3 percentage points primarily driven by IP-related revenue and the ramp of new products. Excluding IP-related revenue and memory and inventory related adjustments, gross margin would have been 2 percentage points lower.
The company said revenue from its graphics and computing business, which sells Ryzen desktop processors and Radeon graphics cards, rose 12 percent to $938 million in the third quarter. AMD said strong sales of Ryzen chips were partially offset by lower revenue from its graphics business, where blockchain-related GPU sales were negligible. Channel GPU sales came in lower than expected based on excess channel inventory levels, caused by the decline in blockchain-related demand that was so strong earlier in the year. The graphics and computing segment underperformed expectations by $100 million in the quarter and added that inventory levels for its graphics products remain high and may take a couple quarters to return to normal levels. Sales in its enterprise, embedded and semi-custom unit, which makes EPYC server processors, fell 5 percent to $715 million.
Revenue for the fourth quarter is expected to total between $1.4 billion to $1.5 billion, falling short of analyst expectations of $1.6 billion.