AMD revenue forecast falls short despite data center strength

(Reuters) - Advanced Micro Devices Inc AMD.O fell short of Wall Street estimates for quarterly revenue and forecast fourth-quarter sales below expectations on Tuesday, even as the U.S. chipmaker beat targets for its closely watched data center business.

The company's forecast comes days after larger rival Intel Corp INTC.O said it anticipated strong spending in its data center business in the second half of 2019. Both firms have come to rely on data center chips for growth as personal computer sales have stagnated following the shift to mobile devices.

Sales at AMD’s computing and graphics segment, which includes graphic chip sales to data centers, jumped 36% to $1.28 billion, ahead of the $1.13 billion estimated by market research firm FactSet.

Sales in the unit were powered by the first full quarter of 7-nanometer chips, which AMD started to ship earlier this year amid a race to make smaller chips available for commercial use.

AMD in August landed Alphabet Inc's GOOGL.O Google and Twitter Inc TWTR.N as customers for the second generation of its data center chips.

The early start has positioned the company to win more market share, as Intel expects to ship its 10-nm server chips, seen as equivalent to 7-nm chips from other makers, only in the beginning of 2020.

But a 27% drop in sales in AMD’s enterprise, embedded and semi-custom segment - which missed FactSet estimates by more than $170 million - capped the gains.

The unit sales were impacted by lower demand for Microsoft's MSFT.O Xbox and Sony Corp's 6758.T PlayStation in anticipation for new versions of the consoles, said Patrick Moorhead, founder of Moor Insights & Strategy.

Third-quarter revenue, which the company described as its best in 14 years, rose 9% to $1.80 billion, but fell short of estimates of $1.81 billion.

Excluding items, the company earned 18 cents per share, matching market estimates.

AMD said it expects fourth-quarter revenue of about $2.1 billion, plus or minus $50 million, while analysts were expecting $2.15 billion, according to IBES data from Refinitiv.

Shares were last up marginally in choppy after-market trading. They have soared about 79% this year.

“Expectations were very high going into 2H19,” Summit Insights Group analyst Kinngai Chan said, pointing to the stock trading at over 30 times next year’s earnings.

Reporting by Munsif Vengattil in Bengaluru and Stephen Nellis in San Francisco; Editing by Sriraj Kalluvila