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Computer chip shortages can't hold back Advanced Micro Devices

Supply chain issues caused a shortage of computer chips, but AMD is confident it has the right parts.

29th April 2021 15:09

Graeme Evans from interactive investor

Supply chain issues have caused a shortage of computer chips, but AMD is confident it has the right parts.

The chip shortages threatening to overshadow progress for Apple (NASDAQ:AAPL) and other tech giants have heightened focus on Advanced Micro Devices (NASDAQ:AMD) after better-than-expected results this week.

AMD, whose products power everything from data warehouses to graphics cards for computer gaming, told analysts that the entire semiconductor supply chain was “very, very tight”.

However, chief executive Lisa Su added that the company had good visibility in terms of being able to secure additional chips from manufacturing partners in its supply chain.

The anticipated strong demand has enabled Su to raise the company's annual revenues forecast, with this year's figure now expected to be 50% higher than a year ago at more than $14.6 billion (£10.5 billion), compared with previous guidance for growth of 37%.

This follows a 93% jump in sales to $3.2 billion (£2.3 billion) in the first quarter, representing a rise of 6% quarter-over-quarter as the average chip price also continues to strengthen.

Morgan Stanley said: “While we knew that AMD demand was strong, we would not have thought that the 93% growth that the company posted in Q1 was achievable in the current supply environment.”

Even though AMD's full-year guidance came in 7% higher than the Wall Street bank's forecast, Morgan Stanley said the second half projections now looked conservative based on a run-rate that is already 41% above 2020 revenues levels.

Data centre revenues more than doubled in the quarter, with demand for the company's EPYC processors boosted by demand from leading cloud providers including Microsoft Azure.

The computing and graphics segment grew by 46% to $2.1 billion (£1.5 billion) and by 7% on the previous quarter, driven by sales growth for its Ryzen desktop and notebook processor and for high-end Radeon graphics products helping to enhance PC gaming experiences.

Su said: “Our business continued to accelerate in the first quarter driven by the best product portfolio in our history, strong execution and robust market demand.”

The global shortage of chips was originally caused by disruption to factory output at the start of Covid-19, but the problems have continued as changing habits brought about by the pandemic have caused a surge in demand for TVs, home computers, games consoles and mobile phones.

Car manufacturers including Tesla (NASDAQ:TSLA) have been affected by the shortage, while Apple last year had to delay the launch of its new iPhone 12 due to the issue. It added last night that the supply constraints are set to have a revenues impact of between $3 billion and $4 billion (£2.1bn-£2.9bn) in the current quarter, with iPads and Macs the most likely products to be impacted.

Despite these challenging conditions, the strength of Apple’s second-quarter sales and prospect of more profit upgrades meant the company's shares have risen sharply since.

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