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Chip designer Advanced Micro Devices, Inc (AMD) reported its earnings results for Q2 2023 at the close of the market earlier today. AMD's revenue for the quarter remained flat sequentially but marked a $1.2 billion annual drop, indicating that the semiconductor sector's slowdown is far from over. Historically, AMD's second-quarter revenue has marked a sequential growth. Still, slower cloud spending and a weak personal computing environment continued to harm earnings results this time, even with inflation significantly dropping over its 2022 peak.

AMD also guided $5.7 billion in revenue for the current quarter ending in September, which fell short of analyst estimates of $5.82 billion. However, the firm's shares are up in aftermarket trading as it beat EPS and revenue estimates in an overall gloomy environment for chip firms after TSMC's second-quarter results that saw the world's largest chipmaker predict that the chip downturn will last longer than initially feared.

AMD's Client Computing Revenue Slashed In Half Over the Year As Inflation Takes Its Bite On Consumer Spending

Despite an overall weak report, and one which was expected by Wall Street beforehand, AMD's sequential revenue trends seem to be in place in the second quarter despite the significantly different macroeconomic environment from a year ago. The latest quarter saw its Client computing segment, which accounts for sales of products to consumers, grow by 35% as the latest Ryzen 7000 Series chips started to fly off the shelves, and lower inflation provided a release valve to pent-up demand. In Q2 2023, the Client Computing segment brought $998 million in revenue, a hefty growth over Q1's $739 million but a massive drop over Q1 2022's $2.1 billion.

On the flip side, however, AMD's gaming and embedded segments' revenue fell sequentially and annually, contributing roughly $3 billion to the overall pie. Over the quarter, sales for both these segments dropped by more than 7%, but on a positive note, the Embedded segment was the only one whose revenue and operating income were up annually.

AMD's bread and butter data center segment retained the largest share of the revenue pie during its July quarter. However, revenue was down 11% annually, and operating income fell by a painful 69% as a broader lending environment made a mark on corporate spending. Higher interest rates tend to squeeze corporate budgets and reduce the money firms can spend on data centers and other infrastructure. AMD shared that lower sales of its EPYC processors contributed to the drop.

However, analysts believe data center spending will increase during 2023's second half andtilt toward artificial intelligence products. AMD's larger rival in the GPU market, NVIDIA, has already laid down a massive market for data center AI, but Team Red's products are expected to hit the shelves after the initial wave has passed.

Considering AMD's balance sheet, inventories stood relatively stable over Q1, indicating that the firm believes channel retailers still have sufficient products to meet most of the current demand. This is also in line with what TSMC's management had shared during its second-quarter earnings, where they projected that customers would take longer to ramp up their orders due to slower-than-expected inventory digestion.

Looking ahead, AMD expects to bring in $5.7 billion in revenue during the third quarter of 2023, which will finally mark a 2.5% annual growth if achieved. However, this was below analyst estimates but failed to stop momentum building up in the share price, which was up by more than three percent at the time of publishing. The chip firm is not counting on any fireworks from its Client segment for the full year. Instead, it expects data center and embedded revenue will close 2023 by marking annual growth. AMD's operating cash flow for the six months ending on July 1st is also down by more than half annually as a GAAP net loss for the period squeezes out money from the balance sheet.