It has been a troublesome 12 months for Superior Micro Units (AMD 5.46%) buyers to this point. Shares of the chipmaker have dropped 43%, and the inventory may face extra draw back strain when it releases its second-quarter outcomes on Aug. 2, 2022.

AMD depends on gross sales of central processing items (CPUs) and graphics playing cards utilized in private computer systems (PCs) and notebooks for a big chunk of its income. The dangerous information for AMD: Gross sales of these gadgets reportedly plunged within the second quarter. Let’s examine how this headwind may have an effect on AMD’s upcoming outcomes.

The largest headwind AMD faces this earnings season

Market analysis agency IDC says that international PC gross sales fell 15.3% 12 months over 12 months within the second quarter of 2022 to 71.Three million items. Stagnating client demand and saturation within the schooling sector are the explanations behind this steep fall following two years of spectacular progress that have been fueled by the pandemic.

The Q2 decline is considerably steeper than the 5% year-over-year drop seen within the first quarter. Consequently, AMD’s computing and graphics phase, which produced 47% of its whole income within the first quarter and recorded 33% year-over-year progress, faces stronger headwinds this time.

The chipmaker was in a position to defy the PC market’s weak point in Q1 because of increased common promoting costs of its processors and graphics playing cards, in addition to a large enhance in its share of the pocket book CPU market. AMD CEO Lisa Su identified on the corporate’s Could earnings convention name that it has gained consumer CPU market share for eight consecutive quarters. In the meantime, gross sales of AMD’s desktop graphics playing cards had practically doubled 12 months over 12 months.

In accordance with Mercury Analysis, AMD managed 22.5% of the pocket book CPU market within the first quarter of 2022. It gained 4.Four share factors of market share towards Intel, which was sufficient to offset the one share level drop in its desktop CPU share in Q1. Nonetheless, the pocket book market is predicted to slide massive time, with Barclays analyst Blayne Curtis forecasting a 17% drop in manufacturing this 12 months.

As such, it stays to be seen how the brand new AMD-powered notebooks that have been imagined to hit the market carry out, contemplating the end-market weak point. Su had admitted on the earlier convention name that the corporate is witnessing softness within the PC market following a number of quarters of terrific progress.

Nonetheless, she additionally added that AMD’s “focus stays on the premium, gaming and business parts of the market the place we see sturdy progress alternatives, and we count on to proceed gaining total consumer income share.” Third-party estimates recommend that AMD gained 2.Three share factors of share sequentially within the CPU market within the second quarter. So, there could also be a manner for AMD’s computing and graphics phase to thrive within the second quarter as nicely, however that appears simpler mentioned than completed given the steep decline in PC shipments.

Nonetheless, AMD has a trump card that would assist it obtain the spectacular progress it’s in search of within the second quarter.

The corporate can nonetheless spring a optimistic shock

Whereas AMD’s give attention to the high-end chips within the computing and graphics market may assist it mitigate the unfavorable impact of the sharp decline in PC gross sales, its enterprise, embedded, and semi-custom (EESC) phase may assist it ship spectacular progress as soon as once more.

The EESC phase produced 42% of AMD’s income within the first quarter. The phase’s income of $2.5 billion was up 88% 12 months over 12 months, as gross sales of server processors doubled 12 months over 12 months. AMD says that it has greater than doubled its share of the server processor market in eight of the final 10 quarters. It may proceed taking server market share away from Intel in 2022 and past because of the know-how lead it enjoys.

A stronger share of this market bodes nicely for AMD, provided that international server revenues are anticipated to leap 17% in 2022 on the again of upper shipments, which ought to enhance the chipmaker’s addressable alternative. Then again, the semi-custom enterprise was additionally in superb type within the first quarter because of the wholesome demand for gaming consoles from Sony and Microsoft, that are powered by AMD chips.

The corporate recorded “important double-digit” progress on this phase in Q1 and added that it expects 2022 to be a file 12 months for the semi-custom enterprise. That does not appear stunning, contemplating what its console prospects are forecasting. Sony, as an illustration, expects to promote 18 million items of the PlayStation 5 within the present fiscal 12 months, up from 11.5 million items within the earlier one. Microsoft’s Xbox gross sales, alternatively, have additionally gained spectacular momentum and may play a key function in boosting the semi-custom enterprise.

In all, it will not be stunning to see AMD hit its estimate of 69% year-over-year income progress this quarter to $6.5 billion. It has extra than simply the PC market to rely on, together with the acquisition of Xilinx that is going to unlock new alternatives for the corporate. So, there’s a chance of AMD springing a optimistic shock when it releases its earnings report later this month, and that would assist this tech inventory arrest its slide.