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Why Are AMD Shares Dropping? Because of This Country

January 20, 2016, 2:11 PM UTC
General Views Inside Computex 2014
Visitors walk past the Advanced Micro Devices Inc. (AMD) booth at the Computex Taipei 2014 expo at the Taipei Nangang Exhibition Center in Taipei, Taiwan, on Tuesday, June 3, 2014. Computex runs through to June 7. Photographer: Chris Stowers/Bloomberg via Getty Images
Photograph by Chris Stowers — Bloomberg/Getty Images

Advanced Micro Devices (AMD) forecast first-quarter revenue below analysts’ estimates, due to lower demand for its graphic chips used in consoles and an economic slowdown in China.

Shares of the company, which is in the process of selling some of its assets to cut costs, fell about 6% to $1.83 in extended trading.

AMD has been shifting to gaming consoles and low-power servers, but progress has lagged Wall Street expectations due to intense competition from Intel Corp and Nvidia Corp .

The company said a cautious macro environment in China would affect revenue in the first quarter.

“I think there is probably some downward expectations in here from China, but there is a possibility it could get worse,” FBR Capital Markets & Co analyst Christopher Rolland said.

China accounted for 42.2% of AMD’s revenue in 2014.

Intel has also warned of lower demand in China for the first quarter.

AMD’s revenue is expected to be lower in the first half of 2016 compared to the second half, based on the seasonality of the PC and game console businesses, Chief Executive Lisa Su said on a conference call.

The company forecast revenue for its first quarter to decrease 14%, plus or minus 3%, from the preceding quarter. This represents revenue of $799.2-$848.6 million, below analysts’ average estimate of $898.5 million, according to Thomson Reuters I/B/E/S.

AMD said it expected 2016 revenue to grow year-over-year, as it gears up to ship its Polaris graphic processing units in the middle of the year.

The company also said it expected to return to non-GAAP operating profitability in the second half of the year.

The net loss narrowed to $102 million, or 13 cents per share, in the fourth quarter ended Dec. 26, from $364 million, or 47 cents per share, a year earlier.

Excluding items, the company lost 10 cents per share, in line with the average analysts’ estimate.

Revenue fell 22.7% to $958 million but still came above analysts’ expectation of $954.7 million.

Up to Tuesday’s close, AMD’s shares had fallen 13% in the past 12 months.

(Reporting by Kshitiz Goliya and Lehar Maan in Bengaluru; Editing by Don Sebastian)