The unusual quarter yields up and down results.

Even though AMD’s margin slipped 8.7%, to 42%, and sales dropped 15% quarter to quarter, they were up 29% year over year, and net profit was up an astounding 47.7% quarter to quarter, but down 28.5% year over year—very mixed results in a very unusual quarter.

“Third-quarter results came in below our expectations due to the softening PC market and substantial inventory reduction actions across the PC supply chain,” said AMD Chair and CEO Dr. Lisa Su. “Despite the challenging macro environment, we grew revenue 29% year over year, driven by increased sales of our Data Center, Embedded, and Gaming console products. We are confident that our leadership product portfolio, strong balance sheet, and ongoing growth opportunities in our Data Center and Embedded businesses position us well to navigate the current market dynamics.”

Revenue of $5.6 billion increased 29% year over year, driven by growth across the Data Center, Gaming, and Embedded segments.

Gross margin was 42%, a decrease of 6 percentage points year over year, primarily due to amortization of intangible assets associated with the Xilinx acquisition. Non-GAAP gross margin was 50%, an increase of 2 percentage points year over year, primarily driven by higher Embedded and Data Center segment revenue. Gross margin and non-GAAP gross margin include $160 million of charges for inventory, pricing, and related reserves in the graphics and client businesses.

Operating loss was $64 million, compared to operating income of $948 million, or 22% of revenue, a year ago. The loss was primarily due to the amortization of intangible assets associated with the Xilinx acquisition and increased R&D investments. Non-GAAP operating income was $1.3 billion, or 23% of revenue, up from $1.1 billion, or 24%, a year ago, primarily driven by higher revenue and gross margin partially offset by higher operating expenses.

Net income was $66 million compared to $923 million a year ago, primarily due to the amortization of intangible assets associated with the Xilinx acquisition and increased R&D investments, partially offset by a $135 million tax benefit in the quarter. Non-GAAP net income was $1.1 billion, up from $893 million a year ago, primarily driven by higher revenue and gross margin partially offset by higher operating expenses.

New segment reporting

AMD chose to change the way they report segments in this quarter, probably due to the integration of Xilinx.

Data Center segment revenue was $1.6 billion, up 45% year over year, driven by strong sales of EPYC server processors. Operating income was $505 million, or 31% of revenue, compared to $308 million, or 28%, a year ago. The operating income and margin increases were primarily driven by higher revenue partially offset by higher operating expenses.

Client segment revenue was $1.0 billion, down 40% year over year due to reduced processor shipments resulting from a weak PC market and a significant inventory correction across the PC supply chain. Client processor ASP increased year over year, driven primarily by a richer mix of Ryzen desktop processor sales. Operating loss was $26 million, compared to operating income of $490 million, or 29%, a year ago. The decrease was primarily due to lower revenue.

Gaming segment revenue was $1.6 billion, up 14% year over year, driven by higher semi-custom product sales partially offset by lower graphics revenue. Operating income was $142 million, or 9% of revenue, compared to $231 million, or 16%, a year ago. The decrease was primarily due to lower graphics revenue and inventory, pricing, and related charges in the graphics business. Operating margin was lower primarily due to lower graphics revenue and higher operating expenses.

Embedded segment revenue was $1.3 billion, up 1,549% year over year, driven primarily by the inclusion of Xilinx embedded product revenue. Operating income was $635 million, or 49% of revenue, compared to $23 million, or 30%, a year ago. Operating income and margin increases were primarily driven by higher revenue.

All Other category operating loss was $1.3 billion, as compared to $104 million a year ago, primarily due to amortization of intangible assets largely associated with the Xilinx acquisition.

Current outlook

For the fourth quarter of 2022, AMD expects revenue to be approximately $5.5 billion, plus or minus $300 million, an increase of approximately 14% year over year and flat sequentially. Year over year and sequentially, the Embedded and Data Center segments are expected to grow. AMD expects non-GAAP gross margin to be approximately 51% in the fourth quarter of 2022.

For the full-year 2022, AMD expects revenue to be approximately $23.5 billion, plus or minus $300 million, an increase of approximately 43% over 2021, led by growth in the Embedded and Data Center segments. AMD expects non-GAAP gross margin to be approximately 52% for 2022.