AMD follows Intel in warning that the PC market is falling apart

The red-hot PC market is rapidly slowing after surging during the COVID-19 pandemic, and powerhouse chip players AMD and Intel are feeling the financial pain.

"We have taken a more conservative outlook on the PC business," AMD CEO Dr. Lisa Su said on an earnings call late Tuesday. "So a quarter ago, we would have thought that the PC business would be down, let's call it high-single digits [percentage]. And our current view of the PC business is that it will be down, let's call it mid-teens [percentage]."

The weakness in PC's led AMD to forecast a rare worse-than-expected third quarter despite estimating continued strength in sales of chips for data centers. AMD sees third quarter sales in a range of $6.5 billion to to $6.9 billion. The Street had projected sales of $6.8 billion. AMD forecast third quarter gross profit margin at 54, slightly below estimates for 54.2%.

AMD stock dropped 5% in pre-market trading on Wednesday. The company had the most visited ticker page on Yahoo Finance, underscoring investors concern on AMD's outlook, which also included a warned that pressure on the PC market will persist into the fourth quarter.

A man checks the power lines on a motherboard of a laptop at a repair center in Colombo, Sri Lanka October 17, 2017. REUTERS/Dinuka LiyanawatteAMD's warning comes after rival Intel Intel previously told investors it expects the total addressable market for PCs this year to plunge 10% amid a shocking second quarter earnings miss and full year cut to earnings guidance.

"We saw major inventory corrections on the part of our customers," Intel CEO Pat Gelsinger said on Yahoo Finance Live.

Gelsinger said he believes the third quarter is the bottom for his business, with trends improving in the fourth quarter as PCs are bought for the holidays.

Intel stock was hammered 8% on Friday following the disappointments.

Dour comments from the two chip giants shed further light on what has been a challenging environment for PC makers and their suppliers. The retrenchment in PC spending also raises the risk of lackluster quarters and outlooks from computer makers Dell and HP when they report in the coming weeks.

Worldwide shipments of traditional PCs fell 15.3% year over year to 71.3 million units in the second quarter, according to data from IDC. This marked the second straight quarter of lower PC shipments after two years of growth.

"PC inventory correction could [continue] for several quarters, in our view, given 20+ year high PC supply chain inventory levels," Baird analyst Tristan Gerra wrote in a note to clients. "Shift in consumer patterns away from Covid-times at-home entertainment devices, combined with weak first-half seasonality, suggests no PC recovery near-term, with resulting under-utilization rates challenging gross margin recovery."

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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