AMD & Sony Q3 2022 – The outliers.

AMD and Sony beat on company-specific issues.

AMD Q3 2022

• AMD met expectations and guided better than expected not because there has been a sudden bounce in demand but because it is taking market share which is a small positive sign in that the market itself may not be as bad as Intel implied.
• Q3 2022 revenues / Adj-EPS were $5.57bn / $0.67 slightly behind estimates of $5.49bn / $0.64 but it was the guidance that raised eyebrows.
• Here, AMD expects revenues to increase by 14% in Q4 2022 in contrast to its rivals who have already indicated that they will be suffering from declines.
• This is almost certainly on the back of market share gains which have been a crucial part of the well-executed turnaround led by Lisa Su.
• Furthermore, AMD has continued to benefit from pent-up demand for the latest Xbox Series X and PlayStation 5 where supply has been constrained due to component shortages for many months.
• Once replacement demand has been satisfied, I would expect gaming to begin to reflect the difficult economic circumstances that most other consumer electronics segments are now reflecting.
• Consequently, when / if Intel stops losing market share, then I would expect AMD’s performance to begin reflecting that of its peers.
• Hence, I don’t think that its valuation premium to the sector is warranted, and I continue to prefer other semiconductor players over this one.

Sony FQ2 2023 – Silver dollar lining

• Sony missed expectations but raised expectations for the fiscal year as the weak Japanese Yen and pent-up demand for the PlayStation 5 will help it to beat expectations for the next couple of quarters.
• FQ3 2023 revenues were JPY2,752bn which was up 16% YoY but in US dollar terms revenues declined by 7% YoY.
• Seeing as Sony sells a large proportion of its products in US dollars it is not hard to conclude that all of the growth that Sony is experiencing is a result of the collapse in the value of the Yen.
• The Japanese Yen has lost approximately a quarter of its value over the last 12 months as a result of increasing interest rates in the USA.
• Consequently, increasing profit expectations by 5% is not particularly surprising and in my opinion is not a sign that the dip in demand has now passed us.
• Hence, when expectations bake in the surprisingly large impact of FX on Sony, it will begin to reflect the general malaise that is currently gripping the world of consumer electronics.
• Sony is also not in a very good position to leverage the weak Yen because a lot of its cost base is in USD and so margins are unlikely to be materially boosted by USD revenues being matched by JPY costs.
• Instead, this will be limited to a translation effect which is the main reason why Sony has been able to increase its guidance.
• Sony has fared a lot better than much of the technology sector and I am not inclined to chase this rally as it is not really based on fundamentals but will remain hostage to the whims of the Federal Reserve.