AMD sees weaker than expected Q2 sales ahead

The chip maker says that PC demand is weak ahead of the Windows 10 launch.

Chipmaker AMD said Monday that its second quarter sales will be down 8 percent from the first quarter instead of falling 3 percent to flat.

The company in a short statement said that the lower-than-expected sales tally is due to "weaker than expected consumer PC demand."

Wall Street was expecting AMD to report a loss of 10 cents a share on revenue of $999.6 million in the second quarter. Revenue in the second quarter was expected to fall 31 percent from a year ago.

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Slower PC sales in the second quarter isn't all that surprising given that Windows 10 launches later this month and analysts are expecting a pause in tepid demand. Analysts in recent day have been cutting estimates for both Intel and AMD.

For instance, FBR analyst Christopher Rolland said in a research note:

Historically, consumers have overwhelmingly upgraded their PC operating systems through the purchase of new PC hardware. While this was our original outlook for the Win10 upgrade cycle, our 2H15 and 2016 PC outlook is dampened slightly as Microsoft is offering consumers a free cloud upgrade for all Win 7, 8.1, and RT owners. Users who convert will be allowed to use the new operating system for up to a year. Given the strong value proposition for the free upgrade, we see more users gravitating toward this software-only update versus prior generations of OS. Additionally, we note a lengthening in PC life cycles owing to more durable components (ex. SSD vs. HDD) and a surplus of CPU processing, adding to the probability of a software-only update.

As for AMD, the company said its channel inventory is in line with what's expected. AMD also said its gross margins for the second quarter will be 28 percent instead of the 32 percent expected.

AMD said that it is transitioning technology for its chips and that margins took a high due to a higher mix of enterprise, embedded and semi-custom sales and lower computing and graphics revenue. The latter drives most of the volume for AMD.