The semiconductor industry is going through an upheaval. Shortages have led to gluts, and the sky-high demand for PCs and other gadgets witnessed during the pandemic has vanished. Global shipments of PCs tumbled 29% year over year in the first quarter, according to IDC, falling below pre-pandemic levels. It could take a while for shipments to level out since there's still too much inventory floating around.
Given this backdrop, Advanced Micro Devices' (AMD 1.36%) headline result for the first quarter doesn't seem all that bad. The company reported a year-over-year revenue decline of 9%, a far better result than the 36% drop rival Intel experienced.
Lapping the Xilinx acquisition
In many cases when a company makes a major acquisition, that company will help investors out by reporting something called organic revenue growth. Organic revenue growth backs out the impact of acquisitions and divestitures, giving investors a better idea of how the core business is doing.
AMD bought Xilinx, known for its field-programmable gate arrays, in a $35 billion all-stock deal that closed on Feb. 14, 2022. AMD's first quarter runs from Jan. 1 to March 31, so its first-quarter results for 2023 include a full contribution from Xilinx, while its first-quarter results from 2022 included only a partial contribution from Xilinx.
Unfortunately, AMD doesn't separate out Xilinx revenue directly, and it doesn't report a number for organic revenue growth. It instead lumps Xilinx into its embedded segment and reports a revenue growth figure that includes that extra revenue. This makes year-over-year comparisons much less meaningful. That 9% revenue decline includes an extra month-and-a-half of Xilinx revenue that was not present in the prior-year period.
Xilinx's final quarterly report came on Jan. 26, 2022, for the quarter that ended on Jan. 1. Quarterly revenue was just about $1 billion, and revenue grew by 26%. We don't know exactly how Xilinx has done since then, although we can use these figures to estimate AMD's organic growth rate. I'll assume Xilinx hasn't grown at all, which is probably wrong, but that assumption will produce the most generous estimate.
Given that the Xilinx acquisition closed at the midpoint of AMD's first quarter, the acquisition likely contributed somewhere around $500 million of revenue in the first quarter of 2022. This year, assuming Xilinx hasn't grown, the acquisition would have contributed around $1 billion. AMD's embedded segment does contain non-Xilinx products, so simply comparing the segment results doesn't tell us much.
If we back out the extra $500 million of revenue related to Xilinx -- and remember, that number is probably an underestimate -- AMD's organic revenue fell by 18% year over year in the first quarter of 2023. That's twice as big as the decline the company reported.
The benefit is about to go bye-bye
AMD's second quarter will be the first since the closing of the Xilinx acquisition where comparing AMD's revenue to the prior-year period will be apples-to-apples. Both the second quarter of 2022 and Q2 of 2023 will include a full contribution from Xilinx.
The picture is not going to be pretty. AMD guided for second-quarter revenue of $5.3 billion, plus or minus $300 million. The company reported revenue of $6.6 billion in the second quarter of 2022, so assuming it hits the midpoint of its guidance range, revenue will plunge by about 20% year over year.
Some of AMD's businesses are holding up well, but an extremely weak market for PCs is more than offsetting everything else. The stock dropped hard on Wednesday, and with the Xilinx acquisition officially lapped, AMD will no longer enjoy the benefit of reporting inflated revenue growth figures.
