Operator:

Greetings, and welcome to the AMD Second Quarter 2024 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce to you Mitch Haws, Vice President Investor Relations. Thank you, Mitch. You may begin.

Lisa Su :

Thank you, Mitch, and good afternoon to all those listening today. We delivered strong second quarter financial results with revenue coming in above the midpoint of guidance and profitability increasing by a double-digit percentage driven by higher than expected sales of our Instinct, Ryzen, and EPYC processors. We continued accelerating our AI traction, as leading cloud and enterprise providers, expanded availability of Instinct MI300X solutions, and we also saw positive demand signals for general purpose compute in both our client and server processor businesses. As a result, second quarter revenue increased 9% year-over-year to $5.8 billion, as significantly higher sales of our data center and client processors more than offset declines in gaming and embedded product sales. We also expanded gross margin by more than 3 percentage points and grew EPS 19%, as data center product sales accounted for nearly 50% of overall sales in the quarter. Turning to the segments, data center segment revenue increased 115% year-over-year to a record $2.8 billion, driven by the steep ramp of Instinct MI300 GPU shipments and a strong double-digit percentage increase in EPYC CPU sales. Cloud adoption remains strong as hyperscalers deploy fourth-gen EPYC CPUs to power more of their internal workloads and public instances. We are seeing hyperscalers select EPYC processors to power a larger portion of their applications and workloads, displacing incumbent offerings across their infrastructure with AMD solutions that offer clear performance and efficiency advantages. The number of AMD-powered cloud instances available from the largest providers has increased 34% from a year ago to more than 900. We are seeing strong pull for these instances with both enterprise and cloud-first businesses. As an example, Netflix and Uber both recently selected fourth-gen EPYC Public Cloud instances as one of the key solutions to power their mission critical customer facing workloads. In the enterprise, sales were increased by a strong double-digit percentage sequentially. We closed multiple large wins in the quarter with financial services, technology, health care, retail, manufacturing, and transportation customers, including Adobe, Boeing, Industrial Light & Magic, Optiver, and Siemens. Importantly, more than one-third of our enterprise server wins in the first half of the year were with businesses deploying EPYC in their data centers for the first time, highlighting our success attracting new customers, while also continuing to expand our footprint with existing customers. Looking ahead, our next-generation Turin family, featuring our new Zen 5 core is looking very strong. Zen 5 is a grounds up new core design optimized for leadership performance and efficiency. Turin will extend our TCO leadership by offering up to 192 cores and 384 threads, support for the latest memory and I.O. Technologies, and the ability to drop into existing fourth-gen EPYC platforms. We publicly previewed Turin for the first time in June, demonstrating our significant performance advantages in multiple compute-intensive workloads. We also passed a major milestone in the second quarter as we started Turin production shipments to lead Cloud customers. Production is ramping now ahead of launch and we expect broad OEM and cloud availability later this year. Turning to our data center AI business, we delivered our third straight quarter of record data center GPU revenue with MI300 quarterly revenue exceeding $1 billion for the first time. Microsoft expanded their use of MI300X Accelerators to power GPT-4 Turbo and multiple co-pilot services including Microsoft 365 Chat, Word, and Teams. Microsoft also became the first large hyperscaler to announce general availability of public MI300X instances in the quarter. The new Azure VMs leverage the industry-leading compute performance and memory capacity of MI300X in conjunction with the latest ROCm software to deliver leadership-inferencing price performance when running the latest frontier models, including GPT-4. Hugging Face was one of the first customers to adopt the new Azure instances, enabling enterprise and AI customers to deploy hundreds of thousands of models on MI300X GPUs with one click. Our enterprise and Cloud AI customer pipeline grew in the quarter, and we are working very closely with our system and cloud partners to ramp availability of MI300 solutions to address growing customer demand. Dell, HPE, Lenovo, and Supermicro all have Instinct platforms in production, and multiple hyperscale and tier-2 cloud providers are on track to launch MI300 instances this quarter. On the AI software front, we made significant progress enhancing support and features across our software stack, making it easier to deploy high performance AI solutions on our platforms. We also continued to work with the open source community to enable customers to implement the latest AI algorithms. As an example, AMD support for Flash Attention 2 algorithm was upstreamed, providing out-of-the-box support for AMD hardware in the popular library that could increase training and inference performance on large transformer models. Our work with the model community also continued accelerating, highlighted by the launches of new models and frameworks with day one support for AMD hardware. At Computex, I was joined by the co-CEO of Stable Diffusion to announce that MI300 is the first GPU to support their latest SD 3.0 image generation LLM. Last week, we were proud to note that multiple partners used ROCm and MI300X to announce support for the latest Llama 3.1 models, including their 405 billion parameter version that is the industry's first frontier-level open source AI model. Llama 3.1 runs seamlessly on MI300 accelerators, and because of our leadership memory capacity, we're also able to run the FP16 version of the Llama 3.1 405B model in a single server, simplifying deployment and fine-tuning of the industry-leading model and providing significant TCO advantages. Earlier this month, we announced our agreement to acquire Silo AI, Europe's largest private AI lab with extensive experience developing tailored AI solutions for multiple enterprise and embedded customers, including Allianz, Ericsson, Finnair, Korber, Nokia, Philips, T-Mobile, and Unilever. The Silo team significantly expands our capability to service large enterprise customers looking to optimize their AI solutions for AMD hardware. Silo also brings deep expertise in large language model development, which will help accelerate optimization of AMD inference and training solutions. In addition to our acquisitions of Silo AI, [Sology] (ph), and Nod.ai, we have invested over $125 million across a dozen AI companies in the last 12 months to expand the AMD AI ecosystem, support partners, and advance leadership AMD computing platforms. Looking ahead from a roadmap perspective, we are accelerating and expanding our Instinct roadmap to deliver an annual cadence of AI accelerators, starting with the launch of MI325X later this year. MI325X leverages the same infrastructure as MI300 and extends our generative AI performance leadership by offering twice the memory capacity and 1.3 times more peak compute performance than competitive offerings. We plan to follow MI325X with the MI350 series in 2025 based on the new CDNA 4 architecture, which is on track to deliver a 35x increase in performance compared to CDNA 3. And our MI400 series powered by the CDNA “Next” architecture is making great progress in development and is scheduled to launch in 2026. Turning to our AI solutions work, Broadcom, Cisco, HP Enterprise, Intel, Google, Meta, and Microsoft all joined us to announce Ultra Accelerator Link, an industry standard technology to connect hundreds of AI accelerators that is based on AMD's proven infinity fabric technology. By combining UA-Link with the widely supported ultra-Ethernet consortium specification, the industry is coming together to establish a standardized approach for building the next generation of high-performance data centers, AI solutions at scale. In summary, customer response to our multi-year Instinct and ROCm roadmaps is overwhelmingly positive and we're very pleased with the momentum we are building. As a result, we now expect data center GPU revenue to exceed $4.5 billion in 2024, up from the $4 billion we guided in April. Turning to our client segment, revenue was $1.5 billion, an increase of 49% year-over-year driven by strong demand for our prior generation Ryzen processors and initial shipments of our next generation Zen 5 processors. In PC applications, Zen 5 delivers an average of 16% more instructions per clock than our industry leading previous generation of Ryzen processors. For desktops, our upcoming Ryzen 9000 series processors drop into existing AM5 motherboards and extends our performance and energy efficiency leadership across productivity, gaming, and content creation workloads. For notebooks, we announced our Ryzen AI 300 series that extends our industry-leading CPU and GPU performance and introduces the industry's fastest NPU with 50 tops of AI compute performance for Copilot Plus PCs. The first Ryzen AI 300 series notebooks went on sale over the weekend to strong reviews. And more than 100 Ryzen AI 300 series premium, gaming, and commercial platforms are on track to launch from Acer, ASUS, HP, Lenovo, and others over the coming quarters. Customer excitement for our new Ryzen processors is very strong, and we are well positioned for ongoing revenue share gains based on the strength of our leadership portfolio and design win momentum. Now turning to our gaming segment, revenue declined 59% year-over-year to $648 million as semi-custom SoC sales declined in-line with our projections. Semi-custom demand remains soft, as we are now in the fifth-year of the console cycle and we expect sales to be lower in the second half of the year compared to the first half. In gaming graphics, revenue increased year-over-year driven by improved sales of our Radeon 6000 and 7000 series GPUs in the channel. Turning to our embedded segment, revenue decreased 41% year-over-year to $861 million. The first quarter marked the bottom for our embedded segment revenue. Although second quarter revenue was flattish sequentially, we saw early signs of order patterns improving and expect embedded revenue to gradually recover in the second half of the year. Longer term we are building strong design win momentum for our expanded embedded portfolio. Design wins in the first half of the year increased by more than 40% from the prior year to greater than $7 billion, including multiple triple-digit million-dollar wins combining our adaptive and x86 compute products. We announced our Alveo V80 accelerators that deliver leadership capabilities in memory-intensive workloads and entered early access on next-generation Edge AI solutions with more than 30 key partners on our upcoming second-gen Versal adaptive SoCs. Last week, we also announced Victor Peng, President of AMD, would retire at the end of August. Victor has made significant contributions to Xilinx and AMD, including helping scale our embedded business and leading our cross-company AI strategy. On a personal note, Victor has been a great partner to me in sharing the success of our Xilinx acquisition and integration. On behalf of all of the AMD employees and board, I want to thank Victor for all of his contributions to AMD success and wish him all the best in his retirement. In summary, we delivered strong second quarter results and are well positioned to grow revenue significantly in the second half of the year, driven by our data center and client segments. Our data center GPU business is on a steep growth trajectory as shipments ramp across an expanding set of customers. We're also seeing strong demand for our next generation Zen 5 EPYC and Ryzen processors that deliver leadership performance and efficiency in both data center and client workloads. Looking ahead, the rapid advances in generative AI and development of more capable models are driving demand for more compute across all markets. Under this backdrop, we see strong growth opportunities over the coming years and are significantly increasing hardware, software and solutions investments with a laser focus on delivering an annual cadence of leadership data center GPU hardware, integrating industry leading AI capabilities across our entire product portfolio, enabling full stack software capabilities, amplifying our ROCm development with the scale and speed of the open source community and providing customers with turnkey solutions that accelerate the time to market for AMD based AI systems. We are excited about the unprecedented opportunities in front of us and are well positioned to drive our next phase of significant growth. Now I'd like to turn the call over to Jean to provide some additional color on our second quarter results. Jean?

Mitch Haws :

Thank you, Jean. John, we're happy to poll the audience for questions.

Ben Reitzes:

Hey, thanks a lot. Congratulations on these results. Lisa, I wanted to ask you about MI300, how you see it playing out sequentially for the rest of the year. I guess there is about $2.8 billion left to hit your annual target. So I'm wondering if you see things picking up in the fourth quarter and how that's going sequentially. And if you don't mind, I wanted to also ask about next year if you see potential for rapid growth. You're probably aware of some of the chatter out there, and I just was wondering if you are already seeing signs that you can grow significantly, given your road map for next year. Thank you so much.

Ben Reitzes:

Thank you.

Aaron Rakers:

Yeah, thanks for taking my question. And congrats on the quarter as well. I guess sticking on the Data Center side, as we look forward and you think about the full year, I'm curious of how you're currently thinking about the EPYC server CPU growth expectations as we go forward. And any kind of updated thoughts on your ability to kind of continue to gain share in the server market? Just kind of just update us on how you see the server market playing out over the next couple of quarters.

Operator:

And the next question comes from the line of Timothy Arcuri with UBS. Please proceed with your question.

Lisa Su:

Yes, absolutely. So let me start with your original question. I mean, I think looking at 325X, we are on track to launch later this year. From a revenue standpoint there will be a small contribution in the fourth quarter but it really is still mostly the MI300 capabilities. And 325 will start in the fourth quarter and then ramp more in the first half of next year. And then as we look at the 350 Series, what we are seeing and the reason we call it a series is because there will be multiple SKUs in that series that we'll go through the range of, let's call it, air-cooled to liquid-cooled. In spending time with our customers. I think there are people who certainly want more rack level solutions, and we are certainly doing much more in terms of system-level integration for our products. You will see us invest more in system-level integration. But we also have many customers who want to use their current infrastructure. I think the beauty of the MI350 series is, it actually fits into the same infrastructure as the MI300 series. And so it would lend itself to, let's call it a pretty fast ramp if you've already invested in 300 or 325. So we see the range of options, and that's part of the expansion of the road map that we are planning.

Ross Seymore:

Hi, thanks for having me ask a question and congrats on the strong results. Well, Data Center is obviously very important. I just want to pivot to the Client side. Lisa, can you talk about the AI PC side of things? How you believe AMD is positioned? Are you seeing any competitive intensity changing with the emergence of ARM based systems? Just wanted to see how you are expecting that to roll out and what it means to second half seasonality.

Ross Seymore:

And is the ARM side changing anything or not really?

Operator:

And the next question comes from the line of Matt Ramsay with Cowen. Please proceed with your question.

Lisa Su:

Yes, absolutely, Matt. So look as I said earlier, we are very pleased with the progress that we are making on the Instinct road map. This is absolutely a long-term play so absolutely, you are correct. It has a lot of parallels to the EPYC journey, where you really have to -- you gain more opportunities, broader workloads, larger deployments as you go from generation to generation. So we are playing the long game here. Our conversations with our customers, so I’d start with first, in the near-term, we had some very key milestones that we wanted to pass this year. And as I said, they related to getting hardware in volume in multiple hyperscalers, as well as large Tier 2 customers. We've done that. We've now seen our software in a lot of different environments, and it is matured substantially. ROCm is in very -- from a standpoint of features, functions, out-of-box performance, getting to performance with customers, we've gained a lot of confidence and learned a lot in that whole process. The networking aspects of building out the rack scale and the system-level items are areas that we are continuing to invest in. And then the point of having long-term conversations across multiple generations is also really important. So I think all of those things have progressed well. We view this as very good progress for MI300, but we have a lot more to do. And I think the various road maps will help us open up those opportunities over the next couple of years.

Lisa Su:

Thanks Matt.

Vivek Arya:

Thanks for taking my question. Lisa, there seems to be this ongoing industry debate about AI monetization and whether your customers are getting the right ROI on their CapEx. And today, they have these three options, right? They can buy GPUs from your largest competitor with all the software bells and whistles and incumbency or they can do custom chips or they can buy from AMD. So how do you think this plays out next year? Do you think your customers given all this concern around monetization, does it make them consolidate their CapEx around just the other two suppliers? How is your visibility going into next year, given this industry debate? And how will AMD continue to kind of carve a position between these two other competitive choices that are out there? Thank you.

Vivek Arya:

Thank you Lisa.

Operator:

And the next question comes from the line of Joe Moore with Morgan Stanley. Please proceed with your question.

Lisa Su:

Yes, sure. Thanks for the question Joe. So as we said on MI300, there are lots of great characteristics about it. One of them is our memory bandwidth and memory capacity is leading the industry. From that standpoint, the early deployments have largely been inference in most cases, and we have seen fantastic performance from an inference standpoint. We also have customers that are doing training. We've also seen that from a training standpoint, we've optimized quite a bit our ROCm software stack, to make it easier for people to train on AMD. And I do expect that we'll continue to ramp training over time. As we go forward, I think you'll see -- the belief is that inference will be larger than training from a market standpoint. But from an AMD standpoint, I’d expect both inference and training to be growth opportunities for us.

Operator:

And the next question comes from the line of Toshiya Hari with Goldman Sachs. Please proceed with your question.

Lisa Su:

Yes. Sure, Toshiya. Thanks for the question. So on the supply side, let me make a couple of comments and then maybe I'll let Jean comment on sort of the trajectory for the business. So on the supply side, we made great progress in the second quarter. We ramped up supply significantly exceeding $1 billion in the quarter. I think the team has executed really well. We continue to see line of sight to continue increasing supply as we go through the second half of the year. But I will say that the overall supply chain is tight and will remain tight through 2025. So under that backdrop, we have great partnerships across the supply chain. We've been building additional capacity and capability there. And so we expect to continue to ramp as we go through the year. And we'll continue to work both supply as well as demand opportunities, and really that's accelerating our customer adoption overall, and we'll see how things play out as we go into the second half of this year.

Toshiya Hari:

Thank you very much.

Stacy Rasgon:

Hi, guys. Thanks for taking my question. I wanted to dig into the Q3 guidance a little bit, if I could. So with Gaming down double digits, it probably means you've got close to $1 billion of growth revenue across Data Center, Client, and Embedded. I was wondering if you could give us some color on how that $1 billion-ish splits out across those three businesses. Like if I had 70% of it going to Data Center and 20% going to Client and 10% going to Embedded, like would that be like way off? Or how should we think about that apportioning out across the segment?

Stacy Rasgon:

Got it. So I mean within that Data Center piece then, how does that split out? I mean, is the bulk of it [indiscernible] Instinct? Or is it sort of equally weighted between Instinct and EPYC? Or like again how does it -- again if you got, I don't know $400 million to $600 million of sequential Data Center growth or something like that, how does it split up?

Operator:

And the next question comes from the line of Harsh Kumar with Piper Sandler. Please proceed with your question.

Lisa Su:

Yes. So Harsh, overall, maybe if I take a step back and just talk about how the systems are evolving, there is no question that the systems are getting more complex, especially as you go into large training clusters, and our customers need help to put those together. And that includes the sort of Infinity Fabric-type solutions that are the basis for the UALink things as well as just general rack level system integration. I think what you should expect, Harsh is, first of all, we're very pleased with all of the partners that have come together for UALink. We think that's an important capability. But we have all of the pieces of this already within sort of the AMD umbrella with our Infinity Fabric, with the work with our networking capability through the acquisition of Pensando. And then you'll see us invest more in this area. So this is part of how we help customers get to market faster is by investing in all of the components, so the CPUs, the GPUs, the networking capability as well as system-level solutions.

Lisa Su:

Thanks Harsh.

Blayne Curtis:

Hi, good afternoon. Thanks for taking my question. I just want to ask another question on MI300. Just curious if you can kind of characterize the makeup of the customers in the first half. I know you had, end of last year, a government customer. Is there still a government contingency? And kind of the second part of it is really you've invested in all these software assets. Kind of curious the challenge of ramping the next wave of customers. I know there's been a lot of talk on some hardware challenges, memory issues and such, but then you're investing in software. I'm sure that's a big challenge, too. Just kind of curious what the biggest hurdle is for you to kind of get that next wave of customers ramp.

Blayne Curtis:

Thanks so much.

Operator:

And the next question comes from the line of Tom O'Malley with Barclays. Please proceed with your question.

Lisa Su:

Sure, Tom. So I think you actually said it well. We are launching Zen 5 desktops and notebooks with volume ramping in the third quarter. And that’s the primary reason that we see above-seasonal. The AI PC element is certainly 1 element of that, but there is just the overall refresh. Usually, desktop launches going into a third quarter are good for us, and we feel that the products are very well positioned. So those are the primary reasons.

Chris Danely:

Again. Thanks for speaking me in. Just a question on gross margin. So if we look at your guidance, it seems like the incremental gross margin is dropping a little bit for Q3. Why is that happening? And then just a follow-up on another part of the gross margin angle. Have you changed your gross margin expectations for the MI300? Has the accretion point moved out a little bit?

Chris Danely:

Thank you.

Mitch Haws:

Great. That concludes today's call. Thanks to all of you for joining us today.

Operator:

Greetings, and welcome to the AMD First Quarter 2024 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

Mitchell Haws:

Thank you, and welcome to AMD's First Quarter 2024 Financial Results Conference Call. By now, you should have had the opportunity to review a copy of our earnings press release and the accompanying slides. If you have not had the chance to review these materials, they can be found on the Investor Relations page of amd.com. We will refer primarily to non-GAAP financial measures during today's call, and the full non-GAAP to GAAP reconciliations are available in today's press release and the slides posted on our website.

Lisa Su:

Thanks, Mitch, and good afternoon to all those listening today. This is an incredibly exciting time for the industry as the widespread deployment of AI is driving demand for significantly more compute across a broad range of markets. Under this backdrop, we are executing very well as we ramp our data center business and enable AI capabilities across our product portfolio.

Operator:

[Operator Instructions] Our first question is from Toshiya Hari with Goldman Sachs.

Lisa Su:

Yes, sure. So look, Toshiya, when we start with the road map, I mean, we always think about it as a multiyear, multigenerational road map. So we have the follow-ons to MI300 as well as the next, next generations well in development. I think what is true is we're getting much closer to our top AI customers. They're actually giving us significant feedback on the road map and what we need to meet their needs.

Ross Seymore:

The non-AI side of the Data Center business, it sounds like the enterprise side has some good traction even though the sequential drop happened seasonally, Lisa. But I was just wondering what's implied in your second quarter guidance for the Data Center CPU side of things? And generally speaking, how are you seeing that whole kind of GPU versus CPU crowding out dynamic playing out for the rest of 2024?

Ross Seymore:

And I guess as my follow-up, just switching over to the Client side. I noted you guided it up sequentially. Any sort of magnitude around that for the second quarter? And perhaps, more importantly, when you talk about the whole AI PC side of things, do you believe that's more of a units driver for you, an SAP driver, or will it be both?

Matthew Ramsay:

Lisa, I have sort of a longer-term question and then a shorter-term follow-up one. I guess the -- one of the questions that I've been getting from folks a lot is, obviously, your primary competitor has announced, I guess, a multiyear road map. And we continue to hear more and more from other folks about internal ASIC programs at some of your primary customers, whether they be for inference or training or both.

Lisa Su:

Yes. Sure, Matt. Thanks for the question. So look, I think one of the things that we see and we've said is that the TAM for AI compute is growing extremely quickly. And we see that continuing to be the case in all conversations. We had highlighted a TAM of let's call it, $400 billion in 2027. I think some people thought that was aggressive at the time. But the overall AI compute needs, as we talk to customers is very, very strong. And you've seen that in some of the announcements even recently with some of the largest cloud guys.

Aaron Rakers:

I apologize if I missed this earlier, but I know last quarter, you talked about having a -- securing enough capacity to support significant upside to the ramp of the MI300. I know that you upped your guide now to $4 billion. I'm curious how you would characterize the supply relative to that context offered last quarter as we think about that new kind of target for? Would you characterize it as still having supply capacity upside potential?

Aaron Rakers:

Yes. Okay. And then as a quick follow-up, going back to an earlier question on server demand, more traditional server. As you see the ramp of maybe share opportunities in more traditional enterprise, I'm curious how you would characterize the growth that you expect to see a more traditional server CPU market as we move through '24 or even longer term, how you'd characterize that growth trend?

Vivek Arya:

Lisa, I just wanted to go back to the supply question and the $4 billion outlook for this year. I think at some point, there was a suggestion that the $4 billion number, right, that there are still supply constraints. But I think at a different point, you said that you have supply visibility significantly beyond that.

Lisa Su:

Yes. Vivek, let me try to make sure that we answered this question clearly. From a full year standpoint, our $4 billion number is not supply capped -- I'm sorry, yes, it's not supply capped. It is -- we do have supply capability above that. It is more back half weighted. So if you're looking at sort of the near term, I would say, for example, in the second quarter, we do have more demand than we have supply right now, and we're continuing to work on pulling in some of that supply.

Vivek Arya:

Maybe one, not on MI, but maybe on the Embedded business. I think you sound a bit more measured about Q2 and the second half rebound, which is similar to what we have heard from a lot of the auto industrial peers. But where are you in the inventory clearing cycle? And if Embedded has a somewhat more measured rebound in the back half, what implication does that have on gross margin expansion? Can we continue to expect, I don't know, 100 basis points a quarter in terms of gross margin expansion because of the Data Center mix? Or just any puts and takes of Embedded and then what it means for gross margins in the back half?

Timothy Arcuri:

I also wanted to ask about your data center GPU road map. The customers that we talk to say that they're engaged, not just because of MI300, but really because of what's coming. And it seems like there's a big demand shift to rack scale systems that try to optimize performance per square foot given some of the data center and power constraints. So can you just talk about how important systems are going to be in your road map? And do you have all the pieces you need as the market shifts to rack scale systems?

Timothy Arcuri:

And then just as a quick follow-up. I know this year it looks like it's going to be pretty back-half loaded in your server CPU business, just like it was last year. I know you kind of held our hands at about this time last year sort of on what the full year could look like and how back-end loaded it could be.

Lisa Su:

Yes. I mean, I think, Tim, I think the best way to say it is our Data Center segment is on a very, very strong ramp as we go through the back half of the year. Server CPUs, certainly, Data Center GPUs, for sure. So I don't know that we're going to get into specifics, but I could say, in general, you should expect overall at the segment level to be very strong double digits.

Joseph Moore:

I wonder if you could address the profitability of MI300. I know you said a couple of quarters ago that it would eventually be above corporate average, but it would take you a few quarters to get there. Can you talk about where you are in that?

Joseph Moore:

Great. And then as a separate follow-up. On the Turin transition on server, I know when you had transitioned in generally, you said it could take a little while, that there were significant platform shifts and things like that. Turin seems to be much more kind of ecosystem compatible. How quickly do you think you might see that product ramp within our server portfolio?

Operator:

Our next question is from Stacy Rasgon with Bernstein Research.

Jean Hu:

Stacy, thanks for the question. You always ask a math question. So I think, in general, it is more. The Data Center GPU ramp, it will be more than the overall company's $200-some million ramp.

Jean Hu:

Yes, yes, you're right. Gaming is down similar zip code like Q1.

Jean Hu:

So maybe -- yes, maybe let me give you some color about the Gaming business, right? If you look at the Gaming, the demand has been quite weak, that's quite very well-known and also their inventory level. So based on the visibility we have, the first half, both Q1, Q2, we guided down sequentially more than 30%. We actually think the second half will be lower than first half.

Stacy Rasgon:

Got it. That's helpful. For my second question, I wanted to look at the near-term Data Center profitability. So operating profit was down 19% sequentially on 2% revenue growth. Is that just the margins of the GPUs filtering in relative to the CPUs? And I know you said GPUs would eventually be above corporate average. Are they below the CPU average? I mean they clearly are, I guess, in the near term, but are they going to stay that way?

Harlan Sur:

On your Data Center GPU segment and the faster time to production shipments, given you just upped your full year GPU outlook, how much of it is faster bring up of your customers' frameworks driven by your latest ROCm software platform and maybe stronger collaboration with your customers' engineers just to get them to call faster? And how much of it is just a more aggressive build-out plan by customers versus their prior expectations given what appears to be a pretty strong urgency for them to move forward with their important AI initiatives?

Lisa Su:

Yes. And if I'd just add, Harlan, to your question, we did see strength in enterprise in the first quarter. And I think that has -- that offset perhaps some of the normal seasonality.

Thomas O'Malley:

I just wanted to ask on the competitive environment. Obviously, on the CPU side, you had a competitor talk about launching a high core count product in the coming quarter, kind of ramping now and more so into Q3. You've seen really good pricing tailwinds as a function of the higher core capital. Can you talk about what you're seeing in that market? Do you think that there's any risk for more aggressive pricing, which would impact your ASP ramp for the rest of the year?

Thomas O'Malley:

Helpful. And then just a broader question to follow up here. So I think you got asked earlier about the importance of systems. But on your end, how important is the Open Ethernet Consortium to you being able to move forward to systems? I know that, today, you obviously have some internal assets and then you can partner with others. But is there a way that you could be competitive before there is an industry standard on the Ethernet side? And can you talk about when you think the timing of that kind of consortium comes to market and enables you to maybe accelerate that road map?

Operator:

Our last question is from Harsh Kumar with Piper Sandler.

Jean Hu:

Harsh, we're not going to guide a specific segment below the segment revenue. I think the most important thing is that we did say Data Center is going to grow double digit sequentially. I will leave it over there. Subsegment, there are a lot of details.

Mitchell Haws:

Great. That concludes today's call. Thanks to all of you for joining us today.

Operator:

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Operator:

Greetings and welcome to the AMD Fourth Quarter and Full Year 2023 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] And as a reminder, this conference is being recorded. It is now my pleasure to introduce to you, Mitch Haws, Vice President, Investor Relations. Thank you, Mitch. You may begin.

Lisa Su:

Thank you, Mitch, and good afternoon to all those listening in today. We finished 2023 strong as Data Center sales accelerated significantly throughout the year, despite the mixed demand environment. As a result, we delivered record Data Center segment annual revenue and strong top-line and bottom-line growth in the fourth quarter, driven by the ramp of Instinct AI accelerators and robust demand for EPYC server CPUs across cloud, enterprise and AI customers. Looking at our financial results. Fourth quarter revenue increased 10% year-over-year to $6.2 billion, driven by a significant double-digit percentage growth in our Data Center and Client segments. On a full year basis, annual revenue declined 4% to $22.7 billion as record Data Center and Embedded segment annual revenue was offset by lower Client and Gaming segment revenue. Importantly, Data Center and Embedded segment annual revenue grew by $1.2 billion and accounted for more than 50% of revenue in 2023 as we gained server share, launched our next-generation Instinct AI accelerators and maintained our position as the industry's largest provider of adaptive computing solutions. Turning to the fourth quarter business results. Data Center segment revenue grew 38% year-over-year and 43% sequentially to a record $2.3 billion. Server CPU and Data Center GPU sales both set quarterly and annual revenue records as sales of our Data Center products accelerated throughout the year. We gained server CPU revenue share in the quarter, driven by significant double-digit percentage growth in 4th Gen EPYC Processor revenue and demand for our 3rd Gen EPYC Processor portfolio. In Cloud, while the overall demand environment remained soft, server CPU revenue increased year-over-year and sequentially as North American hyperscalers expanded 4th Gen EPYC Processor deployments to power their internal workloads and public instances. Amazon, Alibaba, Google, Microsoft and Oracle brought more than 55 AMD-powered AI, HPC and general-purpose cloud instances into preview or general availability in the fourth quarter. Exiting 2023, there were more than 800 EPYC CPU based public cloud instances available. We expect this number to grow in 2024 based on the leadership performance, efficiency and features of our EPYC CPU portfolio. In Enterprise, sales accelerated by a significant double-digit percentage in the quarter as we built momentum with Forbes 2000 customers. We closed multiple wins with large financial, energy, automotive, retail, technology and pharmaceutical companies, positioning us well for continued growth, based on expanded production deployments planned for 2024. A growing number of customers are adopting EPYC CPUs for inferencing workloads, where our leadership throughput performance deliver significant advantages on smaller models like Llama 7B, as well as the power head nodes in large training and inference clusters. Looking ahead, customer excitement for our upcoming Turin family of EPYC Processors is very strong. Turin is a drop-in replacement for existing 4th Gen EPYC platforms that extends our performance, efficiency and TCO leadership with the addition of our next-gen Zen 5 core, new memory expansion capabilities and higher core counts. Internal and end customer validation work is progressing to plan with Turin on track to deliver overall performance leadership, as well as leadership on a per core or per watt basis across a wide range of workloads when it launches later this year. Turning to our Broader Data Center portfolio. Our Data Center GPU business accelerated significantly in the quarter, with revenue exceeding our $400 million expectations, driven by a faster ramp for MI300X with AI customers. We launched our MI300 accelerator family in December with strong partner and ecosystem support from multiple large cloud providers, all the major OEMs and many leading AI developers. MI300X GPUs deliver leadership generated AI performance by combining our high-performance CDNA 3 architecture with industry-leading memory bandwidth and capacity. Customer response to MI300 has been overwhelmingly positive. And we are aggressively ramping production to support the dozens of cloud, enterprise and supercomputing customers deploying Instinct accelerators. In Cloud, we are working closely with Microsoft, Oracle, Meta and other large cloud customers on Instinct GPU deployments, powering both their internal AI workloads and external offerings. For Enterprise customers, HPE, Dell, Lenovo, Supermicro and other server vendors are on track to launch differentiated MI300 platforms later this quarter with strong demand from multiple enterprise customers. In HPC Supercomputing, we shipped the majority of AMD Instinct MI300A accelerators for the El Capitan supercomputer in the fourth quarter and expect to complete shipments this quarter for what is expected to be the world's fastest supercomputer when it comes online later this year. We also closed new Instinct GPU wins in the quarter, including the flagship system at the German High Performance Computing Center, HLRS, as well as what is expected to be one of the world's most powerful enterprise supercomputers for energy company Eni. On AI software development, we made significant progress expanding the ecosystem of AI developers working on AMD platforms with the release of our ROCm 6 software suite. The ROCm 6 stack significantly increases performance and key generative AI workloads, adds expanded support and optimizations for additional frameworks and libraries and simplifies the overall developer experience. The additional functionality and optimizations of ROCm 6 and the growing volume of contributions from the Open Source AI Software community are enabling multiple large hyperscale and enterprise customers to rapidly bring up their most advanced large language models on AMD Instinct accelerators. For example, we are very pleased to see how quickly Microsoft was able to bring up GPT-4 on MI300X in their production environment and rollout Azure private previews of new MI300 instances aligned with the MI300X launch. At the same time, our partnership with Hugging Face, the leading open platform for the AI community, now enables hundreds of thousands of AI models to run out of the box on AMD GPUs and we are extending that collaboration to our other platforms. Looking ahead, our prior guidance was for Data Center GPU revenue to be flattish from Q4 to Q1 and exceed $2 billion for 2024. Based on the strong customer pool and expanded engagements, we now expect Data Center GPU revenue to grow sequentially in the first quarter and exceed $3.5 billion in 2024. We have also made significant progress with our supply chain partners and have secured additional capacity to support upside demand. Turning to our Client segment. Revenue was $1.5 billion, an increase of 62% year-over-year and flat sequentially. We launched our latest generation Ryzen 8000 series notebooks and desktop processors in January, including our Ryzen 8040 Mobile series that combined leadership compute performance and energy efficiency with an updated MPU that delivers up to 60% more AI performance compared to our prior generation that was already industry-leading. Acer, ASUS, HP, Lenovo, MSI and other large PC OEMs will all offer notebooks powered by our Ryzen 8000 series processors with the first systems expected to go on sale in February. To further our leadership in AI PCs, we launched our Ryzen 8000 G-series processors earlier this month, which are the industry's first desktop CPUs with an integrated AI engine. Millions of AI PCs powered by Ryzen processors have shipped to date and Ryzen CPUs power more than 90% of AI-enabled PCs currently in market. Our work with Microsoft and our PC ecosystem partners to enable the next-generation of AI PCs expanded significantly in the quarter. We are aggressively driving our Ryzen AI CPU roadmap to extend our AI leadership, including our next-gen Strix processors that are expected to deliver more than three times the AI performance of our Ryzen 7040 series processors. Strix combines our next-gen, Zen 5 core with enhanced RDNA graphics and an updated Ryzen AI engine to significantly increase the performance, energy efficiency and AI capabilities of PCs. Customer momentum for Strix is strong with the first notebooks on track to launch later this year. Looking at 2024, we are planning for the PC TAM to grow modestly year-on-year, weighted towards the second half as AI PCs ramp. We continue to see strong growth opportunities for our client business as we ramp our current products, extend our AIPC leadership and launch our next wave of Zen 5 CPUs. Now turning to our Gaming segment. Revenue declined 17% year-over-year and 9% sequentially to $1.4 billion as lower semi-custom revenue was partially offset by increased sales of Radeon GPUs. Semi-custom SoC sales declined in line with our projections in the quarter. Going forward, we now expect annual revenue to decline by a significant double-digit percentage year-over-year as supply caught up with demand in 2023, and we entered the fifth year of what has been a very strong console cycle. In Gaming Graphics, revenue grew both year-over-year and sequentially, driven by strong demand in the channel for both our Radeon 6000 and Radeon 7000 series GPUs. We expanded our Radeon 7000 GPU series with the launch of new RX 7600 XT Series enthusiast desktop GPUs earlier this month that offer leadership price performance for 1080p gaming. We also launched new open source FidelityFX Super Resolution 3 software that can deliver significantly higher gaming frame rates on both GPUs and APUs. Turning to our Embedded segment. Revenue decreased 24% year-over-year and 15% sequentially to $1.1 billion as customers focused on reducing their inventory levels. We expanded our embedded portfolio in the quarter with new leadership solutions for key markets. We launched new Versal Prime adaptive SoCs for the aerospace, test and measurement, health care and communications markets that deliver industry-first support for DDR5 memory and increased DSP capability compared to our prior generation. In automotive, we launched new Versal SoC solutions that bring industry-leading AI compute capabilities and advanced safety and security features to next-generation vehicles. We also launched Ryzen embedded processors with unmatched performance and features for industrial automation, machine vision, robotics and edge server applications. Looking at 2024, we expect overall embedded demand will remain soft through the first half of the year as customers continue to focus on normalizing their inventory levels. Longer term, we're very confident in the growth trajectory of our Embedded business as our expanded product portfolio drove more than $10 billion of design wins in 2023, an increase of more than 25% compared to 2022. In summary, I'm very pleased with our fourth quarter and full year results. For 2024, we expect the demand environment to remain mixed, with strong growth in our Data Center and Client segments, offset by declines in our Embedded and Gaming segments. Against this backdrop, we believe we will deliver strong annual revenue growth and expand gross margin, driven by the strength of our Instinct EPYC and Ryzen product portfolios. Taking a step back, we believe AI is a once-in-a-generation transition that will reshape virtually every portion of the computing market, starting in the Data Center and then expanding into PCs and across multiple embedded markets. We have built excellent customer traction based on the strength of our multiyear AI hardware and software road maps, and we see clear opportunities to drive our next wave of growth as we deliver leadership AI solutions across our portfolio. In the Data Center, we see 2024 as a start of a multiyear AI adoption cycle with the market for Data Center AI accelerators growing to approximately $400 billion in 2027. Customer deployments of our Instinct GPUs continues accelerating, with MI300 now tracking to be the fastest revenue ramp of any product in our history, and positioning us well to capture significant share over the coming years based on the strength of our multi-generation Instinct GPU road map and open source ROCm software strategy. In PCs, we are focused on delivering our long-term road maps with leadership Ryzen AI NPU capabilities to enable differentiated experiences as Microsoft and our other software partners bring new AI capabilities to PC starting later this year. At the same time, we are rapidly driving leadership AI compute capabilities across the full breadth of our embedded product portfolio. This is an incredibly exciting time for the industry and even more exciting time for AMD as our leadership IP, broad product portfolio and deep customer relationships position us well to deliver significant revenue growth and earnings expansion over the next several years. Now I'd like to turn the call over to Jean to provide some additional color on our fourth quarter and full year financial results. Jean?

Mitch Haws:

Thank you, Jean. John, we're happy to poll the audience for questions.

Aaron Rakers:

Yeah. Thanks for taking the question. Just kind of framing the outlook and the guidance for this calendar first quarter. I guess the first question is, can you help us on a relative basis the $400 million of Data Center GPU revenue that you expected in Q4. What did that ultimately kind of fell off to be? And then, on the guidance into 1Q, can you help us appreciate what seasonal is defined as, as we think about the server business into the 1Q guide?

Jean Hu:

Yeah, Aaron, I'll give you some color about Client seasonality and others. So, Client is very similar to server, typically Q1 is high-single-digit to low-double-digit. That's consistent with past. On the Embedded side, it's very consistent with what we said in the past and the consistent with what you see in the industry's Embedded business is going through a bottoming process, and we think Q1, it will have a low-double-digit sequential decline. That's Embedded. On the Gaming side, Lisa mentioned during his -- her prepared remarks is we have the latest stage of product cycle in the year five of gaming console. But at the same time, we also have inventory at the customers. So, the combination of those impact, we expect the Q1 Gaming sequential declines probably more than 30%, so hopefully that help you a little bit.

Lisa Su:

Sure, Aaron. So look, I think, I agree with your characterization of the 2023 demand, although we did see some strong progress in the second half of the year, especially as customers in Cloud and Enterprise adopted our Genoa and our Zen 4 family. So going into 2024, I would say the traditional server market is probably still mixed, especially into the first half of the year. There's still some cloud optimization going on, as well as sort of enterprise being a little bit cautious. That being the case though, we also see opportunities for us to continue to grow share in the traditional server business. I think our portfolio is extremely strong. The adoption of Genoa and Bergamo, as well as our new Siena product lines are getting a lot of traction. And then, we also see Turin, our Zen 5 product coming in the second half of the year. So, even in a mixed demand environment, I think we're bullish on what traditional server CPUs can do in 2024.

Timothy Arcuri:

Thanks a lot. Lisa, I'm wondering if you can give us a little bit of sense in terms of the milepost that you're kind of marching toward on this $400 billion TAM that you have for 2027. For example, do you think you can gain share at a rate that's kind of similar to the rate that you gained share for server CPU or I guess maybe asked a different way, is it reasonable to kind of look at your consumer GPU share of 20 plus percent, is that a reasonable bogey, or do you have aspirations higher than that, perhaps?

Timothy Arcuri:

Thanks a lot. Jean, I guess as a follow-up. I know that you don't want to guide the full year. But I'm wondering if I can pin you down just to touch on maybe a milepost that you're kind of marching to for 2024 growth is up 20% for the whole company. Is that a reasonable target? And then I guess within Data Center, if you just add the incremental Data Center GPU revenue and you assume that the server business grows a little bit, it seems like that should maybe double year-over-year, but I'm kind of wondering if you can give us any ranges on those numbers? Thanks.

Operator:

And the next question comes from the line of Matt Ramsay with TD Cowen. Please proceed with your question.

Lisa Su:

Yeah, sure, Matt. So, I appreciate the comments. I think the traction that we're getting with the MI300 family is really strong. I think what's benefited us here is our use of chiplet technologies, which has given us the ability to have sort of both the APU version, as well as the GPU version and we continue to use that to differentiate ourselves and that's how we get our memory bandwidth and memory capacity advantages. As we go forward, you can imagine, like we did in the EPYC timeframe, we planned multiple generations in sequence. That's the way we're planning the roadmap. One of the things I will note about the AI accelerator market is the demand for compute is so high that we are seeing sort of an acceleration of the roadmap generations here and we are similarly planning acceleration of our roadmap. I would say that we'll talk more about the overall roadmap beyond MI300 as we get into later this year. But you can be assured that we're working very closely with our customers to have a very competitive roadmap for both training and inference that will come out over the next couple of years.

Lisa Su:

Sure. Well, Matt, I don't know-how precise it is, but I think we said approximately $400 billion. But I think what we need to look at is growth rate and how do we get to those growth rates. I think we expect units to grow sort of substantial double-digit percentage. But you should also expect that content is going to grow. So, if you think about how important memory and memory capacity is as we go forward, you can imagine that we'll see acceleration there and just the overall content as we go to more advanced technology nodes. So, there's some ASP uplift in there. And then, what we also do is, we are planning longer-term roadmaps with our customers in terms of how they're thinking about sort of the size of training clusters, the number of training clusters. And then, the fact that we believe inference is actually going to exceed training as we go into the next couple of years just given as more enterprises adopt. So, I think as we look at all those pieces, I think we feel good that the growth rate is going to be significant and sustained over the next few years. In terms of what's in that TAM, it really is accelerator TAM. So, within accelerators, there are certainly GPUs and there will also be some ASICs that are other accelerators that are in that TAM. As we think about sort of the different types of models from smaller models to fine-tuning of models, to the largest large language models, I think you're going to need different silicon for those different use cases. But from our standpoint, GPUs are still going to be the sort of the compute element of choice when you're talking about training and inferencing on the largest language models.

Joseph Moore:

Great. Thank you. I think you talked about the MI300 cloud workloads being kind of split between the more customer-facing workloads versus internal. Can you talk about how you see the breakdown of that and how is your ecosystem progressing? This is a brand-new chip. It seems impressive they are able to support kind of a broad range of customer-facing workloads and cloud.

Joseph Moore:

Great. And for my follow-up, I guess a lot of the forecasting of your business that I'm hearing is coming from supply chain and we're sort of hearing AMD is building X in Asia. I guess, how would you ask us to think about that? Are you looking at being kind of sold-out for the year and so the supply chain would be close to revenue? Are you building for the best-case scenario? Just I worry about sometimes expectations when people hear the supply chain numbers. And I'm just curious how you bridge the gap.

Operator:

And the next question comes from the line of Toshiya Hari with Goldman Sachs. Please proceed with your question.

Lisa Su:

Yeah, Toshiya, thanks for the question. So, first on the MI300 trajectory. I think you would expect that revenue should increase every quarter from now through sort of the end of the year, but it will be a bit more second half weighted and part of that is just customers as they're finishing up their qualifications in their lines as well as sort of how our supply chain is ramping. So, yes, it should increase each quarter, but be a bit more second half weighted. And then, to your comment about customers, look, we are engaged with all of sort of the large customers. These are all folks that know what's really well, given our deep relationships in EPYC. I think people just have different adoption cycles as they consider what they're trying to do in their roadmap. But I view this as still very, very early innings for us in this space. And I think the question was asked earlier. I think the key is this is not just about MI300 conversation. But it really is about sort of our long-term multi-generational roadmap. And so, that's the context on which we're working with our largest customers, as well as, as you know, there's a lot of demand coming from folks that are more AI centric and not necessarily typical cloud customers, but more enterprise or let's call it AI-specific companies that we're also very well engaged with.

Jean Hu:

Yeah, Toshiya, thank you for the question. Yeah, you're absolutely right. We have some puts and takes that impact our gross margin. We guided the Q1, 120 basis points higher than Q4 sequentially, primarily because the higher Data Center contribution actually more than offset the decline of Embedded business in Q1. Going forward, the way to think about it is as you said is the major driver is going to be Data Center business is going to grow much faster than other segment. That mix change will help us to expand the gross margin nicely. I think you also are spot on, the Embedded coming back in second half, which will be a tailwind. With the Data Center GPU, we are at the very early stage of ramp. We are improving testing time yield and continue to expand gross margin and we expect to be accretive to corporate average. So, those are all the tailwinds coming in the second half. I would say the headwinds side continue to be in the first half where we see Embedded business not only Q1 we see sequential decline, Q2 probably are going to be sequentially flattish versus Q1. That is a headwind for us. Because it does have a very nice gross margin. But overall, we feel pretty good about the trajectory of the gross margin improvement, especially second half.

Ross Seymore:

Thanks for letting me ask the question. I wanted to get into the competitive environment. First on the Instinct side of things. How that's going? It doesn't seem to be slowing down your ramp whatsoever, but then also on the straight server CPU side of things. Lisa, you said you're gaining share in that area. But as we think about future road maps, pricing incentives, those sorts of things, any meaningful change in the competitive environment that you're seeing throughout 2024?

Ross Seymore:

Thanks for that. I guess as my follow up. On the Data Center side, another theme that's been pervasive throughout 2023 at least was the GPU side driving out the CPU side. You mentioned that there is still a little bit of cloud digestion going on within your EPYC business. But where do you see that standing? I know you're going to gain share, et cetera, but you guys fully benefit from the Instinct side for the Data Center GPU side, but what about on the CPU side of things? Is that headwind now behind us or is it still an issue?

Operator:

And the next question comes from the line of Vivek Arya with Bank of America Securities. Please proceed with your question.

Lisa Su:

Yes. Sure, Vivek. So, I think what we said is as we went from $2 billion to $3.5 billion, it really is mostly customer demand signals. So as orders have come on books and as we've seen programs moved from, let's call it, pilot programs into full manufacturing programs, we have updated the revenue forecast. As I said earlier, from a supply standpoint, we are planning for success. And so, we worked closely with our supply chain partners to ensure that we can ship more than $3.5 billion, substantially more depending on what customer demand is as we go into the second half of the year. And then, in terms of again roadmaps, as I said, we are very focused on a competitive roadmap this -- that sort of what the next generations are beyond MI300. So, I do believe that we have a strong roadmap in-place and continue to work with our customers to sort of adopt our roadmap as quickly as possible.

Lisa Su:

Yeah. Sure, Vivek. Look, we're always looking at what's next, right? So, on the chiplet technology, I mean, we're sort of on the fourth generation of the chiplet technologies. I think we've learned a lot about how to optimize performance there. We are very aggressive with our adoption of leading-edge technology as it's needed. But I think those are only a few of the pieces. We're also focused on continuing to innovate on architecture and design. So, I think the longer-term question that you ask is I think we're expecting that the competition is going to be on a similar process technology and even in that case, I think we feel like we have a very strong roadmap going forward and will continue to drive both the CPU and the GPU roadmap very aggressively.

Harsh Kumar:

Yes, hey, thanks for letting me ask the question, guys. I have two questions. Let me start-off with the accelerator side. The question we get a lot from our customers is they want to understand the value proposition of the MI300. So, Lisa, I was hoping you could give us some understanding of price versus power comparison or compute power? And then today, are you seeing your customers that are buying the MI300 are they primarily buying it for inferencing today or are they using it primarily for tooling? And maybe for Jean. Jean, do you think is it possible for MI300 to finish the year at a run-rate of about $1.5 billion?

Mitch Haws:

John, we have time for two more questions.

Operator:

And the next question comes from the line of Stacy Rasgon with Bernstein Research. Please proceed with your question.

Lisa Su:

Sure, Stacy. I don't think it's a pull-forward of demand. I think what it is we wanted to see how long it would take for customers to fully qualify and get their workloads performance. So, yeah, that depends a lot on the actual engineering work that's done and now that we're, let's call it a quarter later, we've seen that it's gone really well. So, it's actually gone a bit better, then our original forecast. And as a result, we've seen stronger demand signals and customers are gaining confidence in their ability to deploy a significant number of MI300 this year.

Lisa Su:

Yeah, I thought I had answered it, but yes, I'll answer it again. It is accelerator chips. It is not systems. So, think of it as GPUs, ASICs that will be there. Those types of things, but it includes, obviously, it includes memory and other things that are packaged together with the GPUs.

Operator:

And the final question comes from the line of Chris Danely with Citi. Please proceed with your question.

Lisa Su:

I don't think it will be one or two that are half the revenue, Chris. I think we are building this as a -- really, we're happy to see sort of the broad adoption as always with sort of the large cloud partners. We might see sort of one or two that are higher than others, but I don't think you see the type of concentration that you mentioned.

Lisa Su:

Look, I feel very good about our partnership with TSMC, they continue to execute extremely well. We'll see what happens over the next few years. But I'd like to kind of reemphasize what I said earlier, even in the case of process parity, we feel very good about our architectural roadmap and all the other things that we add, as we look at our entire portfolio of CPUs, GPUs, DPUs, adaptive SoCs and kind of put them together to solve problems. I think we feel really good about what we can do with our customers. So, we're always going to be paying attention to sort of the process race, but I think we feel very good about sort of our strategy and how do we continue to sort of push the envelope on the computing roadmaps.

Mitch Haws:

Great, John. That concludes today's call. Thank you to everyone for joining us today.

Operator:

Greetings, and welcome to the AMD Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. And it is now my pleasure to introduce to you Mitch Haws, Vice President, Investor Relations. Thank you, Mitch. You may begin.

Lisa Su:

Thank you, Mitch, and good afternoon to all those listening in today. We executed well in the third quarter, delivering strong top line and bottom line growth, achieving multiple milestones on our AI hardware and software road maps and significantly accelerating our momentum with customers for our AI solutions. In PCs, there are now more than 50 notebook designs powered by Ryzen AI in market, and we are working closely with Microsoft on the next generation of Windows that will take advantage of our on-chip AI Engine to enable the biggest advances in the Windows user experience in more than 20 years. In the Data Center, multiple large hyperscale customers committed to deploy Instinct MI300 accelerators, supported by our latest ROCm software suite and the growing adoption of an open hardware-agnostic software ecosystem. Looking at the third quarter financial results, revenue grew 4% year-over-year and 8% sequentially to $5.8 billion, driven by record server CPU revenue and strong Ryzen processor sales. Turning to the segment results. Data Center segment revenue of $1.6 billion was flat year-over-year and up 21% sequentially as solid demand for both 3rd and 4th Gen EPYC processor families resulted in record quarterly server processor revenue. We gained server CPU revenue share in the quarter as 4th Gen EPYC CPU revenue grew more than 50% sequentially, crossing over to represent a majority of our server processor revenue and unit shipments. In cloud, while the demand environment remained mixed in the quarter, EPYC CPU revenue grew by a strong double-digit percentage sequentially as hyperscalers expanded deployments of EPYC processors to power their internal workloads and public instances while optimizing their infrastructure spend. Nearly 100 new AMD-powered cloud instances launched in the quarter from Amazon, Google, Microsoft, Oracle, Tencent and others, including multiple general instances that deliver leadership performance for general purpose, HPC, bare metal and memory optimized workloads. In enterprise, while overall demand remains soft, we are seeing strong indications that the significant performance and TCO advantages of Genoa and our expanded go-to-market investments are paying off as enterprise revenue grew by a double-digit percentage sequentially. We closed multiple new wins with leading automotive, aerospace, financial services, pharmaceutical and technology customers, and the number of enterprise customers actively testing EPYC platforms on-prem increased significantly quarter-on-quarter. We also expanded our 4th Gen EPYC processor portfolio with the launch of our Ciena processors that deliver leadership energy efficiency and performance for intelligent edge and telco applications. Dell, Lenovo, Super Micro and others launched new platforms that expand our EPYC CPU TAM to address telco, retail and manufacturing applications. With the launch of Ciena, we now offer the industry's most performant and most energy-efficient portfolio of server processors across cloud, enterprise, technical, HPC and edge computing. I am very pleased with the momentum we have built for our EPYC CPU portfolio. We are building on this momentum with our next-gen Turin server processors based on our new Zen 5 core that delivers significant performance and efficiency gains. Turin is in the labs of our top customers and partners now, and customer feedback has been very strong and we're on track to launch in 2024. Looking at our broader Data Center portfolio, we made significant progress in our Data Center GPU business in the third quarter as the multiyear investments we have made in our hardware and software road maps resulted in significant customer traction for our next-generation Instinct MI300 accelerators and particularly our Instinct MI300X GPU that delivers leadership inferencing and training performance. On the hardware side, bring-up and validation of our MI300A and MI300X accelerators continue progressing to plan with performance now meeting or exceeding our expectations. Production shipments of Instinct MI300A APUs started earlier this month to support the El Capitan Exascale supercomputer, and we are on track to begin production shipments of Instinct MI300x GPU accelerators to lead cloud and OEM customers in the coming weeks. On the software side, we further expanded our AI software ecosystem and made great progress enhancing the performance and features of our ROCm software in the quarter. In addition to ROCm being fully integrated into the mainline PyTorch and TensorFlow ecosystems, Hugging Face models are now regularly updated and validated to run on Instinct accelerators and other supported AMD AI hardware. AI start-up, Lemon.ai announced they achieved software parity with CUDA for LLMs running on Instinct MI250 GPUs, enabling enterprise customers to easily deploy production-ready LLMs fine-tuned for their specific data on Instinct MI250 GPUs with minimal code changes. We also strengthened our AI software capabilities with the strategic acquisitions of Mipsology and Nod.ai. Mipsology is a long-standing partner with proven expertise delivering AI software and solutions running on top of our adaptive SoCs for data center, edge and embedded markets. Nod.ai adds a highly experienced team with a track record of substantial contributions to open-source AI compilers and industry-leading software already used by many of the largest cloud enterprise and AI companies. Nod's compiler-based automation software can significantly accelerate the deployment of highly performant AI models optimized for our Instinct, Ryzen, EPYC, Versal and Radian processors. Based on the rapid progress we are making with our AI road map execution and purchase commitments from cloud customers, we now expect Data Center GPU revenue to be approximately $400 million in the fourth quarter and exceed $2 billion in 2024 as revenue ramps throughout the year. This growth would make MI300 the fastest product to ramp to $1 billion in sales in AMD history. I look forward to sharing more details on our progress at our December AI event. Turning to our Client segment. Revenue increased 42% year-over-year and 46% sequentially to $1.5 billion. Sales of our Ryzen 7000 processors featuring our industry-leading Ryzen AI on-chip accelerator, grew significantly in the quarter as inventory levels in the PC market normalized and demand began returning to seasonal patterns. Revenue for our latest-generation client CPUs powered by our Zen 4 core more than doubled sequentially as we saw strong demand for our Ryzen 7000 Series notebook and desktop processors that deliver both leadership energy efficiency and performance across a wide range of workloads. In commercial, we launched our first Threadripper Pro workstation CPUs based on our Zen 4 Core that deliver unmatched performance for multi-threaded professional design, rendering and simulation applications. Dell, HPE and Lenovo announced an expanded set of workstations powered by new Threadripper Pro processors as we focus on growing this margin-accretive portion of our client business. Looking forward, we are executing on a multiyear Ryzen AI road map to deliver leadership compute capabilities built on top of Microsoft's Windows software ecosystem to enable the new generation of AI PCs that will fundamentally redefine the computing experience over the coming years. Now turning to our Gaming segment. Revenue declined 8% year-over-year and 5% sequentially to $1.5 billion as lower semi-custom revenue was partially offset by increased sales of Radeon GPUs. Although semi-custom SoC sales declined in line with our projections for this point in the console cycle, overall revenue for this console generation continues tracking significantly higher than the prior generation based on strong demand for Microsoft and Sony consoles. In Gaming Graphics, revenue grew both year-over-year and sequentially, driven by increased demand in the channel. We expanded our Radeon 7000 series with the launch of new RX 7000 Series enthusiast desktop GPUs that offer leadership price performance for 1440p gamers. Turning to our Embedded segment. As we expected, revenue decreased 5% year-over-year to $1.2 billion. Sequentially, revenue declined 15% as lead times normalized and customers focused on reducing inventory levels. We expanded our leadership Versal SoC portfolio in the quarter with the launches of our first adaptive SoCs with on-chip HBM memory that deliver significant performance and efficiency for memory-bound data center, network, test and aerospace applications. We also announced our next-generation space-grade Versal SoC that integrates an enhanced AI Engine and is the industry's only solution that supports unlimited reprogramming during development and after deployment. For the fintech market, we launched our latest Alveo Accelerator card that delivers a 7x improvement in latency compared to our prior generation and has already been deployed by multiple trading firms in their ultra-low latency training platforms. Since closing our acquisition of Xilinx a little over 1.5 years ago, our Embedded business has grown significantly, driven by our leadership products. Looking ahead, based on our current visibility, we expect Embedded segment revenue to decline sequentially as customers continue working through elevated inventory levels through the first half of 2024. Over the medium term, we see strong growth opportunities for our Embedded business based on our significant design win traction and our broad and differentiated portfolio of embedded FPGAs, CPUs, GPUs and adaptive SoCs that can address a larger portion of our customers' compute needs. In summary, I'm pleased with our third quarter financial results, driven by the significant acceleration of Zen 4 server and client processor sales. Looking at the next couple of quarters, we expect strong growth in our Data Center business, driven by both EPYC and Instinct processors. This growth will be partially offset by softening demand in our Embedded business and lower semi-custom revenue, given where we are in the console cycle. As the PC market returns to seasonal patterns, we believe we are well positioned to gain profitable share in the premium and commercial portions of the market based on the strength of our product offerings. We are focused on accelerating our leadership AI capabilities across our entire product portfolio, executing on our hardware and software road maps and expanding our enterprise computing footprint. I look forward to sharing more details on our AI progress in a few weeks at our together we advance AI event. Now I'd like to turn the call over to Jean to provide additional color on our third quarter results and our outlook for Q4. Jean?

Mitch Haws:

Thank you, Jean. John, we're happy to poll the audience for questions.

Toshiya Hari:

Great. Thank you so much. Lisa, I had two questions. My first one is on the Data Center GPU business. You talked about '24 revenue potentially exceeding $2 billion. I was hoping you could provide a little bit more color. What percentage of this is AI versus supercomputing or other applications? Within AI, maybe talk about the breadth of your customer lineup. And how should we think about which workloads you're addressing, again, within the context of AI? Is it primarily training or inference or both?

Toshiya Hari:

Thank you. And then as my follow-up, a question on the server CPU side. You talked about Genoa growing really nicely in the quarter. I think you talked about both units and volume being bigger than its predecessor. Is the growth that you're seeing or the growth that you saw in Q3 and the growth that you're guiding to for Q4, is this primarily a function of share growth or are you actually seeing a pickup in the overall market? And I ask the question because, obviously, year-to-date, there's been a significant shift away from traditional compute to accelerated computing, but are you actually starting to see signs of stabilization or even improvement on the traditional compute side? Thank you.

Operator:

And the next question comes from the line of Aaron Rakers with Wells Fargo. Please proceed with your question.

Jean Hu:

Yeah. So I think for the second half, we said we expect Data Center business to grow approximately 50% versus first half. But right now based on what we are seeing, we continue to see in that similar range of that 50%. So we are very happy and pleased about the strong momentum of our Data Center business. On the GPU side, Lisa mentioned about $400 million, around $400 million. As we go through the quarter, we have a strong engagement with the customers. So we do see the progress continues and we see customers placing orders. So that's why when we go through the quarter, we start to increasingly confident about the revenue profile in Q4 we are guiding.

Aaron Rakers:

Yeah. That's helpful. And maybe just the follow-up, how would you characterize the supply side of the equation? As you look at that $2 billion number, do you feel confident that you've got adequate visibility in the supply side to hit those expectations, any update on that side?

Operator:

And the next question comes from the line of Joe Moore with Morgan Stanley. Please proceed with your question.

Lisa Su:

Yeah. Sure, Joe. So we've been engaging broadly with the customer set. I think in the last earnings call, we said that our engagements had increased 7 times and so there is a lot of interest in MI300. We will start, let's call it, more concentrated in cloud, sort of several large hyperscalers. But we're also very engaged across the enterprise and there's a lot of interest. Our partnerships with the OEMs are quite strong. And when we think about sort of the breadth of customers who are looking for AI solutions, we certainly see an opportunity, especially as we get beyond the initial ramp to broaden the customer set.

Jean Hu:

Yeah. So on the gross margin side, we do expect our GPU gross margin to be accretive to corporate average. Of course, right now, we are at a very, very early beginning of the ramp of the product. As you probably know, typically when you ramp new product, it takes some time to improve yield, testing time, manufacturing efficiency. So typically, it takes a few quarters to ramp the gross margin to a normalized level. But we are quite confident that our team is executing really well.

Timothy Arcuri:

Lisa, I also wanted to ask about that $2 billion number for Data Center GPU next year. That's still a pretty small portion, obviously, of the total TAM. Where do you think that can go? Do you think when we look at this out a couple of years, do you think you can be 15%, 20% share for total Data Center GPU or do you have aspirations to be even larger than that?

Timothy Arcuri:

Thank a lot. And then Jean, I just wanted to ask on March. I know that there's a lot of moving parts. It sounds like Data Center is up but PC is going to be down, normal seasonal and Embedded and Gaming sound down as well. So can you just help us shape sort of how to think about March? Is it down a smidge? Is it flat? Could it be up a little bit? And maybe then how to think about like first half, back half next year, if you even want to go there. Thanks.

Lisa Su:

Yeah. No, I think that covers it. When we look at the various pluses and minuses, I think we feel very good about the Data Center business. It continues to be a strong growth driver for us as we think about 2024 for both server as well as our MI300 clients as well, we think incrementally improves from a market standpoint as well as we believe we can gain share, given the strength of our product portfolio. And then we have the headwinds of Embedded in the inventory correction that we'll go through in the first half and the console cycle. So I think those are the puts and takes.

Vivek Arya:

Thanks for taking my question. Lisa, on the MI300, many of your hyperscaler customers have internal ASIC solutions ready or in the process of getting them ready. So if inference is the primary workload for MI300, do you think it is exposed to replacement by internal ASICs over time or do you think both MI300 and ASICs can coexist, right, along with the incumbent GPU solution?

Vivek Arya:

Got it. And then a question, Lisa, on just this interplay between AI and traditional computing. It seems like especially when it relates to ASPs and units, seems like server CPU makers are kind of holding the line on price per core. But at the same time, the cloud players are extending the depreciation and replacement cycle of traditional server CPUs. So I'm just curious to get your take. What do you think is the interplay between units and ASP, right? If you were to take a snapshot of what you have seen in '23 and how it kind of informs you as you look at '24, that is it possible that maybe unit growth in server is not that high but you are able to make up for it on the ASP side. So just give us some color on, one, what is happening to traditional computing deployments? And secondly, is there a difference in kind of the unit and ASP interplay on the server seat side?

Operator:

And the next question comes from the line of Blayne Curtis with Barclays. Please proceed with your question.

Lisa Su:

Yeah. Absolutely, Blayne. So I think when we look at end markets, I think communications was weak in sort of last quarter and it certainly continues to be weak. We see 5G sort of CapEx just down overall. On the other market where we see a little bit of, let's call it, soft end market demand would be industrial and that's a little bit more geographic, so a little bit worse in Europe than in other geographies. The other end markets are actually relatively good. And what we just see is that inventory is high, just given where we were with lead times coming into the sort of through the pandemic and with the high demand that was out there. As the lead times have normalized, people are drawing down their inventories and they have an opportunity to do that, given the normalization. So from an overall standpoint, we think demand is solid. And what we view is that we have a very strong portfolio in Embedded. We like sort of the combination of the, let's call it, the classic Xilinx portfolio together with the Embedded processing capabilities that we add. Customers have seen sort of that portfolio come together, and we've gotten some nice design win traction as a result of that. So we have to get through sort of the next couple of quarters of inventory correction, and then we believe we'll return to growth in the second half of the year.

Lisa Su:

Yeah. I would say, again, Blayne, when we looked at sort of the third quarter and sort of the environment that we’re in now, I think inventory levels are relatively normalized, and so the selling and consumption are fairly close. We were building up for a holiday season that is a strong season for us overall. When I think about the size of the market, I think from a consumption standpoint this year is probably somewhere like 250 million to 255 million units or so. We expect some growth going into 2024 as we think about sort of the AI PC cycle and some of the Windows refresh cycles that are out there. And I think the PC market returns to, let’s call it, a typical seasonality, in which underneath that, we have a strong product portfolio. And we are very much focused on growing in places like high-end gaming, ultrathins, premium consumer as well as commercial. So those are -- that’s how sort of we see the PC market.

Matthew Ramsay:

Thank you very much. Good afternoon. Lisa, I wanted to maybe ask the AI question a little bit differently, not just focused on your GPU portfolio, but more broadly. I think one of the big surprises to a lot of us is, how quickly the AI market changed from accelerator cards to selling full servers or full systems for your primary competitor. And they've done a lot of innovation not just on GPU, but on CPU on their own custom interconnect, et cetera. So what I'd like to hear a little bit of an update on is just how you think about your road map going forward across CPU, GPU and networking and particularly the networking part as you look to continue to advance your AI portfolio. Thanks.

Matthew Ramsay:

Got it. Thank you for that perspective. As my second question, Jean, I wanted to dig into gross margin a little bit and just, I guess, complement you and the team on being able to guide up for the fourth quarter. Sequentially, gross margin if we, I guess, rewound the clock back to the beginning of the year and the Embedded segment would be down from the peak to where you're guiding the fourth quarter, maybe down by a third. I wouldn't have thought gross margin would have hung in as well and grown sequentially each quarter through the year. Obviously, Client margins got better. But maybe you could walk us through some of the puts and takes on gross margin, and inside of each segment, where you're making progress because I imagine some of that progress is pretty positive underneath. Thanks.

Operator:

And the next question comes from the line of Ross Seymore with Deutsche Bank. Please proceed with your question.

Lisa Su:

Yeah. I think there's a couple of different things, Ross. I mean, if we start with, it's just a very capable product. The way it's designed from a triplet standpoint, we have a very strong compute as well as memory capacity and memory bandwidth. In inference, in particular, that's very helpful. And the way to think about it is on these larger language models, you can't fit the model on one GPU. You actually need multiple GPUs. And if you have more memory, you can actually use fewer GPUs to infer those models, and so it's very beneficial from a total cost of ownership standpoint. From a software standpoint, this has been perhaps the area where we've had to invest more and do more work. Our customers and partners are actually moving towards an area where they're more able to move across different hardware so really optimizing at the higher-level frameworks. And that's reducing the barrier of entry of sort of taking on a new solution. And we're also talking very much about, going forward, what the road map is. It's very similar to our EPYC evolution. When you think about sort of the -- our closest partners in the cloud environment, we work very closely to make each generation better. So I think MI300 is an excellent product and we'll keep evolving on that as we go through the next couple of generations.

Jean Hu:

Yeah. Thanks for the question. Our team has done an absolutely great job in reallocating resources within our budget envelope to really invest in the most important areas in AI and the data center. We are actually in the planning process for 2024. I can comment on a very high level, given tremendous opportunities we have in AI and the Data Center, we definitely will increase both R&D investment and go-to-market investment to address those opportunities. I think the way to think about it is our objective is to drive top line revenue growth much faster than OpEx growth, so our investment can drive long-term growth. And we also can leverage our operating model to really actually expand earnings much faster than revenue. That’s really how we think about running the company and driving the operating margin expansion.

Harsh Kumar:

Hi, Lisa. I had a strategic one for you and then somewhat of a tactical one. On the strategic side, as your key competitor is sort of getting their act together on the manufacturing technology and the nodes, would it not be feasible to think that their manufacturing cost could be significantly better, let's say, than that of yours? And so if that's the case down the line one year or two years out, I'm curious what kind of value-add offerings would AMD have to provide to a customer to keep the market share that you have in the server space, data center space and then keep that growing as well?

Harsh Kumar:

Very helpful, Lisa. And then for my follow-up, a lot of folks that we talk to think that compute game is shifting completely from CPUs to GPUs. [Technical Difficulty] So it was actually very encouraging to hear you talk about your core EPYC CPUs and the traction that you're seeing with the new generation of CPUs. So I'm curious, if I was to ask you how you think the long-term growth prospects for the next, call it, two to three to four years our for your CPU business, not the GPU but the CPU business, I'm curious what the answer would be.

Mitch Haws:

Operator, we have time for two more questions.

Stacy Rasgon:

Hi, guys. Thanks for taking my questions. First, I wanted to just dial in on the Q4 guidance. If you are going to grow Data Center 50% half over half and I assume Client is up sequentially, implies Gaming and Embedded both likely down sequentially in the 20% range. I know you said double-digits. But is that right? And if that is true, especially for Embedded, what does that mean going forward into next year? I know you said it's going to be weak in the first half. Does that mean -- I mean, is it stable at these levels or does it continue to decline through the first half until things stabilize? Just how do we think about that in the context of the guidance that you've given for Q4?

Stacy Rasgon:

That does help. For my follow-up, again, I wanted to ask about gross margins. So I know that they've been extending through the year, but for the full year, they're actually down. And I get the mix things and everything else. But as I look into next year, like how do I think about this because it sounds like Embedded is going to be pretty weak next year. Client is what it is. Data Center is growing but it does feel like even if the GPUs are accretive, they're not accretive yet, and it's going to take them a while to get to be accretive. Like how much do you think you can expand gross margins year-over-year like in '24 versus '23, given the trends that we have entering the year?

Operator:

And our final question comes from the line of Christopher Rolland with Susquehanna. Please proceed with your question.

Lisa Su:

Yeah. Sure, Chris. Thanks for the question. So look, the way we think about ARM, ARM is a partner in many respects so we use ARM throughout parts of our portfolio. I think as it relates to PCs, x86 is still the majority of the volume in PCs. And if you think about sort of the ecosystem around x86 and Windows, I think it's been a very robust ecosystem. What I'm most excited about in PCs is actually the AI PC. I think the AI PC opportunity is an opportunity to redefine what PCs are in terms of productivity tool and really sort of operating on sort of user data. And so I think we're at the beginning of a wave there. We're investing heavily in Ryzen AI and the opportunity to really broaden sort of the AI capabilities of PCs going forward. And I think that's where the conversation is going to be about. It's going to be less about what instructions that you're using and more about what experience are you delivering to customers. And from that standpoint, I think that we have a very exciting portfolio that I feel good about over the next couple of years.

Lisa Su:

Yeah. I mean, Chris, the way I think about sort of FPGAs in the data center, it's another compute element. We do use FPGAs or there are FPGAs in a number of the systems. I would say from a revenue contribution standpoint, it's still relatively small sort of in the near term. We have some design wins going forward that we would see that content grow but that won't be so much in 2024, that it will be beyond that. And part of our value proposition, I think, to our data center partners is, look, whatever compute element you need, whether it's CPUs or GPUs or FPGAs or DPUs or -- we have the ability to sort of bring those components together. And that is a strong point as we think about just how heterogeneous these data centers are going forward. So thank you for that.

Mitch Haws:

Great, John. That concludes today's call. Thank you to everyone for joining us today.

Operator:

Greetings, and welcome to the AMD Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce to you, Mitch Haws, Head of Investor Relations. Thank you, Mitch. You may begin.

Lisa Su:

Thank you, Mitch, and good afternoon to all those listening in today. We executed well in the second quarter, launching multiple leadership products, significantly expanding our AI engagements, and ramping our latest Zen 4, EPYC, and Ryzen product families. Second quarter revenue declined 18% year-over-year, to $5.4 billion. Sales were flat sequentially as Client and Datacenter segment growth was offset by expected declines in our Gaming and Embedded Segments. AI cluster engagements grew by more than seven times sequentially as multiple customers initiated or expanded programs supporting future deployments of Instinct MI250 and MI300 hardware and software at scale. Looking at the second quarter business results, Datacenter segment revenue, of $1.3 billion was down 11% year-over-year, and up 2% sequentially. Although market demand remains mixed, the 4th Gen EPYC CPU adoption accelerated in the quarter, with revenue nearly doubling sequentially as cloud provided expanded deployments to power their internal infrastructure and public instance offerings. In cloud, 30 new AMD instances launched in the second quarter, with multiple Genoa instances announced by AWS, Alibaba, Microsoft, and Oracle. Genoa delivers up to 1.9 times more performance in enterprise and cloud applications, and 1.8 times more performance per watt than the competition, making it, by far, the industry's higher performance and most efficient server processor. As an example, AWS announced its M7a Genoa instance, which is the highest performance and best price-performance general purpose x86 instance they offer. In total, there are now more than 670 AMD-powered cloud instances publicly available, and we expect that number to grow 30%, to nearly 900 by the end of the year, driven largely by new Genoa deployments. We also expanded our Zen 4 server product portfolio in the quarter with the launches of Bergamo and Genoa-X. Microsoft Azure announced the first Genoa-X HPC instances that offer more than five times higher performance in technical computing workloads compared to their prior generation. With Bergamo, we deliver more than double the performance than competitive offerings for cloud-native applications, while offering full x86 software compatibility. We were excited to be joined at our launch event by Meta, where they announced plans to deploy Bergamo broadly across their global datacenter infrastructure to power applications, including Facebook, Instagram, and WhatsApp. Looking ahead, Dell, HPE, Lenovo, Supermicro, and other large server providers are on track to begin launching their new Bergamo platforms in the third quarter. In enterprise, while macroeconomic uncertainty resulted in weaker customer demand year-over-year, sales of EPYC processors for enterprise servers grew sequentially as we closed multiple wins with large energy, technology, financial services, and healthcare companies. Overall, pull from large enterprises continued to grow. For example, Banco de Brasil, BNP Paribas, Petronas, Uber, and other large enterprises, all adopted EPYC processors in the quarter. And SAP selected EPYC processors to power RISE with SAP applications hosted on Google Cloud. We expect EPYC revenue to grow by a double-digit percentage sequentially in the third quarter, led by the expanding 4th Gen EPYC CPU ramp. In addition, Siena, our first EPYC processor optimized for leadership, Edge server, and teleco infrastructure is on track to launch this quarter. Turning to our broader Datacenter business, in networking, the largest cloud providers expanded their adoption of Pensando DPUs in the quarter, highlighted by new deployments with Alibaba and Oracle Cloud. In supercomputing, EPYC and Instinct processors continue to be the solutions of choice for the most powerful supercomputers in the world, powering 121 of the fastest systems on the latest top-500 list, and seven of the 10 most efficient systems on the Green500 list. In AI, we made strong progress in the second quarter as we met key hardware and software milestones to address the growing customer pull for our datacenter AI solutions. Our AI strategy is focused on three areas. First, deliver a broad portfolio and multi-generation roadmap of leadership GPUs, CPUs, and adaptive computing solutions for AI inferencing. Second, expend the open and proven software platform we have established that enables our AI hardware to be deployed broadly and easily. And third, expand the deep and collaborative partnerships we have established across the ecosystem to accelerate deployments of AMD-based AI solutions at scale. We delivered on all three fronts in the second quarter. On the software and partnership side, Hugging Face announced plans to optimize thousands of their models for AMD Instinct, Ryzen, EPYC, Radeon, Versal, and Alveo platforms. To make it easier for developers to tap into the full performance and features of our AI hardware, we delivered a significant performance and feature update in our latest ROCm software, and expanded support for AMD silicon across the leading frameworks, including PyTorch, TensorFlow, Onyx, and technologies like OpenAI Triton. We are receiving positive feedback on the improvements and the new capabilities of our latest ROCm software stack from our AI customers and ecosystem partners. As an example, leading AI software company, MosaicML, recently highlighted that our Instinct MI250 accelerator delivers competitive training performance with minimal or no changes to the underlying AI software. On the hardware side, we announced our new Instinct MI300X GPUs designed to be the world's most advanced accelerators for generative AI. MI300X combines our next-gen CDNA 3 architecture with the industry's largest memory footprint and fastest memory bandwidth. These are critical factors in AI inferencing performance. Customer interest in our Instinct MI300A and MI300X GPUs is very high. Engagements with top-tier cloud providers, large enterprises, and numerous leading AI companies significantly expanded in the quarter. We are providing early system access and sampling both products with our lead AI, HPC, and cloud customers now, and remain on track to launch and ramp production in the fourth quarter. Turning to our Client segment, revenue declined 54% year-over-year to $1 billion. Client segment revenue increased 35% sequentially as Ryzen 7000 series CPU sales grew significantly, led by the launches of new notebooks from the largest OEMs. We also launched new commercial offerings with our first Ryzen Pro notebook and desktop processors powered by our leadership Zen 4. More than 100 AMD-powered commercial PC platforms are on track to launch this year from HP, Lenovo, and other leading OEMs as we grow this important part of our client business. We expect our Client segment will grow in the seasonally stronger second-half of the year based on the strength of our product portfolio and increased adoption of our Ryzen 7000 CPUs, including the ramp of our Ryzen 7040 mobile CPUs that deliver leadership performance and energy efficiency, and are the industry's first x86 processors with a dedicated AI engine. Going forward, we see AI as a significant PC demand driver as Microsoft and other large software providers incorporate generative AI into their offerings. We are executing a multi-generational rise in AI processor roadmap which, together with our ecosystem partners, will fundamentally change the PC experience. Now, turning to our Gaming segment, revenue declined 4% year-over-year to $1.6 billion as higher semi-custom revenue was more than offset by lower gaming graphic sales. Sequentially, segment revenue declined 10%. Semi-custom SoC sales were strong in the quarter as Microsoft and Sony had healthy console demand based on improved retail availability globally, and the launches of new AAA games. In gaming graphics, we expanded our Radeon 7000 GPU series in the second quarter with the launch of our mainstream RX 7600 cards for 1080p gaming. We are on track to further expand our RDNA 3 GPU offerings with the launch of new, enthusiast-class Radeon 7000 series cards in the third quarter. Turning to our Embedded segment, revenue increased 16% year-over-year to $1.5 billion. Sequentially, revenue declined 7% as solid demand with industrial, vision and healthcare, automotive, and broadcast customers was offset by softness with communications customers as some operators slowed their infrastructure upgrades. We expanded our leadership adaptive computing product portfolio in the quarter, launching our new Versal Premium VP1902 adaptive SoC with advanced chiplet packaging, the industry's largest and most performance solution for emulating and verifying next generation ASICs and SoCs. In the low end, we announced our Spartan UltraScale+ FPGA family to address a new range of cost optimized, industrial, computer vision, healthcare and robotics applications. We also released enhanced versions of our Vivado and Vitis software platforms that make it easier for customers to develop highly performant applications for our Versal Adaptive SoCs. Embedded CPU sales grew in the quarter with the launches of new AMD powered security, storage and networking solutions from HPE, Fortinet and other leading vendors. Looking into the second-half of the year, after delivering six quarters of very strong year-over-year growth, we expect Embedded segment revenue to decline in the back-half of the year as lead times normalize and some customers reduce their inventory levels. We continue to be very pleased with our embedded design win momentum and in particular, the growing revenue synergy opportunities we see based on our combined adaptive and embedded processing product portfolio. In summary, we executed well in the quarter against our strategic priorities. Looking at the second-half of the year, we expect the PC market to grow seasonally with more normalized inventory levels across the supply chain. In the datacenter market, we see a mixed environment as AI deployments are expanding. However, cloud customers continue optimizing their datacenter compute and enterprise customers remain cautious with new deployments. Against this backdrop, we expect strong growth driven by higher fourth gen EPYC and Ryzen 7000 processor sales and initial shipments of our Instinct MI300 accelerators in the fourth quarter. Longer term, while we are still in the very early days of the new era of AI, it is clear that AI represents a multibillion dollar growth opportunity for AMD across cloud, edge and an increasingly diverse number of intelligent endpoints. In the datacenter alone, we expect the market for AI accelerators to reach over $150 billion by 2027. We have increased our AI related R&D, ecosystem enablement and go-to-market investments to capture a significant share of this emerging market. The strong progress we are making executing our AI roadmaps and the rapid pace at which we are expanding our ecosystem of AI hardware and software partners makes us very confident we can deliver leadership, training and inference solutions powered by our instinct EPYC, Ryzen AI, Versal and Alveo platforms for our customers and partners. Now I'd like to turn the call over to Jean to provide additional color on our second quarter results and our outlook for Q3, Jean?

Mitch Haws:

Thank you, Jean. John, we're happy to poll the audience for questions.

Matt Ramsay:

Yes, good afternoon, and thanks for taking my questions, and congrats on the results. I guess, Lisa, my first question is around the Datacenter business. I think we're all, across the industry, observing a shift in workload and spending patterns like maybe we've, arguably, never seen. And your company is in a great position to participate on both sides of that on the CPU strength, and obviously in the AI space. Last quarter, you had given us some metrics around potentially being able to grow your datacenter business by 50% in the second-half of the year versus the first-half. And maybe you could give us a little bit of an update on how you're thinking about that milestone and the drivers of growth across CPU and accelerator for the back-half? Thanks.

Matt Ramsay:

Thank you for that, Lisa. I guess as my follow-up, still sticking with the Datacenter business. Your company is aggressively trying to ramp both the hardware and the software side of the MI300 programs to support AI. There's been some conflicting reports as to whether all of those deployments are time. I think you've, in the prepared script, said what you guys think about that. I guess my question is really around the software work and the hardware itself that you're doing with your lead customers, maybe you could give a little bit about, firstly, how the customer feedback has been on the performance of the hardware itself? And secondly, how you think the software work you're doing with your lead customers will translate into other customer deployments as we work through next year? Thanks.

Matt Ramsay:

Thanks, Lisa.

Operator:

And the next question comes from the line of Aaron Rakers with Wells Fargo. Please proceed with your question.

Jean Hu:

Hi, Aaron. Thanks for the question. I think as Lisa just mentioned earlier, it's a very dynamic market. There are puts and takes. We have a tremendously strong momentum with our product portfolio, but there is continued softness in enterprise market, and also call it, the optimization is still ongoing. So, overall on balance, we think year-over-year it's probably more like a high single-digit. It's really strong ramp, not only in Q3, right, sequentially earnings double-digit -- strong double-digit. And the Q4, of course we're going to see continued sequential strong ramp.

Lisa Su:

Yes, sure, Aaron. So, we have been really investing in our supply chain, the Datacenter growth is so strategic to us, that this has been part of the strategy. So, if you look at all aspects of the supply chain, from the wafers to the backend capacity, to some of the specific components that you need to do something of the class of MI300, we've worked with the entire supply chain. We feel that we have ample supply for an aggressive ramp in the fourth quarter and into 2024. But this is certainly one of the areas that we spent quite a bit of time to ensure that we do have that confidence.

Lisa Su:

Thanks, Aaron.

Toshiya Hari:

Hi, thank you so much for taking the question. My first one is on the Datacenter business as well. And I just wanted to follow up on the Q3 to Q4 dynamic. And I do apologize if I missed this, but in the implied growth rate in Datacenter in Q4, can you speak to what percentage of supercomputing. I think there is a big project that's slated to ship in Q4. And is there any contribution from the Instinct series outside of supercomputing as well or is it primary your server CPU franchise?

Toshiya Hari:

That's helpful, thank you, Lisa. And then shifting gears a little bit and follow-up question on the Client side. You talked about the business returning to profitability in Q3, which is great. But you're still well below where you were in '21 and '22 from an operating margin perspective. Can you speak to the competitive landscape in the client business? Is there a path back to, call it, 20%, 30% operating margins there? And do you have any cost initiatives ongoing to get you back to that level of profitability in Client? Thank you.

Jean Hu:

Yes, on the OpEx side, the team has done a great job during this process to really optimize the investment in Client, on the segment to be more efficient and effective. If you look at the overall common company level, our OpEx has been largely flattish. But we are investing in AI, Datacenter, and the strategic priorities we have which generate a much higher return on investment. So, we have optimized it. We feel pretty good about this level of operating expense to continue to invest in Client, the segment. As Lisa mentioned, it's really about revenue. The model we leverage to generate profitability, we should be able to get back to 20%.

Operator:

And the next question comes from the line of Harlan Sur with JP Morgan. Please proceed with your question.

Lisa Su:

Yes, thanks for the question, Harlan. Look, enterprise business is very strategic to us. We feel that we're underrepresented. It's a place that we're putting more resources because, again, when we look at the value proposition of Genoa and entire Zen 4 portfolio, we think it plays very well into the enterprise. So, pleased to see the growth in the second quarter. We do believe that we're on a path to continue to grow into the second-half of the year, and beyond. And the key here is also investments in some of the go-to-market activity, so investing in more business development folks that can call directly on these enterprise customers, together with our OEM partners, and ensure that our value proposition is very well understood.

Lisa Su:

Yes, Harlan, look, China is a very important market for us, certainly across our portfolio, as we think about certainly the accelerator market. Our plan is to of course be fully compliant with U.S. Export controls, but we do believe there's an opportunity to develop product for our customer set in China that is looking for AI solutions, and we'll continue to work in that direction.

Lisa Su:

Thanks, Harlan.

Vivek Arya:

Thank you for taking my question. The first one, just a clarification, would it be reasonable to assume that your GPU accelerator sales could be about, say, $500-ish million this year, so about 7%, 8% of datacenter sales? And if that is the right number, does it mean your server CPU sales are effectively flattish year-on-year this year?

Vivek Arya:

Thank you, Lisa. And for my follow-up, just kind of a broader question on AI accelerators in the commercial market, so I'm excluding the Supercomputing, the El Capitan projects, et cetera. What is AMD's specific edge in this market? You know there are already strong and established kind of merchant players, there are a number of ASIC options, a number of your traditional competitors, Intel and others, and several startups are also ramping. So my question is, what is AMD's specific niche in this market? What is your value proposition and how sustainable is it, because you're just starting to sample the product now. So, I'm trying to get some realistic sense of how big it can be and what the specific kind of niche and differentiation is for AMD in this market?

Vivek Arya:

Thank you, Lisa.

Stacy Rasgon:

Hi, guys. Thanks for taking my questions. I wanted to first go back to the Q4 datacenter guide. So, if I do my math right, it's something like $700 million sequentially in datacenter from Q3 to Q4. So, how much of that is MI300 versus CPU? And given the lumpiness of the El Capitan piece, what does that imply for the potential seasonality into Q1 as most of it rolls off?

Stacy Rasgon:

But like, of the $700 million, it's like $400 million of it El Capitan or is it $500 million or $300 million like how big is the El Capitan piece?

Stacy Rasgon:

Several hundred, okay. For my follow-up, just gross margins coming up in the back in the second. I mean, they still kind of missed in the quarter. I know they rounded up to 50%, but they were 49.7%. I know you're guiding 51 for Q3. Jean, where do you see gross margins sitting like in Q4 as we exit the year?

Stacy Rasgon:

Okay, thank you.

Joseph Moore:

Great, thank you. You've talked about the embedded business declining as you move into the second-half. Can you give us a sense for how much? And is that decline a function of the common infrastructure market or are you seeing weakness beyond that part of the market?

Joseph Moore:

Great. And any sense for beyond this quarter, since we've asked you so many Q4 questions already today, but any sense is that kind of the bottom level or do you expect there to be some continued contraction?

Joseph Moore:

Okay, great. Thank you.

Timothy Arcuri:

Thanks a lot. Jean, my first question is on inventory. You said it's going to come down a bit as you ramp into the Q4, obviously, you have a big Q4. Can you sort of shape that out for us? Before this, normalized inventory days were kind of 90 to 100 days. Where do you think you're going to exit Q4 in terms of inventory days?

Timothy Arcuri:

Thanks a lot. And then, my follow-up is for you, Lisa. I mean if you kind of add up the units, the customer interest, you can easily get to several hundred thousand units, it seems to me, for the MI300X next year. So, the question really is on the supply chain, and particularly Cohost, do you think that's going to be a bottleneck for you? I know that they've been expanding capacity. I know you've been trying to procure more there. Can you sort of talk about that and sort of do you think that supply could become a limiting factor you next year? Thanks.

Timothy Arcuri:

Thanks a lot.

Operator:

And the next question comes from the line of Christopher Rolland with SIG. Please proceed with your question.

Lisa Su:

Sure. So, there were a lot of aspects to that question, Chris. So, let me try to give you some framework here. I don't think we're ready to talk about timing yet of revenue numbers. What we will say is we do believe it's a multibillion dollar opportunity. I think 2024 is a very important year for us. Ramping MI300 in multiple customers over the next several quarters is very important. I think I mentioned earlier in the Q&A that the customer interest is actually diverse, which is great. It includes sort of what you would expect in terms of the large Tier-1 hyperscalers. But I think these new class of sort of AI focused companies have been working very closely with us, and then some of the large enterprises are also looking at ramping up their efforts. The performance that we see is strong. I think the large language model work that we've done, we've done a lot of it on MI250, and we've seen very good results that's on both training as well as inference. I think as we go through MI300 again, the early results are strong. For AI applications, what we're seeing now is MI300X. So, let's call it the GPU only version is the one that is sort of most prevalent in the AI customer engagement. But the MI300A, actually, which is sort of where we have the CPU and the GPU more closely coupled together is also of interest. So, I think the key is I think we've built a platform that does allow people to kind of choose what is best for the models and for the workloads that they're trying to enable. And that's what we're working on.

Lisa Su:

Yes, we're excited about Siena. I think Siena fits again. It's as you said, it's a niche that we haven't previously been focused on. I think our interactions with the Telco suppliers are they're anxious to have Siena be a part of their portfolio. Siena is also one that we'll use for other edge applications, or let's call it lower end applications that need the performance of Zen 4, but perhaps not the heavy platform that we have on the Genoa and Bergamo. So, we do think we're starting from a very low point. So, there's an opportunity to gain share over the next couple of years, and we'll focus on that.

Lisa Su:

Thanks, Chris.

Chris Danely:

Hey, team. Thanks for squeezing me in. Lisa, so if the MI250, 300, et cetera ramp or the revenue is mostly GPU only, what kind of an impact would that have on AMD gross margin? Would that still be gross margin accretive or dilutive or net neutral to your corporate gross margin?

Chris Danely:

Great. And then, from a follow-up I just had -- I guess clarification, so it sounds like most of the MI revenue you have in the hopper right now for at least the committed revenue is LCAP, is that true? And do you have other, I guess, confirmed or hard orders for that, or maybe just spend some time telling us how you're working with the customers or what it takes for them to go from, "Hey, we are interested," to, "Here is the purchase order?"

Chris Danely:

Great. Thanks, Lisa.

Mitch Haws:

John, we have time for one more question.

Harsh Kumar:

Yes, hey, guys. Thanks for letting me ask the question. And Lisa, we are looking forward to an exciting second-half for your company. I had a quick question on the server share. Do you think that there is a theoretical limit to the share that AMD can get? Historically initially we heard 80/20 was a pervading rule, and then you busted through that. Now we are hearing customers say 70/30 is more like it. More importantly, are there anything large vendors for your server business, where you have significantly more than 30% share, let's say, 40% or even 50% share? And I have a follow-up.

Harsh Kumar:

Thank you, Lisa. On my second one, can you help us think a little bit about the generative AI spend, let's say, if you can side press some kind of metric, and so, how many dollars of spend today are you seeing from your customers on generative AI for let's say each dollar of regular server CPU spend? Is there a metric that we can think of? Is there a trend today? And where do you think it can be in a couple of years.

Harsh Kumar:

Thank you, Lisa.

Mitch Haws:

Great. John, that concludes today's call. Thank you to everyone for joining us today.

Operator:

Hello, and welcome to the AMD First Quarter 2023 Earnings Conference Call. [Operator Instructions]. It's now my pleasure to turn the call over to Ruth Cotter. Please go ahead, Ruth.

Lisa Su:

Thank you, Ruth, and good afternoon to all those listening in today. We executed very well in the first quarter as we delivered better-than-expected revenue and earnings in a mixed demand environment, launched multiple leadership products across our businesses and made significant progress accelerating our AI road map and customer engagements across our portfolio. First quarter revenue was $5.4 billion, a decrease of 9% year-over-year. Sales of our data center and embedded products contributed more than 50% of overall revenue in the quarter as cloud and embedded revenue grew significantly year-over-year. Looking at the first quarter business results. Data Center segment revenue of $1.3 billion was flat year-over-year with higher cloud sales offset by lower enterprise sales. In cloud, the quarter played out largely as we expected. EPYC CPU sales grew by a strong double-digit percentage year-over-year but declined sequentially as elevated inventory levels with some MDC customers resulted in a lower sell-in TAM for the quarter. Against this backdrop, we were pleased that the largest cloud providers further expanded their AMD deployments in the quarter to power a larger portion of their internal workloads and public instances. 28 new AMD instances launched in the first quarter, including multiple confidential computing offerings from Microsoft Azure, Google Cloud and Oracle Cloud that take advantage of the unique security features of our EPYC processors. In total, we now have more than 640 AMD-powered public instances available. Enterprise sales declined year-over-year and sequentially as end customer demand softened due to near-term macroeconomic uncertainty. We continued growing our enterprise pipeline and closed multiple wins with Fortune 500 automotive, technology and financial companies in the quarter. We made strong progress in the quarter, ramping our Zen 4 EPYC CPU portfolio. All of our large cloud customers have Genoa running in their data centers and are on track to begin broad deployments to power their internal workloads and public instances in the second quarter. For the enterprise, Dell, HPE, Lenovo, Super Micro and other leading providers entered production on new Genoa server platforms that complement their existing third-gen EPYC platforms. We are on track to launch Bergamo, our first cloud-native server CPU and Genoa-X, our fourth Gen EPYC processor with 3D chiplets for leadership in technical computing workloads later this quarter. Although we expect server demand to remain mixed in the second quarter, we are well positioned to grow our cloud and enterprise footprint in the second half of the year based on the strong customer response to the performance and TCO advantages of Genoa, Bergamo and Genoa-X. Now looking at our broader data center business. In networking, Microsoft Azure launched their first instance powered by our Pensando DPU and software stack that can significantly increase application performance for networking intensive workloads by enabling 10x more connections per second compared to non-accelerated instances. We expanded our data center product portfolio with the launch of our first ASIC-based Alveo data center media accelerator that supports 4x the number of simultaneous video streams compared to our prior generation. In supercomputing, the Max Planck Society announced plans to build the first supercomputer in the EU, powered by fourth-gen EPYC CPUs and Instinct MI300 accelerators that is expected to deliver a 3x increase in application performance and significant TCO improvements compared to their current system. Our AI activities increased significantly in the first quarter, driven by expanded engagements with a broad set of data center and embedded customers. We expanded the software ecosystem support for our Instinct GPUs in the first quarter, highlighted by the launch of the widely used PyTorch 2.0 framework, which now offers native support for our ROCm software. In early April, researchers announced they used the LUMI supercomputer powered by third-gen EPYC CPUs and Instinct MI250 accelerators to train the largest Finnish language model to date. Customer interest has increased significantly for our next-generation Instinct MI300 GPUs for both AI training and inference of large language models. We made excellent progress achieving key MI300 silicon and software readiness milestones in the quarter, and we're on track to launch MI300 later this year to support the El Capitan Exascale supercomputer win at Lawrence Livermore National Laboratory and large cloud AI customers. To execute our broad AI strategy and significantly accelerate this key part of our business, we brought together multiple AI teams from across the company into a single organization under Victor Peng. The new AI group has responsibility for owning our end-to-end AI hardware strategy and driving development of a complete software ecosystem, including optimized libraries, models and framework spanning our full product portfolio. Now turning to our client segment. Revenue declined 65% year-over-year to $739 million as we shipped significantly below consumption to reduce downstream inventory. As we stated on our last earnings call, we believe the first quarter was the bottom for our client processor business. We expanded our leadership desktop and notebook processor portfolio significantly in the quarter. In desktops, we launched the industry's fastest gaming processors with our Ryzen 7000 X3D series CPUs that combine our Zen 4 core with industry-leading 3D chiplet packaging technology. In mobile, the first notebooks powered by our Dragon Range CPUs launched a strong demand, with multiple third-party reviews highlighting how our 16 core Ryzen 9 7945HX CPU is now the fastest mobile processor available. We also ramped production of our Zen 4-based Phoenix Ryzen 7040 series CPUs in the first quarter for ultrathin and gaming notebooks to support the more than 250 ultrathin gaming and commercial notebook design wins on track to launch this year from Acer, Asus, Dell, HP and Lenovo. Looking at the year, we continue to expect the PC TAM to be down approximately 10% for 2023 to approximately 260 million units. Based on the strength of our product portfolio, we expect our client CPU sales to grow in the second quarter and in the seasonally stronger second half of the year. Now turning to our Gaming segment. Revenue declined 6% year-over-year to $1.8 billion as higher semi-custom revenue was offset by lower gaming graphics sales. Semi-custom SoC revenue grew year-over-year as demand for premium consoles remain strong following the holiday cycle. In gaming graphics, channel sell-through of our Radeon 6000 and Radeon 7000 series GPUs increased sequentially. We saw strong sales of our high-end Radeon 7900 XTX GPUs in the first quarter, and we're on track to expand our RDNA 3 GPU portfolio with the launch of new mainstream Radeon 7000 series GPUs this quarter. Looking at our Embedded segment. Revenue increased significantly year-over-year to a record $1.6 billion. We saw strength across the majority of our embedded markets, led by increased demand from industrial, vision and health care, test and emulation, communications, aerospace and defense and automotive customers. Demand for our adaptive computing solutions continues to grow as industrial vision and health care customers actively work to add more advanced compute capabilities across their product lines. We also released new Vitis AI software libraries to enable advanced visualization and AI capabilities for our medical customers and launched our next-generation Kria platform that provides a turnkey solution to deploy our leadership adaptive computing capabilities for smart camera, industrial and machine vision applications. In Communications, we saw strength with wired customers as new infrastructure design wins ramped into production. We also launched Zynq RFSoC products to accelerate 4G and 5G radio deployments in cost-sensitive markets and formed our first telco solutions lab to validate end-to-end solutions based on AMD CPUs, adaptive SoCs, FPGAs, DPUs and software. In automotive, deployments of our adaptive silicon solutions for high-end ADAS and AI features grew in the quarter, highlighted by Subaru rolling out its AMD-based EyeSight 4 platform across their full range of vehicles. In addition, we expanded our embedded processor portfolio with the launches of Ryzen 5000 and EPYC 9000 embedded series processors with leadership performance and efficiency as we focus on growing share in the security, storage, edge server and networking markets. Looking more broadly across our embedded business, we are making great progress in bringing together our expanded portfolio and scale to drive deeper engagements with our largest embedded customers. In summary, I'm pleased with our operational and financial performance in the first quarter. In the near term, we continue to see a mixed demand environment based on the uncertainties in the macro environment. Based on customer demand signals, we expect second quarter revenue will be flattish sequentially with growth in our client and data center segments, offset by modest declines in our Gaming and Embedded segments. We remain confident in our ability to grow in the second half of the year, driven by adoption of our Zen 4 product portfolio, improving demand trends in our client business and the early ramp of our Instinct MI300 accelerators for HPC and AI. Looking longer term, we have significant growth opportunities ahead based on successfully delivering our road maps and executing our strategic data center and embedded priorities, led by accelerating adoption of our AI products. We are in the very early stages of the AI computing era, and the rate of adoption and growth is faster than any other technology in recent history. And as the recent interest in generative AI highlights, bringing the benefits of large language models and other AI capabilities to cloud, edge and endpoints require significant increases in compute performance. AMD is very well positioned to capitalize on this increased demand for compute based on our broad portfolio of high-performance and adaptive compute engines, the deep relationships we have established with customers across a diverse set of large markets, and our expanding software capabilities. We are very excited about our opportunity in AI. This is our #1 strategic priority, and we are engaging deeply across our customer set to bring joint solutions to the market, led by our upcoming Instinct MI300 GPUs, Ryzen 7040 Series CPUs with Ryzen AI, Zynq UltraScale+ MPSoCs, LVO V70 data center inference accelerators and Versal AI adaptive data center and edge SoCs. I look forward to sharing more about our AI progress over the coming quarters as we broaden our portfolio and grow this strategic part of our business. Now I'd like to turn the call over to Jean to provide some additional color on our first quarter results. Jean?

Ruth Cotter:

Thank you, Jean. And Kevin, we're happy to pull the audience for questions.

Vivek Arya:

For my first one, Lisa, when I look at your full year Data Center outlook for some growth, that implicitly suggest Data Center, right, could be up 30% in the second half versus the first half, right? And I'm curious, what is your confidence and visibility and some of the assumptions that go into that view? Is it -- do you think there is a much bigger ramp in the new products? Is it enterprise recovery? Is it pricing? So just give us a sense for how we should think about the confidence and visibility of the strong ramp that is implied in your second half Data Center outlook?

Vivek Arya:

All right. And for my follow-up, Lisa, how do you see the market share evolve in the Data Center in the second half? Do you think that the competitive gap between your and your competitors' products, has that narrowed? Or you still think that in the second half, you have a chance to gain market share in the Data Center?

Operator:

Next question is coming from Toshiya Hari from Goldman Sachs.

Lisa Su:

Yes, absolutely, Toshiya. Thanks for the question. I mean I think the Embedded business has performed extremely well over the last 4 or 5 quarters. Q1 was another record for the Embedded business. When we look underneath it, there is a broad set of market segments that we have exposure to, and the majority of them are actually doing very well. Our thought process for sort of modest decline into Q2 is that we did have a bunch of backlog that we're in the process of clearing and that backlog will clear in Q2, and then we expect that the growth will moderate a bit. We still very much like the positioning of sort of our aerospace and defense, our industrial, our test and emulation business, our automotive business. We expect wireless trends to be a little bit weaker as well as consumer trends. So those are the kind of the puts and takes in the market. But I would say the business has performed well above our expectations.

Jean Hu:

Yes. Thank you for the question. Our gross margin is primarily driven by mix. If you look at the first half -- first quarter performance and second quarter guide, we are very pleased with the strong gross margin performance in both the Data Center and the embedded segment. We haven't been seeing headwinds from Client segment impacting our gross margin. Going to the second half, we do expect gross margin improvement because Data Center is going up and the Embedded continue to be relatively strong. The pace of improvement in the second half actually will be largely dependent on the Client segment. We think the Client segment gross margin is also going to improve. But overall, it's going to be below corporate average. So the pace of improvement of gross margin could be dependent on the pace of the Client business recovery in second half. But in the longer term, right, when we look at our business opportunities, the largest incremental revenue opportunities are going to come from Data Center and Embedded segment. So we are building very good about longer-term gross margin going up continuously.

Aaron Rakers:

I've got two as well. I guess the first question going back on just like the cadence of the server CPU cycle with Genoa and Bergamo. And I think it's great to hear that you guys are on track to launch Bergamo here. But there's been some discussion here throughout this last quarter around some DDR5 challenges. I think there's PMIC issues. I'm just curious of how you -- if those issues have presented themselves or how you would characterize the cadence of the ramp cycle of Genoa at this point?

Aaron Rakers:

And anything specific on the DDR5 questions that come up? And then I'm curious but my second question just real quick is the MI300, if we look out beyond just the El Capitan deployment through the course of this year, how do you guys think about success in that data center GPU market as we think about beyond just El Capitan?

Operator:

Next question is coming from Matt Ramsey from TD Cowen.

Lisa Su:

Sure. Matt, thanks for the question. So look, I think as we work with our largest cloud customers in the Data Center segment, particularly with our EPYC CPUs, we have very good conversations in terms of what their ramp plans are, what their qualification plans are, which workloads, which instances. So I feel that we have good visibility. Obviously, some of this is still dependent on overall macro situation and overall demand. But our view is that there is a lot of good progress in the Data Center. Now in terms of quantification, as I said, there's a lot of puts and takes. My view is that enterprise will improve as we go into the second half, and we're even seeing, I would say, some very early signs of some improvement in China as well. So our view is, I think, double-digit Data Center growth is what we currently see. And certainly, we would like to ramp Genoa and Bergamo as a large piece given the strength of those products, we'd like to see them grow share here over the next couple of quarters.

Lisa Su:

Yes. So we've been undershipping sort of consumption in the Client business for about 3 quarters now. And certainly, our goal has been to normalize the inventory in the supply chain so that shipments would be closer to consumption. We expect that, that will happen in the second half of the year, and that's what the comment meant that we believe that there will be improvements in the overall inventory positioning. And then we also believe that the Client market is stabilizing. So Q1 was the bottom for our business as well as for the overall market. From what we see although it will be a gradual set of improvements, we do see that the overall market should be better in the second half of the year. We like our product portfolio a lot. I'm excited about having AI-enabled on our Ryzen 7000 series. And we have leadership notebook platforms with Dragon Range. Our desktop road map is also quite strong with our new launch of the Ryzen 7000 X3D products. And so I think here in the second quarter, we'll still undership consumption a bit. And by the second half of the year, we should be more normalized between shipments and consumption, and we expect some seasonal improvement into the second half.

Joseph Moore:

Yes, I guess same question in terms of the cloud business. You mentioned some combination of kind of digestion of spending and inventory reduction. Can you give us a sense of how much inventory was there in hyperscale? How much has it come down? And how much are you sort of maybe undershipping demand in that segment.

Joseph Moore:

Great. And then for my follow-up, I mean, you mentioned interest in MI300 around generative AI. Can you talk to -- is that right now kind of a revenue pipeline with major hyperscalers? Or is that sort of more indication of interest level? Just trying to figure out where you are in terms of establishing yourself in that market?

Operator:

Next question is coming from Harlan Sur from JPMorgan.

Lisa Su:

Yes. Thanks, Harlan. It's a great question. The Xilinx portfolio has done extremely well with us. Very strong, I would say, we continue to get more content attached to the FPGAs and the adaptive SoCs. We have seen the beginnings of good traction with the cross-selling and that is opportunity to take both Ryzen and EPYC CPUs into the broader embedded market. I think the customers are very open to that. I think we have a sales force and a go-to-market capability across this customer set that is very helpful for that. So I do believe that this is a long-term opportunity for us to continue to grow our embedded business. And we've already seen some design wins as a result of the combination of the Xilinx portfolio and the AMD portfolio, and I think we'll see a lot more of that going forward.

Lisa Su:

We do, Harlan, and I would put it more broadly. And the more -- the broader point is, I think we have a very complete IP portfolio across CPUs, GPUs, FPGAs, adaptive SoCs, DPUs and a very capable semi-custom team. And so beyond hyperscalers, I think when we look at sort of higher volume opportunities, we think there are higher volume opportunities beyond game consoles that there are custom opportunities available. So I think that combination of IP is very helpful. I think it's a long-term opportunity for us, and it's one of the areas where we think we can add value to our largest customers.

Ross Seymore:

Lisa, I just want to talk about the pricing environment in a general sense. You guys have done a great job of increasing the benefits to your customers and being able to raise prices, pass along cost increases, those sorts of things. But the competitive intensity and the weakness in the market, at least currently seems to -- that it could work against that. So in the near term and then perhaps exiting this year into the next couple of years, can you just talk about where you think pricing is going to go across both your Data Center market, most importantly, but then also in your Client market?

Ross Seymore:

And pivoting for my follow-up on the AI side and MI300. I just wanted to know what you would describe as your competitive advantages? Everybody knows that's a market that's exploding right now. There's tons of demand. You guys have all the IP to be able to attack it. But there's a very large incumbent in that space as well. So when you think about what AMD can bring to the market, whether it's hardware, software, heterogeneity of the products you can bring, et cetera, what do you think is the core competitive advantage that can allow you to penetrate that market successfully?

Operator:

Next question is coming from Tim Arcuri from UBS

Lisa Su:

Tim, I think the answer is yes. I think we have made significant progress even over the last year in terms of our software capabilities. And the way you should think about our AI portfolio is it's really a broad AI portfolio across client sort of edge as well as cloud. And with that, I think the Xilinx team brings a lot of background and capability, especially in inference. We've added significant talent in our AI software as well. And the beauty of particularly the cloud opportunity is it's not that many customers, and it's not that many workloads. So when you have sort of very clear customer targets, we're working very, very closely with our customers on optimizing for a handful of workloads that generate significant volume. That gives us a very clear target for what winning is in the market. So we feel good about our opportunities in AI. And I'd like to say that it's a multiyear journey. So this is the beginning what we think is a very significant market opportunity for us over the next 3 to 5 years.

Lisa Su:

Right, Tim. So I think as we said, we're not guiding the full year just given all the puts and takes. So we see Q2 is flattish second half return to growth. We'll have to see exactly how the macro plays out across PCs and enterprise. But yes, we feel good about growth in Embedded, growth in Data Center -- on the data center side, double-digit growth sort of half year-over-year. And then we'll see how the rest of the segments play out. .

Ambrish Srivastava:

Actually, I wanted to come back to the first quarter for Data Center. That's a pretty big gap between -- on a Q-over-Q basis on your business versus Intel. And I think almost 2x. This is the first time you would have lost share on a Q-over-Q basis in a long time. So could you please address that? And I acknowledge that quarters can be pretty volatile, but it seems to be a pretty large gap. And then for my follow-up, just remind us again, please, for the full year growth for Data Center, kind of what's embedded in the assumptions for cloud as well as enterprise?

Ambrish Srivastava:

Right. If I look at just your report versus what Intel reported on a Q-over-Q basis, it clearly on a year-over-year basis, you have gained share. But I'm just comparing down $14 million versus what you reported, and so that would imply that you had a share loss versus them unless the Data Center GPU and the Xilinx business was down significantly also on a Q-over-Q basis.

Lisa Su:

Yes, that's right, Ambrish. So I think you just have to go through each of the pieces. But I think from an EPYC or a server standpoint, we don't believe we lost share. If anything, we might have gained a little bit. But I think overall, I wouldn't look at it so closely on a quarter-by-quarter basis because there are puts and takes. From what we see overall, we believe that we have a good overall share progression as we go through the year.

Lisa Su:

Underlying assumptions for the full year. I think the key pieces that I talked about are Q2, let's call it, modest growth. We still expect some cloud optimization to be happening. As we go into the second half of the year, we'll see a stronger ramp of Genoa and the beginnings of the ramp of Bergamo, we think enterprise is still more dependent on macro, but we do believe that, that improves as we go into the second half of the year. And then we'll have the beginnings of our MI300 ramped in the fourth quarter for both supercomputing and some early AI workloads.

Stacy Rasgon:

For my first one, Lisa, can you just like clarify this explicitly for me. So you said double-digit Data Center. Was that a full year statement? Or was that a second half year-over-year statement? Or was that a half-over-half statement for Data Center?

Stacy Rasgon:

Got it. Which just given what you did in Q1 and sort of are implying for Q2 needs something like 50% year-over-year growth in the second half to get there. So you're endorsing those -- you're endorsing that now?

Jean Hu:

Yes, your math is right.

Jean Hu:

Yes, Stacy, that's a good question. The way to think about it is if you look at our Q1 gross margins and the Q2 guide around 50%. And as you know, both our Data Center and Embedded have a very strong gross margin performance. And so what the headwinds that impact our gross margin is really PC client on the side, which, as we talked about, is we are shipping significantly under the consumption and also to digest inventory in the downstream supply chain. As you know, typically, that's the time you get a significant pressure on the ASP side and on the funding side, that's why our gross margin in the Client segment has been challenged. In second half, we know it's going to be normalized. That's very important fact is when you normalize the demand and the supply, and we continue to plan a very competitive environment, so don't get us wrong on that front. But it will be better because you are not digesting the inventory, the channel funding, everything, those kind of price reduction will be much less. So we do think the second half will fly outside, the gross margin will be better than first half.

Operator:

Our next question is coming from Blayne Curtis from Barclays.

Lisa Su:

Yes, sure, Blayne. So the ASPs were down quite a bit on a year-over-year basis, if you're talking about the overall Client business. And what that is, is that's also the Client ASPs were higher in the first half of '22, if you just think about what the supply environment was or the demand environment was in that. And given that we're undershipping in the first quarter, the ASPs are lower.

Jean Hu:

Yes, Blayne, that's a good question. I think when you look at the year-over-year, you're absolutely right. Revenue is largely flattish, but operating margin dropped significantly. There are 2 major drivers. The first is we have increased the investment significantly, especially in networking and AI. As you may recall, we closed the Pensando last May or June. So this is the full quarter for Pensando expenses versus last year. Plus we also increased GPU investment under AI investment. That's all under the Data Center bucket. Secondly, I mentioned about product mix. Lisa said year-over-year cloud sales grew double digits significantly and enterprise actually declined. So in Q1, our revenue in data center is heavily indexed to the cloud market. versus last year in Q1. Typically, cloud gross margin is lower than enterprise. We do expect, even in Q2, it will be balanced -- more balanced and going forward, we do think the enterprise side will come back.

Jean Hu:

Yes. Sequential, it's revenue. If you look at the revenue, it was down very significantly, right? And the mix also is a little bit more indexed to cloud sequentially too.

Jean Hu:

Yes.

Operator:

Your final question today is joined from Harsh Kumar from Piper Sandler.

Lisa Su:

Well, I think, Harsh, if you were saying -- I mean, I think today, inference is used a lot. CPUs are used a lot for inference. Now where the demand is highest right now is for generative AI and large language model inferencing, you need GPUs to have the horsepower to train sort of the most sophisticated model. So I think those are the 2, as you say, crosscurrents. I think inference becomes a much more important workload just given the adoption rate of AI across the board. And I think we'll see that for smaller tasks on CPUs, but for the larger tasks on GPUs.

Lisa Su:

Yes. So as we said earlier, we've done some really good work on MI250 with AI and large language models. The example that is public is what we've done with LUMI and the training of some of the Finnish models. We're doing quite a bit of work with large customers on MI300. And what we're seeing is very positive results. So we think MI300 is very competitive for generative AI. We'll be talking more about sort of that customer and revenue evolution as we go over the next couple of quarters.

Operator:

Thank you. You may now disconnect and have a wonderful day.

Operator:

Hello, and welcome to the AMD Fiscal Fourth Quarter and Full Year 2022 Financial Results Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Ruth Cotter. Please go ahead, Ruth.

Lisa Su:

Thank you, Ruth, and good afternoon to all those listening in today. Before discussing our financial results, I wanted to make a few comments about our CFO transition. I'd like to start by thanking Devinder for all of his contributions to AMD over the last 39 years. During his tenure as CFO, we built a strong financial foundation that has enabled AMD's significant growth and success. On a personal note, his partnership and expertise have been invaluable to me. I know I speak for all of AMD when I say we appreciate all he has done for the company and wish him the best in his upcoming retirement. I also want to welcome our new EVP and CFO, Jean Hu, to our first AMD earnings call since joining us earlier this month. Jean's more than 14 years of public company CFO experience and proven track record of financial leadership make her an excellent addition to our team. I look forward to working closely with her as we continue to transform and scale our business. Now turning to the business results. 2022 was a strong year for AMD as we navigated the challenging macro environment to deliver best-in-class growth and record profitability driven by our Embedded and Data Center segments. We also transformed the company. We accelerated our Data Center business and closed our strategic acquisitions of Xilinx and Pensando, significantly diversifying our business and strengthening our financial model as our Data Center, Embedded product sales grew from $3.9 billion in 2021 to $10.6 billion in 2022. Looking at our financial results. Fourth quarter revenue increased 16% year-over-year to $5.6 billion, driven by significant growth in our Embedded and Data Center segments which accounted for more than 50% of overall revenue in the quarter. On a full year basis, we grew annual revenue 44% to $23.6 billion. We set annual records for revenue, gross margin and profitability driven largely by a 64% increase in our Data Center segment revenue and the strong performance of our Embedded segment following our Xilinx acquisition. Turning to the fourth quarter business results, starting with our Data Center segment. Revenue increased 42% year-over-year to $1.7 billion, led by increased adoption of our EPYC processors by cloud providers. In cloud, sales to North American hyperscalers more than doubled year-over-year as hyperscale customers continued moving more of their internal workloads and external instances to EPYC processors. EPYC processors now power more than 600 publicly available instances globally following the launches of new AMD-based instances from AWS, Microsoft and others in the quarter. In Enterprise, revenue declined year-over-year as demand slowed based on the macro environment. Against this backdrop, we continue expanding our pipeline and closed a number of new wins in the fourth quarter with Fortune 500 financial services, automotive, technology, energy and aerospace companies. In HPC, growing EPYC processor adoption was highlighted by the number of AMD-powered supercomputers on the latest Top 500 list increasing by 38% year-over-year. AMD now powers more than 100 of the world's fastest supercomputers and 15 of the top 20 most energy-efficient supercomputers in the world. To build our Data Center leadership, we launched our fourth gen EPYC processors this past November that deliver up to 2x faster performance in cloud, enterprise and HPC applications, and are up to 80% more energy efficient than the competition's most recently announced offerings. We are seeing very strong customer pull for fourth-gen EPYC CPUs, which complement our third-gen offerings with additional performance and capabilities. Initial cloud deployments are going very well, and we expect to ramp both internal workloads and public instances throughout 2023. For Enterprise, there are more than 140 fourth-gen EPYC platforms in development from HPE, Dell, Lenovo, Super Micro and others, an increase of 40% compared to the prior generation. Now looking at our broader Data Center portfolio. We had record sales of our Xilinx Data Center and networking products in the quarter, led by strong demand from financial services companies for our newly launched Alveo X3 series boards, optimized for low latency trading. Sales of our Pensando DPUs also ramped significantly from the prior quarter, driven by supply chain improvements and continued demand. We are very pleased with the customer reception of the Pensando technology with good long-term growth opportunities as DPUs become a standard component in the next generation of cloud and enterprise data centers. Data center GPU sales were down significantly from a year ago when we had shipments supporting the build-out of multiple Instinct MI250 accelerator supercomputer wins. In January, we previewed our next-generation MI300 accelerator that will be used for large model AI applications in cloud data centers and has been selected to power the 2-plus exaflop El Capitan exascale supercomputer at Lawrence Livermore National Laboratories. MI300 will be the industry's first data center chip that combines a CPU, GPU and memory into a single integrated design, delivering 8x more performance and 5x better efficiency for HPC and AI workloads, compared to our MI250 accelerator currently powering the world's fastest supercomputer. MI300 is on track to begin sampling to lead customers later this quarter and launch in the second half of 2023. Turning to our Client segment. Revenue declined 51% year-over-year to $903 million. We continue to ship below PC consumption in the fourth quarter as we focused on further reducing downstream inventory. While overall PC demand remains soft, desktop channel sell-through increased sequentially during the holiday season. We launched our latest generation Ryzen 7000 series notebook processors earlier in January, including our Ryzen 7040 CPU series that deliver leadership performance in battery life and are our first processors to feature Ryzen AI, the industry's only dedicated on-chip AI inference engine in an x86 processor. Ryzen AI is powered by the highly scalable XDNA architecture, which is the first integration of AMD and Xilinx IP, less than a year after closing the acquisition. We also launched our Ryzen 7045 series CPUs, our first mobile processor based on a triplet design that delivers significantly higher performance than the competition in gaming and content creation applications. We have more than 250 ultrathin gaming and commercial notebook design wins, spanning our full family of Ryzen 7000 series processors on track to launch this year, an increase of 25% year-over-year with the first notebooks planned to go on sale in February. Now turning to our Gaming segment. Revenue declined 7% year-over-year to $1.6 billion as lower gaming graphics sales more than offset higher semi-custom revenue. Semi-Custom SoC revenue grew year-over-year as demand for game consoles remained strong during the holidays. Gaming graphics revenue declined year-over-year as we further reduced desktop GPU downstream channel inventory. Channel sell-through of our Radeon RX GPUs increased sequentially, and we launched our high-end Radeon 7900 series GPUs to strong demand based on the performance of our new RDNA 3 architecture and 5-nanometer chiplet design. In January, we announced our first RDNA 3 mobile GPUs that have been selected to power new gaming notebooks from Dell Alienware, ASUS and others that are on track to begin shipping in the first half of 2023. Looking at our Embedded segment. Revenue increased significantly year-over-year to a record $1.4 billion. We had record sales across a number of our Embedded markets, including communications, automotive, industrial and healthcare, aerospace and defense, and test and emulation. In communications, we saw particular strength with expanded 5G wireless installations in India and ongoing wired infrastructure deployments with Tier 1 communications providers. Automotive growth was driven by the ramps of new [Ford] (ph) camera, 4D radar and infotainment wins across multiple customers. We recently announced multiple new wins for our automotive grade Zynq UltraScale + platforms with some of the largest vehicle equipment suppliers including Aisin’s next-generation automated parking assist system and DENSO's next-generation LiDAR platform that can improve the resolution required for autonomous driving and other industrial machine vision applications by 20x. We also continued to see strong growth with industrial and health care, aerospace and defense and tested and emulation customers in the quarter, driven by SAM expansion for our leadership-adaptive SoCs, new design win ramps and increased supply across multiple nodes. Taking a step back, as we approach the one year anniversary of the closing of our Xilinx acquisition next month, the integration has gone extremely well, and our Embedded business has become a major growth driver for AMD, strengthening our financial model and significantly diversifying our business. In addition, we are seeing substantial new revenue synergy opportunities as we combine Xilinx's industry-leading adaptive products and 6,000-plus customers with AMD's expanded breadth of compute products and scale. In summary, overall, 2022 was a strong year for AMD despite the weak PC market. We significantly grew our Data Center, Embedded and Gaming businesses and executed well across our product portfolio. As we enter 2023, we expect the overall demand environment to remain mixed with the second half stronger than the first half. In the PC market, we are planning for the PC TAM to be down approximately 10% for 2023. We expect to continue to ship below consumption in the first quarter to reduce downstream inventory, which is reflected in our guidance. In our Embedded and Data Center segments, we believe we are well positioned to grow revenue and gain share in 2023 based on the strength of our competitive positioning and leadership high-performance and adaptive product portfolio. We do see elevated levels of inventory with some cloud customers, which will lead to a softer first half and a stronger second half of the year. We continue working very closely with our customers to navigate the dynamic market conditions while also making the right strategic investments to exit the current cycle with an even stronger and more differentiated set of products to drive future growth. Over the next several years, one of our largest growth opportunities is in AI, which is in the early stages of transforming virtually every industry service and product. We expect AI adoption will accelerate significantly over the coming years and are incredibly excited about leveraging our broad portfolio of CPUs, GPUs and adaptive accelerators in combination with our software expertise to deliver differentiated solutions that can address the full spectrum of AI needs in training and inference across cloud, edge and client. Now I'd like to turn the call over to Jean to provide some additional color on our fourth quarter and full year financial results. Jean?

Ruth Cotter:

Thank you, Jean. And operator, if you could poll the audience for questions now, please.

Matt Ramsay:

Yes, thank you very much. Good afternoon. First of all, congratulations, Jean and congrats as well to Devinder I mean the last five years of the company have been remarkable. But I remember all the work you and your finance team did six or seven years ago to keep the foundation stable for what's happened since. So enjoy the retirement? My first question, Lisa, is just about the drivers of 2023? You guys talked in the prepared script about all the different crosscurrents that are kind of going on right now versus the strength of your portfolio versus some inventory digestion in the Data Center space and obviously what's going on in the PC market. But I've gotten about a zillion versions of the same question tonight, which was do you think the company can grow for the year 2023 overall? And if you could just kind of walk us through the drivers of the business as we work through the year? Thanks.

Matt Ramsay:

Thank you very much Lisa for all the details there. I guess as my follow-up, I wanted to ask a question about gross margin. The margin, I guess, sequentially down a little bit into March. But I kind of wanted to focus on the drivers of the longer-term margin that's down, I guess, three or four points from where you were a few quarters ago despite more mix of the revenue coming from Embedded and Data Center? So if there's any way that you guys could try to quantify maybe how much of the margin headwind is from just lower client revenue? How much of it might be from any programs that you're working through to clear the channel? And how might we model? What are the drivers that we should think about in terms of the margin recovering? Thank you.

Operator:

Thank you. Next question is coming from Vivek Arya from Bank of America Securities. Your line is now live.

Lisa Su:

Yes, sure, Vivek. So look, we remain very bullish about our Data Center business. I mean I think the feedback that we've gotten on Genoa from our customer set is very strong. And as I said, the important thing is we are expanding workloads. In terms of where we believe the - as the inventory normalizes, each customer is different, so they have what they're trying to achieve in terms of inventory levels. Our expectation is that sort of the first half softness for cloud and then second half strength as that's worked through. But like I said, it's different for each customer. And then in terms of overall growth, as I said, we're very bullish on the overall growth of our Data Center business and the opportunity to gain share as we go through the year. And as we go through the ramp in Genoa, we do have more content with the higher core count that should also help ASPs.

Lisa Su:

Yes. So maybe just to make sure that we're just correlating the numbers. So my comment about PC TAM being down 10% was assuming, if you take a look at sort of what IDC just published for - in 2022 at about 290 million units, and that's more of a sell-through TAM versus a sell-in TAM. So we have been under shipping sort of the sell-through or consumption for the last two quarters in an attempt to renormalize that as soon as possible. In terms of do I think its conserve - I think it's in the ZIP code. I think it's in the ZIP code. So if you imagine 2023 sell-through TAM of about 260 million units, plus or minus, seems to be about the right number. We have made good progress in inventory normalization. We want to be cautious, obviously, heading into the year just given the macro environment. First quarter, we said would be roughly seasonal for PCs. I think second quarter - first quarter should be the bottom for us in PCs. We - and then grow from there into the second quarter and then into the second half. And I should note also, Vivek, I mean, we just launched our Ryzen 7000 Series with sort of our AI capabilities, both from a notebook and desktop standpoint. So, we feel good about the product road map in PCs. Obviously, we have to get through this normalization. Most of the focus is on continuing to differentiate our products and working with our customers to offer sort of very strong platforms.

Stacy Rasgon:

Hi guys. Thanks for taking my questions. I noted that you said that gross margins would expand in the second half, but you didn't give us any color on how much they might expand. Can you give us any idea like first half to second half? Or I mean just for the full year, do you think gross margins grow year-over-year from the 52% that you printed in 2022?

Stacy Rasgon:

So I guess, I ask the question again. For 2023, do you think gross margins can expand over 2022?

Stacy Rasgon:

Got it. Thank you. I guess for my follow-up, maybe it follows up on that a little bit more just around the mix. I get how Data Center and Embedded should be growing in the second half versus the first half. But presumably, Client will, too, first half to second half, given that you are under shipping, it sounds like by a pretty wide margin right now. How do you feel about your mix just across the four businesses of the second half versus the first half? Do you think your Data Center plus Embedded mix, as a percentage of total revenue in the second half, is materially higher than it is in the first half? Or I mean could it even be not that different at all given the potential growth that you might see just from the channel normalization in clients?

Operator:

Thank you. Next question is coming from Toshiya Hari from Goldman Sachs. Your line is now live.

Lisa Su:

Yes. Thanks for the question. We believe that AI is a huge driver of compute growth. And given our portfolio, it should be a driver of our growth as well. I think if you think about the product sets that we are putting sort of AI content in, you should expect MI300, of course, on the GPU training side. We just launched Ryzen AI in our PC portfolio. You can expect additional AI acceleration coming in our server portfolio as well. So you're going to see AI broadly across our road maps. In terms of when - we've talked before about sort of our Data Center GPU ambitions and the opportunity there. We see it as a large opportunity. As we go into the second half of the year and launch MI300, sort of the first user of MI300 will be the supercomputers or El Capitan, but we're working closely with some large cloud vendors as well to qualify MI300 in AI workloads. And we should expect that to be more of a meaningful contributor in 2024. So lots of focus on just a huge opportunity, lots of investments in software as well to bring the ecosystem with us.

Lisa Su:

Yes. Sure. So I think on the Client segment, it's fair to say that we believe, given where we are with the client inventory levels, the first half will certainly be lower. We expect some improvement in the second half. But in terms of overall margin, we expect that the client business will be below the corporate average, and that's how we're modeling the client business.

Aaron Rakers:

Yes. Thanks you for taking the questions. I guess the first question is going back to the Data Center piece of the business and specifically around the ramp of Genoa. I'm curious, is there any help that you can provide us with thinking about the ASP uplift you expect to see with the Genoa product cycle? And I guess at some point through 2023, how do we start to think about the Bergamo product cycle as well impacting the server CPU business?

Aaron Rakers:

Yes, that's very helpful. And then as a quick follow-up, the business doesn't really ask that much about, but it's been doing phenomenally well here these last couple of quarters. It's actually the Xilinx business. I know it's within the Embedded largely. But your self-reporting, I think if I read the filings correctly, growing 40% plus on a like-for-like basis for Xilinx. I think your competitor also growing a solid pace. How do you think about the sustainability or durability of that demand in that Embedded or Xilinx business as we move through '23?

Operator:

Thank you. Your next question is coming from Joe Moore from Morgan Stanley. Your line is now live.

Lisa Su:

Yes. Joe, we view that the opportunity - so first of all, I would say that in general, the PC market share numbers are probably a bit noisy right now, just given all of the sell-in, sell-through and the inventory dynamics that are being worked through. Actually, in the fourth quarter, we believe we gained a little bit of share in the PC market. As we go forward into 2023, we think our product portfolio is very strong. As we look at Ryzen 7000 and where it goes and where we are positioned in the commercial as well as the high-end consumer segments, we're not changing our strategy on PCs. Quite - a few years ago, we really focused on sort of the more premium segments. We have less penetration in the low end, which I think is helpful. And as we go forward, we're continuing to focus on commercial PCs and getting a larger footprint in there. I will say the enterprise work that we're doing on the server side, I think, links very well to the commercial PC work, and we're continuing to invest in sort of the sales and marketing resources to ramp that side of the business.

Lisa Su:

Yes. I would say, Joe, the total cost of ownership benefit of Genoa, particularly in some of the larger cloud workloads, is very, very significant. So I wouldn't say that, that's necessarily slowing the pace of adoption. It is a new platform though. So if you think about when we went from Rome to Milan, it was basically similar platforms. So I would say that, that ramp was a bit faster. But as it relates to Genoa, we had always expected that Milan and Genoa would coexist through 2023. And that we would have - we still have Milan instances that are just ramping now, and we expect that will continue through 2023. And so I really view this as the natural thing when we introduce Genoa at sort of the higher core count, that both will coexist. And as some of the platform costs come down, you'll see the Genoa cutover, and that's what I mentioned towards the fourth quarter of 2023.

Ross Seymore:

Thanks for letting me ask a question. And Jean, congrats on the new job. Lisa, I was hoping you could give a little bit of sequential color to just size the magnitude of the three segments that are going down in the first quarter and then Embedded going up. And really what I'm getting at there is, in an answer to a prior question, you talked about the mix being a headwind to gross margin. And I think, Jean, you cited Data Center dropping as a percent of the mix. So just trying to get the magnitude of just how much Data Center has to drop to make that outcome on the mix side be true.

Ross Seymore:

Yes, it does. And anything similarly on Embedded? Is that kind of up single digits?

Ross Seymore:

Got it. Sorry for the nitpicky question. A bigger picture one for you then, Lisa, on competitive intensity. On one hand, I could see that the total cost of ownership benefits of these products, multicore, better performance, et cetera, could lead to higher ASPs, whether you're talking about the Data Center side or your Client business. On the other side, competitive intensity and overall demand is weaker. And at some point, you might even get deflationary costs on the foundry side of things. Can you talk a little bit about the pricing environment given those somewhat contradictory pressures?

Ross Seymore:

Thank you.

Mark Lipacis:

Hi, thanks for taking my question and congrats to Jean on the new seat. Two questions, if I may. First, on the PC side, can you give us a sense about roughly how far under consumption, you believe, you're shipping on the PC side, either in Q4 and Q1? And Lisa, correct me if I am wrong, I thought I heard you say in an answer to an earlier question that you expect the PC client, but just to grow into second quarter. So is that suggest that 1Q, you think is the bottom on the PC? And then I had a follow-up? Thank you.

Mark Lipacis:

Got you, okay. That's very helpful, thank you. And then a follow-up, if I may, on the - China is lifting, as they're lifting the COVID restrictions, I guess I would imagine that you would expect that ultimately, at some point, to translate into higher demand. And I'm wondering if you could just kind of share with us your thoughts about how that might play out? And could you remind us is, to the extent that you can help us understand of the risk to the supply side for you in the event that the COVID spreads rapidly as they lift the restrictions and impacts what you have on the supply side there? Thank you.

Ruth Cotter:

Operator, we'll take two more questions from two callers, please?

Chris Danley:

Great, thanks ladies. Congrats on being the first all-female CEO, CFO team - that's means long time coming. So your gross margins held up pretty well for the Q1 guide despite high-margin Data Center business going down. So if the Data Center business remains weak and has a rough quarter in Q2, can we expect a similar gross margin resiliency?

Chris Danley:

Sure and as my follow-up on your PC client business. So it - had its correction a little bit later than some of the other folks in the semi industry and was obviously a little bit steeper. Can you talk about why that happened and why we should - should or should not expect that or could that happen in the Data Center business as well?

Operator:

Thank you. Our final question today is coming from Timothy Arcuri from UBS. Your line is now live.

Lisa Su:

Sure, Tim. So let me make a couple of points. I think all of us, as we participate in the PC industry, there are various parts of the ecosystem that we work with. We work with our OEMs we work with our retail partners. We work with our distribution and channel partners. And we're all working together to work through sort of the elevated inventory levels. As I said, I think we've made good progress on that. And I think we have much better visibility into the various pieces. As it relates to the pricing environment, I do believe that the pricing environment is - particularly when you're clearing older inventory or older generation products, is a bit more competitive. And we see that. As we look forward, the way we're modeling the client business is that we are modeling gross margins to be less than corporate average. That's different than our previous modeling. So previously, client was more like at corporate average. And I think given the - I think the nice thing is our business is quite a bit more diversified now. And so with our Data Center, Embedded businesses really being strong growth drivers, I think Client continues to be a good market overall. And as we work through this, we will see some of the normalization that Jean mentioned.

Lisa Su:

I think, Tim, the answer is yes. But again, let's work through the next couple of quarters. And we feel good about how our products are positioned, and we just need to work through the macro and see how that plays out.

Ruth Cotter:

Great, thank you. That concludes today's earnings call. Again, welcome to Jean, and we're delighted to have her on board, and much gratitude to Devinder for his 39 years of service and all his leadership and we look forward to touching base with all participants throughout the quarter. Thank you.

Operator:

Hello. And welcome to the AMD Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Ruth Cotter. Please go ahead, Ruth.

Dr. Lisa Su:

Thank you, Ruth, and good afternoon to all those listening in today. Our third quarter revenue and gross margin came in below our expectations due to softening PC demand and substantial inventory reduction actions across the PC supply chain. Despite the macro backdrop, overall revenue grew 29% year-over-year to $5.6 billion as our Data Center, Gaming and Embedded segments, each delivered significant year-over-year growth and performed in line with our expectations. We also expanded gross margin and grew net income year-over-year, highlighting the strength of our business. Turning to the business results, starting with our Data Center segment. Revenue increased 45% year-over-year and 8% sequentially to $1.6 billion. We delivered our 10th straight quarter of record server processor sales, driven by strong demand for third-gen EPYC processors and initial shipments of our next-generation Genoa CPU to select customers. Cloud revenue more than doubled year-over-year and increased sequentially as multiple hyperscalers expanded deployments of EPYC processors to power their internal properties and more than 70 new AMD instances were launched by Microsoft Azure, Amazon, Tencent, Baidu and others in the quarter. In enterprise, OEM revenue was down sequentially as server OEMs continued working through match set issues and some business slowed the pace or scale of their purchases based on the macro uncertainties. Looking at the broader competitive landscape, our third-gen EPYC CPUs in market today are the highest performant and most energy efficient x86 server CPUs available, and we expect to further extend that lead with our next-generation 5-nanometer Genoa processors, which deliver significant performance, energy efficiency and TCO advantages for both hyperscale and enterprise workloads. We will publicly launch Genoa next week and are ramping production to support initial cloud deployments and the introduction of fourth-gen EPYC processor platforms by HP Enterprise, Dell, Lenovo, Super Micro and others. Looking at our broader Data Center portfolio, as expected, Data Center GPU sales were down significantly from a year ago when we had substantial shipments supporting the build-out of the Frontier exascale supercomputer. We made good progress with our Data Center GPU software enablement work in the quarter, including announcing our role as a founding member of the PyTorch Foundation. We look forward to working closely with the largest cloud providers as we drive a standards based approach to the development of popular PyTorch deep learning software framework. Demand from Data Center customers for our adaptive, SmartNIC and DPU products was strong during the quarter. We had record sales of our Xilinx FPGA and networking Data Center products led by demand from cloud and financial customers. Sales of our Pensando DPUs also ramped significantly from the prior quarter driven by cloud adoption. The addition of Pensando DPUs to our product portfolio has been very well received by customers, highlighted by our enterprise customer pipeline doubling in the few months since the acquisition closed. We were excited to support VMware’s launch of its next-generation cloud virtualization platform in the quarter. Our Pensando DPUs will be included in the first validated server and HCI solutions, supporting the new VMware virtualization offerings from Dell, HPE and others, that will make it much easier for enterprise customers to build more performant and secure Data Centers powered by our industry-leading DPUs. Taking a step back, we have built significant momentum in our Data Center business as we have consistently executed our server CPU road map and expanded our solutions capabilities with the addition of the Xilinx and Pensando products to our portfolio. We remain on track to further expand our product portfolio in 2023 with the launches of our edge and telco optimized Siena and cloud optimized Bergamo processors. With 128 cores and 256 threads per socket, we expect Bergamo will further extend our performance and energy efficiency leadership in cloud workloads. Customer response has been very strong based on the performance, features and software compatibility Bergamo delivers. We believe our broad family of leadership CPUs, GPUs, FPGAs, adaptive SoCs and DPUs position us well for long-term growth and share gains in the Data Center. Now turning to our Client segment. Revenue declined 40% year-over-year to $1 billion. Our Client processor shipments were below PC consumption in the third quarter as we worked closely with our customers to reduce downstream inventory. Desktop channel sell-through increased from the prior quarter, driven by increased demand for our Ryzen 5000 Series CPUs and the launch of our Ryzen 7000 Series processors and AM5 platform in September. We launched our 5-nanometer Ryzen 7000 Series processors to strong reviews based on delivering leadership performance in gaming, productivity and content creation applications. We expect Ryzen 7000 CPU sales to ramp this quarter aligned with the launches of a broader range of mainstream and enthusiast AM5 motherboards. Now turning to our Gaming segment, revenue increased 14% year-over-year to $1.6 billion as strong semi-custom sales offset a decline in gaming graphics. We delivered our sixth straight quarter of record semi-custom SoC sales as demand for the latest game consoles remained strong, and Sony and Microsoft prepare for the holiday season. Gaming graphics revenue declined in the quarter based on soft consumer demand and our focus on reducing downstream GPU inventory. We will launch our next-generation RDNA 3 GPUs later this week that combine our most advanced gaming graphics architecture with 5-nanometer chiplet designs. Our high end RDNA 3 GPUs will deliver strong increases in performance and performance per watt compared to our current products and include new features supporting high resolution, high frame rate gaming. We look forward to sharing more details later this week. Looking at our Embedded segment, revenue increased significantly year-over-year to a record $1.3 billion, driven by growth from aerospace and defense, industrial and communications customers. Demand across our core markets remained very strong. We had record sales to aerospace and defense and automotive customers who are increasingly using our FPGA and adaptive SoC products to enable differentiated capabilities and features in their products. Record communications market revenue was driven by growth from both wired and wireless customers. We saw a particular strength in North America led by new 5G wireless installations and expanded wired infrastructure deployments. Overall demand for our Xilinx products remain strong as we continue to leverage AMD’s scale to secure additional supply to address this demand. Longer term, we are very excited about the growth opportunities in our Embedded business. We closed multiple high revenue design wins in the quarter with automotive, networking, emulation and prototyping, communications and aerospace and defense customers. We are also seeing new design win opportunities and deeper engagements with many of our Embedded customers based on the expanded breadth of our adaptive SoC, FPGA, CPU, GPU and DPU product portfolio. In summary, we are well-positioned to navigate the current market dynamics based on our leadership product portfolio, strong balance sheet and growth in our Data Center and Embedded segments. We have three clear priorities guiding us. First and foremost, we are focused on executing our road maps and delivering our next generation of leadership products. Second, we are building even deeper relationships with our customers as we make AMD a fundamental enabler of their success. And lastly, we remain very disciplined in how we manage the business. We will continue to invest in our strategic priorities around the Data Center, Embedded and Commercial markets, while tightening expenses across the rest of the business and aligning our supply chain with the current demand outlook. The secular trends driving increased demand for high performance and adaptive computing in the cloud, at the edge and across intelligent end devices remain unchanged and provide a strong backdrop for long-term growth. Now I’d like to turn the call over to Devinder to provide some additional color on our third quarter financial performance. Devinder?

Ruth Cotter:

Thank you, Devinder. Kevin, if you could please poll the audience for questions.

Aaron Rakers:

Yeah. Thanks for taking the question. I have one question and one quick follow-up. I guess, as we look at your Client piece of the business being down sequentially in the current quarter, as we work through inventory digestion at your customers. I am curious just how you are thinking about kind of the clearing out of that inventory, do you think we find a bottom coming out of the December quarter or any kind of thoughts of just that kind of full expectation of a flushing of inventory in the PC market for you guys?

Aaron Rakers:

Yeah. And then as a quick follow-up on the service side of the business, I think, in the past, you have talked about your ability to shift being somewhat supply constrained. I am just curious if you have an update on the supply situation in the server CPU, especially as we look towards the Genoa processor ramp in the next quarter or two?

Aaron Rakers:

Yeah. Fair enough. Thank you.

Operator:

Thank you. Next question is coming from Toshiya Hari from Goldman Sachs. Your line is now live.

Dr. Lisa Su:

Yeah. So it is a little bit early to talk about 2023 precisely. But maybe let me give you a backdrop of where we see the Data Center market today. As you said, in the near-term, there are some overall macro headwinds that are affecting all markets, including the Data Center market. Now it varies by segment, and so if I go through each of the segments, what we are seeing is I think North America cloud is, probably, the most resilient out of the segments within the Data Center market and this is where AMD is the strongest. We have had very good progress at the North America cloud vendors and we continue to believe that although there may be some near-term, let’s call it, optimization of, let’s call it, individual footprints and efficiencies at individual cloud vendors over the medium-term. As we go into 2023, we expect growth in that market, particularly customers moving more workloads to AMD, just given the strength of our product portfolio, and overall, Genoa coming forward. As we look through the other segments, I think, China is -- has been very weak in 2022 and we are not forecasting a significant recovery in 2023. So we will see how that goes. And then on the enterprise side, I would say, enterprise is probably most impacted by the macro. So we have seen customers taking longer to make decisions and perhaps being a little bit more conservative on CapEx. That being said, though, we feel very good about our value proposition, we feel very good about our product portfolio, and we believe, even in a little bit of a choppy market that we can gain share across that business. So, overall, I think, our Data Center trends are good and we need to work through the macro as everyone does.

Devinder Kumar:

No inventory hit, first of all, Toshi. On the gross margin, as you said, Q2 54%, if you go all the way to Q4 51% primarily is the weak PC market and Client margins coming down. For example, if you look at Q3, all other businesses were in line with expectations and Client margins came in lower. We also have in the Data Center, a place cloud weightage, which has lower ASPs. So that also has an impact on margins. And then as Lisa mentioned earlier, some of the new capacity that we have from a supply standpoint, there are some additional costs from the supply capacity agreements and those are all baked in into the Q4 51% margin guidance.

Operator:

Thank you. The next question is coming from Stacy Rasgon from Bernstein Research. Your line is now live.

Dr. Lisa Su:

Yeah. Stacy, we are not really counting on a material impact from the extra week. I think if you look at the pluses and minuses in the quarter. The guidance for Q4 really is around sort of PCs and, let’s call it, Gaming being lower, and again, those are -- with all the holidays in place, we are not counting on too much there. And then Data Center is -- Data Center, Embedded are higher, but we are not expecting that the extra week has a material impact.

Dr. Lisa Su:

Sure, Stacy. So I think if you look at the third quarter, it was -- there are a lot of dynamics in the Client business. So market was weak. In particular, consumer was weak and we have more of a footprint in consumer. So in that framework, we saw units come down, but we also saw ASPs come down on a sequential basis. Now I will say that ASPs were still up on a year-over-year basis. So we have been, let’s call it, disciplined in this pricing environment. We did see some pricing dynamics in the quarter, and we couldn’t face unprofitable business and we will continue to be sort of watching that space. So that was the pluses or minuses as it relates to Client ASPs. And as we go into the fourth quarter, again, I think, we are forecasting for a competitive environment given the market weakness and that’s embedded in the guide.

Operator:

Thank you. Next question is coming from Vivek Arya from Bank of America. Your line is now live.

Dr. Lisa Su:

Yeah. So, a couple of different points, Vivek. Let me just answer the sort of the expectations around Q4. I would say, we are guiding, let’s call it, modestly down for Client and Gaming, and obviously, we are coming off of what is already a low base in Q3. We want to do that to correct the sort of the inventory situation as quickly as possible, and as a result, we are going to under ship consumption again in the fourth quarter to do that. As it relates to next year, I think, there are a lot of factors. I mean this year PCs will be down quite a bit, let’s call it, high-teens, close to 20%. As we go into next year, I think, the industry is calling mid-single digits. I think that would be a good case. I think we should model down to minus 10%. And again, within our PC business, we expect as we get through this inventory correction, I mean, we have very good products, and I feel very good about our product portfolio and very good about our platforms overall. So I do think the PC business will recover as we go into 2023, but we will have to work through these dynamics over the next quarter or so.

Devinder Kumar:

Let me try to answer it this way. If you look at Q3 in and of itself, we came in with about 50% gross margin. We had $160 million of charges, which are inventory pricing and related charges. If you adjust for those, the margin for -- in Q3 is about 52%. And we had guided to 54%, we came in at 52%, and primarily, that’s due to two reasons, right? You have the Client weak PC market, and obviously, the Client margins are down. As I said earlier, the rest of the business will perform for the expectations. We have to work through what’s going on with the PC market over this quarter, next quarter and maybe early 2023 and then we come back and talk about the margins. I do feel good about the products we are introducing, especially the new products and perhaps the ability to increase margins from where we are right now, guiding 51% and then taking it up from there.

Devinder Kumar:

Those were mostly inventory rights or pricing actions we would take. Largely, I would say, not recoverable, if that’s what you are asking.

Devinder Kumar:

I won’t guide Q1, but what I will say is from the 51% that we have in Q4, we can improve from there.

Operator:

Thank you. Next question is coming from Matt Ramsay from Cowen. Your line is now live.

Dr. Lisa Su:

Yeah. Sure, Matt. So for focus on the third quarter, what I would say is, cloud revenue did more than double, enterprise revenue was down. And then on the GPU side, because we had a strong quarter in the third quarter of 2021, that was down too, and perhaps, that wasn’t quite in your modeling. But the larger dynamics are, as I said earlier, the North America cloud is probably the best out of all the Data Center segments. There is some impact on macro, though. I mean I think everyone is aware of that, that there is a little bit of pull back in CapEx spending. That being the case, I think our market share is very good there and we will -- we expect it to continue to grow. And as the business becomes more cloud weighted -- there have been a few margin questions, so I will just mention, as the business becomes more cloud weighted, that tends to have a little bit of downward pressure on the margin. But our goal right now is footprint and expanding our footprint across cloud and enterprise. I will say even in a weak enterprise market as we go forward over the next few quarters, we feel really good about how we are positioned and the platform solutions that are coming out with all of our OEM partners. So I think on a quarter-by-quarter basis, you may not get the model exactly right, but I think on a longer term basis, I think, the product portfolio and the product capabilities should help us continue to gain share.

Dr. Lisa Su:

Sure, Matt. So, yes, the third quarter, the PC market was very volatile. Going into it, we expected the market would be weak. It was weaker than we expected and the weakest portion of the market is a consumer market where we tend to be more heavily weighted. I think the thing that perhaps we saw in the market is, we -- as the overall macro economy has also weakened, customers in general across the Board have just become more cautious. So even as they were selling through their inventory, they were not replenishing stock to the same levels. And frankly, we were coming off of a supply/demand imbalance where in the first half of the year, people were actually trying to gather inventory and we had been in a supply constrained situation. So it is a very dynamic situation, I would say. I think that we have great partnerships across the supply chain. I feel good about the visibility that we have. I think the market will continue to be volatile. But we will -- we are all sort of biased towards reducing inventory levels so that we can better react to the market factors and the market situation. So, hopefully, that helps a little bit.

Operator:

Thank you. Next question today is coming from Joe Moore from Morgan Stanley. Your line is now live.

Dr. Lisa Su:

Yeah. Absolutely, Joe. So the Xilinx business, our Embedded business has been performing just extremely well. Another very strong quarter in Q3 and we have -- we see growth into the fourth quarter. We have been very focused on what’s happening within the various sub-segments. I think the nice part of the business, as you know, is that, it has -- it’s very broad based. So we have seen communications was up for us, aerospace and defense very strong, automotive was also up for us here in the third quarter. We did see some weaknesses. Consumer was weak. There was some sub-segments of industrial. So test and measurement was weaker in the third quarter. So we do see the puts and takes there. But overall, I would say, the business has strong visibility. We are still supply constrained in certain nodes and some of the legacy nodes. We have made a lot of progress on supply. So we are seeing additional supply come in in Q4 and that leads us to good confidence in Q4. We expect the first half, again, we have multiple quarters of visibility just given the lead times in that business and we will be watching it very carefully. But I would say, overall, the products portfolio is strong and we have also gained some share in that business as well.

Dr. Lisa Su:

Thanks.

Ross Seymore:

Everybody, thanks. So let me ask a couple of questions quickly here. Lisa, if you could give us a little color, you talked about the fourth quarter being, I guess, down modestly in Client and Gaming. Can you give relatively similar color for Data Center and Embedded, just because the volatility between segments, obviously, has been huge over the last couple of quarters?

Ross Seymore:

Great. That’s perfect. And then as my follow-up, one for either you or Devinder. As we think about OpEx for next year, how do you guys philosophically balance the desire to stick to your business model that you laid out at your most recent Analyst Day versus the desire to continue to spend, continue to gain market share, put out the great new products and execute that you have done so well, are those kind of buffers conflicting against each other, and how, if so, do you reconcile that confliction?

Dr. Lisa Su:

Yeah. And maybe, Ross, if I’d just add on top of that. I think we have the opportunity -- we have multiple levers in OpEx. So we are going to be very disciplined, as Devinder said. That being the case, I mean, we feel very good about our strategic direction around Data Center, Embedded and the commercial markets. So we want to continue to invest there where we will be more conservative on the consumer facing portions of our business and that’s how we will manage through 2023.

Ambrish Srivastava:

Hi. Thank you very much. Lisa, I wanted to come back to the PC business. There’s such a big disparity between your 3Q guide and what Intel guided to or reported versus what they are guiding to in 4Q and usually things normalize over a longer period of time. But I just wanted to understand, is it a case of they took their medicine earlier and AMD continued to over ship versus demand? Just kind of help us understand and there seems to be also a dynamic that Intel is raising pricing in 4Q, so there was some pull-in ahead of that. And I have been getting a lot of questions myself. I don’t understand specific disparity. So any help would be very helpful?

Ambrish Srivastava:

Got it. Good. Thank you. And I had a follow-up for you, Devinder. Just talk about capacity opening up at the foundries and we had this conversation at the Analyst Day about the headwind to free cash flow given your need or desire to secure capacity. Is that going to temper off now -- taper off as we go through the remainder of the next few quarters as there should be more capacity that’s available, plus on the PC side you should need much less than what you needed a couple of quarters ago? Thank you.

Operator:

Thank you. Next question is coming from Harlan Sur from JPMorgan. Your line is now live.

Dr. Lisa Su:

Yeah. Thanks for the question, Harlan. So, yes, look, we are very happy with our Milan sort of workload ramp. We are continuing to ramp Milan here this year and then into next year as well. As it relates to Genoa, we did start initial shipments of Genoa to our strategic customers in the third quarter. That is continuing in the fourth quarter. So we are ramping production in the fourth quarter. A lot of the, let’s call it, the qualifications or the first instances are being qualified here in the fourth quarter into the first quarter. And what we have said before is that, Milan and Genoa are going to actually coexist for quite some time, just given how competitive both are. Genoa is a new platform. It is new DDR5 and PCIe 5.0, and that takes a bit longer for people to qualify. So we would expect both to continue to ramp in 2023 and that’s how we are planning the business.

Dr. Lisa Su:

Yeah. Right. Harlan, I would say, it’s a little bit of both and I think you said it well. In the very near-term, there is a little bit of optimization that each cloud vendor is doing. But in the medium-term, what our customers are telling us is they need more compute. And the more compute is for additional workloads building out. It’s also for upgrade of, let’s call it, older compute, given our new products have very strong TCO, power efficiency, given the cost of power and energy around the world. We are actually seeing that also be a driver for some of the conversion to AMD in the cloud as we go into 2023.

Dr. Lisa Su:

Thanks, Harlan.

Chris Danely:

Thank you. So if we take the macro out of it, can you just go through your share expectations in desktop, notebook and server, let’s just say, for the next 12 months or so?

Chris Danely:

Yeah. You can say relatively where you expect to gain more or less.

Chris Danely:

Sure. And then as my follow-up, I guess, just getting back into the macros that you mentioned that ASPs are getting a little or at least pricing is getting a little tough on CPUs. If this downturn in PCs continues into next year and if it spreads into the Data Center market, how do you think of pricing going forward and would you choose to maybe give up some share if your competitor remains aggressive on price and the environment stays difficult?

Chris Danely:

Got it. Thanks, Lisa.

Operator:

Thank you. Next question is coming from Timothy Arcuri from UBS. Your line is now live.

Dr. Lisa Su:

Yeah. Sure, Tim. So we are certainly watching the situation very closely. Upon reviewing all of the new regulations as they have gone into effect, it is minimal impact on our revenue in the near-term. We are certainly working very closely with commerce and the rest of the U.S. Government on how those are rolling out. And then I think on a medium-term basis, again, my view on these things is, we will always follow the U.S. regulations and understand the need for national security. The majority of our China business is, let’s call it, non-Data Center. So it’s more in the PC business, as well as in some of the consumer facing businesses. So we are paying attention to that as we go forward in the business. But for the near-term, we have not seen any significant impacts, and we will continue to follow it very closely.

Dr. Lisa Su:

The PC market certainly was volatile in the third quarter. I would say that, we did drain a good amount of inventory in the third quarter. I think we are -- our guide indicates a desire to drain more in the fourth quarter, and I think, we will make progress in that. And of course, it all depends on how the macro behaves over the next couple of months, but like I said, I think we are -- we have good visibility into the various market factors and we are planning for a weaker PC environment in the fourth quarter.

Timothy Arcuri:

Thank you.

Operator:

Certainly. Our next question is coming from Blayne Curtis from Barclays. Your line is now live.

Dr. Lisa Su:

Yeah. So, Blayne, it was certainly more units. I think Stacy asked the question earlier. ASPs were down sequentially, but they were up year-over-year. So the decline was more driven by units, but there was an ASP factor on a sequential basis. And then in terms of what we see in the market, I would say that as the market weakened, there was sort of more pressure at the high end in terms of just velocity and desire to clear inventory. And so the mix did mix towards lower ASPs and towards more incentives to clear that inventory. As it relates to longer term, though, I don’t feel like there’s a longer term significant mix change, if that’s what you were asking.

Dr. Lisa Su:

Yeah. Okay. So let me try that. So if you think about what we see in the business. There’s a couple of factors. So if you say, excluding the charges that we described the $160 million in Q3, we were about 52%. We are guiding to 51%. We do see the client market continuing to be weak. We want to make sure that we have -- we do clear additional inventories. We do see in Data Center a mix to -- when the mix is higher for North America cloud, that tends to be lower ASPs just given the environment in that business. And then Devinder mentioned that as we increase capacity, particularly in the server market, there were some -- we have some additional capacity coming online and that has a bit of cost impact. So those are the couple of factors that get you to the 51%.

Dr. Lisa Su:

Sure.

Harsh Kumar:

Yeah. Hey, guys. First of all, thanks for squeezing me in. Lisa, I had a question of the near-term to, call it, mid-term view of the data center market. Do you think that the data center market is inherently growing in the December quarter, the market, not AMD, and do you think -- and/or do you think you are growing because you are launching Genoa? And to that point, you talked about dislocations and sort of the cloud and the data center market. I was curious what specifically are you seeing and if you could differentiate between are you seeing just slower growth or is there inventory that’s built up? And then I have got a follow-up.

Harsh Kumar:

Very helpful, Lisa. And then for my last follow-up, can you talk about the gaming market in general? Of course, September, you mentioned was the peak quarter. So December will be off some. But is this also the peak Gaming year in 2022 and should we be thinking that Gaming will be down or just because these things are still so hard to get, to try to go buy PS5, you still can’t get your hands on it easily. So do you think there’s more legs left to the growth next year?

Operator:

Thank you. We have reached end of our question-and-answer session. I would like to turn the floor back over for any further or closing comments.

Operator:

Thank you. You may now disconnect and have a wonderful day. We thank you for your participation today.

Operator:

Hello and welcome to the AMD Second Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Laura Graves, Corporate Vice President, Investor Relations. Please go ahead, Laura.

Lisa Su:

Thank you, Laura, and good afternoon to all those listening in today. This was an excellent quarter for our business as we delivered record revenue and profitability based on our strong execution, leadership product portfolio and diversified business model. Each of our segments grew significantly year-over-year, led by higher data center and embedded sales as we continue expanding our presence across a broader set of markets and customers. Revenue grew 70% year-over-year to a record $6.6 billion. We also expanded gross margin 6 percentage points year-over-year to 54% and set records for operating and net income, both of which more than doubled from the prior year. Turning to the business results. Starting in the second quarter, we updated our financial segment reporting to align with our four strategic end markets

Laura Graves:

Thank you, Devinder. Kevin, go ahead and begin the Q&A, please.

Toshiya Hari:

Great. Thank you so much for taking the question, and congrats to Laura on your upcoming retirement. I had two questions. The first one, I wanted to better understand what’s contemplated in your guidance, your Q3 guidance, as well as your implied Q4 guidance, both in terms of revenue and gross margins? If you can kind of speak to the pluses and minus on a sequential basis, that would be super helpful. And then I have a follow-up.

Toshiya Hari:

Got it. Thank you for the color, particularly around your PC assumptions. My follow-up, I was hoping you can speak to what you’re seeing in your Data Center business. Given the macro backdrop, we get a bunch of questions from investors about the forward and sort of the concerns related to both enterprise and spending in the cloud. What are your customers telling you at this point? What kind of visibility do you have? And at what point do you become more dependent on the overall market? And I asked the question because if we take the most recent quarter, you’re probably about third of your nearest competitor in terms of revenue scale, you were about 1.7% a year ago. So obviously, you’re significantly larger, curious at 1 point, do you become more correlated with the broader market? Thank you.

Toshiya Hari:

Very helpful. Thank you so much.

Operator:

Thank you. Your next question is coming from Vivek Arya from Bank of America Securities. Your line is now live.

Lisa Su:

Yes, sure, Vivek. So look, if you look at our second half guidance, and maybe let’s talk about the full year guidance, we have – there are some puts and takes in how we’re seeing the business today. So whenever we guide, we recognize that there are multiple dynamics that we’re looking at. In the current guidance for the full year and the second half, what we’re saying is that we continue to see strong demand in the Data Center, in our Embedded business, as well as in the Console business. And we are being more conservative in our PC outlook. Our PC outlook now at mid-teens would kind of put the market at somewhere around, let’s call it, 290 million to 300 million units. So I do think we’ve appropriately de-risked the PC business. As it relates to inventory as we look at the current situation, given some of the COVID lockdowns and things in the second quarter, I think there was a bit of buildup in PC inventory, and we’ve taken that into account in the second half. We think the AMD portion of that is modest. And as a result, it will rebalance itself in the second half of the year. So overall, I think we feel very good about the second half. And again, with the portfolio that we have, one of the things that has been important is we were still supply constrained in several of the areas. Certainly, on the Embedded side, we were supply constrained in the second quarter. And even on the Server side, we were tight in the second quarter. We have additional supply that’s coming online, especially as we get towards the end of the year. That will help us really meet more of the demand from customers. So we feel pretty good about all of those puts and takes.

Lisa Su:

Yes, Vivek. So I mean, we spend a lot of time with our customers talking about what they’re seeing in their businesses and what they’re seeing in their markets, particularly the large cloud customers. What I would say is every customer is different. So they each have their own dynamics of what they’re trying to optimize. We have seen a bit of a slowdown in China, and you might have expected that. But certainly, with North America cloud, they’ve been very strong this year, and the forecast are robust for next year. Relative to your overall question, I think we do feel like we’re in a share gain position. I think the product positioning is such that Milan is very, very strong right now. And we think that Genoa as well is very well positioned into next year. So we’ll always spend time with the customer set and see what they’re seeing. But from our current view, I think we have a strong opportunity to continue to grow the Data Center business into 2023. And our view is we have an expanding portfolio as well. In addition to Genoa, we have our Bergamo, which is a cloud optimized capability as well that’s coming online early next year. So there is a lot of new products that are supporting sort of our growth ambitions.

Operator:

Thank you. Our next question is from Stacy Rasgon from Bernstein Research. Your line is live.

Lisa Su:

Sure, Stacy. Thanks for the question. So we’re very focused on our own product ramp. And certainly, the key for us was to continue to work very closely with our customers to get them to ramp as fast as possible. I think in Genoa looks very good. We’ve gotten very strong feedback from the customer set. The performance looks very good. There’s a lot of interest to ramp quickly on both the cloud, as well as some of the high-end enterprise stuff. So we feel very good about it. And to your question about supply, we have spent basically the last 12 months building our capacity across the world to support the type of growth that we think the product can handle. So there is a large step-up in supply that we expect to see over the next four, five quarters. And I think we’ll continue to work on that.

Lisa Su:

Yes. I think, Stacy, the bulk of the increase is certainly led by the Data Center and the Embedded segments. Actually, our Embedded segment has performed really well. Very pleased with the growth that we’re seeing there. And then in terms of the margin, it very much is a mix within the business as well. So the pluses and minuses are, yes, Data Center and Embedded are up, but the mix of data center is a little bit more to Cloud than Enterprise, and Embedded a bit more from communications than some of the other markets. But Overall, the 7% increase, I think, is very well supported given all of the new product ramps that we have going on in addition to some additional supply that’s coming in as we get into the fourth quarter. And just as a reminder, it’s also a 14-week quarter for us in Q4. And so, all those things give us sort of the implied guide.