Advanced Micro Devices, Inc.

Greetings, and welcome to the Advanced Microdevices Second Quarter 2019 Earnings Conference Call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Laura Graves. Please go ahead.

Thank you, and welcome to AMD's Second Quarter 2019 Conference Call. By now, you should have had the opportunity to review a copy of our earnings release and slides. If you have not reviewed these documents, they can be found on the Investor Relations page of AMD's website, amd.com. Participants on today's conference call are Dr. Lisa Su, our President and Chief Executive Officer, and Devinder Kumar, our Senior Vice President, Chief Financial Officer, and Treasurer. This is a live call and will be replayed via webcast on our website. Before we begin, I would like to highlight some important dates for you. AMD will officially launch our second-generation EPYC Data Center CPU on Wednesday, August 7. On Tuesday, August 27, Forrest Norod, Senior Vice President and General Manager of our Data Center and Embedded Solutions Group, will present at the Jefferies 2019 Semiconductor, Hardware, and Communications Infrastructure Summit in Chicago. On Tuesday, September 10th, Devinder Kumar, Senior Vice President, Chief Financial Officer and Treasurer, will present at the Deutsche Bank Technology Conference in Las Vegas. And on Friday, September 13th, 2019, our third quarter quiet time is expected to begin at the close of business. Today's discussion contains forward-looking statements based on the environment as we currently see it. Those statements are based on current beliefs, assumptions and expectations, speak only as of the current date, and as such involve risks and uncertainties that could cause actual results to differ materially from our current expectations. We will refer primarily to non-GAAP financial measures during this call, except for revenue and segment operational results, which are on a GAAP basis. The non-GAAP financial measures referenced today are reconciled to their most directly comparable GAAP financial measure in today's press release, which is posted on our website. Please refer to the cautionary statements in our press release for more information. You will also find detailed discussions about our risk factors in our filings with the SEC, and in particular, AMD's quarterly report on Form 10-Q for the quarter ended March 30th, 2019. Now with that, I'd like to hand the call over to Lisa.

Thank you, Laura, and good afternoon to all those listening in today. We made history in the second quarter, both as the first company to simultaneously launch high-performance CPUs and GPUs, and the first to ramp 7-nanometer high-performance processors across PCs, gaming, and the data center. I am extremely pleased with our execution in the quarter, as we ramped production on Ryzen 3000 CPUs, Radeon 5700 GPUs, and early volumes of our second generation EPYC processors in advance of their third quarter launch. Looking at the second quarter, revenue of $1.53 billion increased 20% sequentially, driven by growth across both of our business segments. Revenue declined 13% year over year, in line with our expectations, as client and server processor revenue increases were offset by lower graphics channel and semi-custom revenue. Turning to our computing and graphics segment, revenue declined 13% year-over-year as significantly higher client processor sales were offset by lower graphics channel sales. Mobile client processor revenue increased by a double-digit percentage year-over-year and sequentially, driven by our highest quarterly unit shipments in five years. In desktop, we launched our industry-leading Ryzen 3000 processors featuring our new Zen 2 core to overwhelmingly positive customer response. Numerous third-party reviews highlighted the superior performance of our 7 nanometer Ryzen CPUs in both multi-threaded and single-threaded applications while consuming less power than competitive offerings. Ryzen 3000 processor customer demand has been very strong with sales at global e-tailers and retailers outpacing our previous generations of Ryzen by more than three times at the same point following their respective launches. Based on the market response to our latest mobile and desktop processors and the growing number of AMD-powered commercial and consumer PCs, we expect to gain share in the high-volume back-to-school and holiday periods. In graphics, revenue decreased year over year, driven largely by lower channel sales, partially offset by a significant increase in data center GPU sales. GPU revenue increased by a double-digit percentage sequentially, driven by increased channel sales of our RX 500 series GPUs and the launch of our Radeon 5700 family. The Radeon 5700 series with our new RDNA architecture delivers up to 1.5 times more performance per watt compared to our previous generation. Initial demand for our new GPUs has been strong as third party reviewers have highlighted our leadership gaming performance at relevant price points. We are well positioned for growth in the second half of the year as we continue to ramp our Radeon 5000 GPU family. We had another quarter of strong year-over-year data center GPU sales growth, driven largely by HPC and cloud wins. We continue making progress expanding this margin-accretive part of our business based on our strategy to focus on working closely with marquee customers. We also announced a strategic partnership in the quarter with Samsung to bring Radeon graphics to their future smartphone and mobile SOCs. The partnership showcases our strategy to engage with industry leaders across the ecosystem to drive Radeon everywhere. We now have deep partnerships across the PC, game console, cloud, and mobile markets that contribute to a growing developer ecosystem and installed base for our Radeon graphics architecture. Turning to our enterprise embedded and semi-custom segment, revenue decreased 12% from a year ago, due to lower semi-custom revenue. In semi-custom, we have extended our game console leadership as both Microsoft and Sony have now both announced they will use custom AMD SoCs to power their next generation game consoles. We are very proud to power back-to-back generations of the world's highest performing game consoles. As we look into the second half of the year, we are seeing additional softness in game console demand, which is now reflected in our full-year guidance. In server, CPU revenue grew significantly year over year and sequentially, driven by initial shipments of our next-generation Roam processors to lead cloud and OEM customers. First-generation EPYC processor-based cloud deployments continued to increase in the quarter. Amazon expanded availability of its epic processor-powered instances to more than 15 regions and dozens of new configurations. And Microsoft launched general availability of its Azure HB supercomputing virtual machines that, for the first time ever, enable customers to run demanding HPC workloads in the cloud. Turning to our next generation Roam server processor, Roam is on time and exceeding expectations, delivering leadership performance and TCO across a significantly expanded number of cloud and enterprise workloads. Customer excitement continues to grow. Compared to our first generation EPYC processors, we have more than twice the number of platforms in development with a larger set of partners. We also have four times more enterprise and cloud customers actively engaged on deployments prior to launch. As a result, Roam is on track to ramp significantly faster than our first-generation Epic processor. We are seeing particular strength in HPC, where we offer leadership compute density and I.O., We had multiple supercomputing wins in the quarter, including public announcements from Indiana University and Norway's National Research Network. Our supercomputing momentum was highlighted by the U.S. Department of Energy and Oak Ridge National Laboratory, selecting both Epic CPUs and Radeon Instinct GPUs to power their next-generation frontier exascale supercomputer built by Cray. Frontier is expected to be the world's fastest computer when it launches in 2021. We look forward to providing more details on Roam at our launch event on August 7th. In summary, as we complete the first half of 2019, we have reached a significant inflection point for the company as we enter our next phase of growth with the most competitive product portfolio in our history. We have seen some uncertainties across our supply chain driven by tariffs, trade concerns, and the U.S. entities list. In the second quarter, we stopped shipping to customers added to the U.S. entities list. While we remain cautious given the fluidity of the situation, the impact to date has been limited and offset by growing momentum in other parts of our business. We are executing well to our plans and see a path to significant market share gains for our product portfolio across the PC, gaming, and data center markets in the coming quarters. Now, I'd like to turn the call over to Devinder to provide some additional color on our second quarter financial performance.

Thank you, Lisa, and good afternoon, everyone. We are pleased with the financial results for the first half of 2019, which provide a solid foundation for the second half of the year. Second quarter revenue of 1.53 billion grew 20% over the first quarter. Gross margin of 41% increased four percentage points from the prior year, driven by the ramp of our strong portfolio of high-performance products. Quarterly revenue was down 13% from a year ago. Strong sales of Ryzen and Epic processors and our new Radeon RX 5700 GPUs were more than offset by lower semi-custom sales and lower graphics channel sales associated with blockchain. Operating expenses grew 10% year over year to $512 million, driven primarily by go-to-market activities and new product introductions. Operating income was $111 million, down from $186 million a year ago, primarily due to lower revenue and higher operating expenses. Operating margin was 7%, down from 11% a year ago. Net income was $92 million compared to $156 million a year ago, and diluted earnings per share was $0.08 per share compared to $0.14 per share a year ago. Now turning to the business segment results. Computing and graphic segment revenue was $940 million, down 13% year over year, as strong client processor sales were more than offset by lower overall graphic sales due to negligible blockchain-related revenue in the second quarter of 2019. Computing and graphic segment operating income was $22 million compared to $117 million a year ago, primarily due to lower revenue. In the enterprise embedded and semi-custom segment, revenue was $591 million, down 12% from the prior year. Semi-custom revenue was lower and partially offset by significant growth in data center CPU revenue. EESC segment operating income was $89 million compared to $69 million a year ago. The improvement was largely due to growth in data center CPU revenue. Turning to the balance sheet, our cash, cash equivalents, and marketable securities total $1.1 billion at the end of the quarter. Year over year, we have reduced gross debt by $392 million, and in the second quarter, we also replaced our asset-backed loan facility with a $500 million secured revolving line of credit. Free cash flow was negative $28 million in the quarter, while cash flow from operations was $30 million. Inventory was $1 billion, up $60 million sequentially, primarily due to increased inventory of our new 7 nanometer products in anticipation of accelerating product sales in the back half of the year. Adjusted EBITDA was 163 million compared to 228 million a year ago due to lower quarterly earnings. On a trailing 12-month basis, adjusted EBITDA was 672 million and gross leverage at the end of the quarter was 1.9 times. Turning to the outlook for the third quarter of 2019, we expect revenue to be approximately 1.8 billion plus or minus $50 million, an increase of approximately 9% year-over-year and 18% sequentially. The sequential and year-over-year increases are expected to be driven by Ryzen, Epic, and Radeon product sales, partially offset by lower-than-expected semi-custom sales. In addition, for Q3 2019, we expect non-GAAP gross margin to be approximately 43%. non-GAAP operating expenses to be approximately 525 million, non-GAAP interest expense taxes and other to be approximately 30 million, and third-quarter diluted share count is expected to be approximately 1.21 billion shares. For the full year, we now believe revenue will increase mid-single-digit percent over 2018, driven by significant sales growth of our new Ryzen, EPYC, and Radeon processors, partially offset by lower than expected semi-custom revenue. Revenue, excluding semi-custom, is expected to increase approximately 20% year over year. Full year non-GAAP gross margin is expected to be approximately 42%. In closing, we had a strong first half of 2019. We remain focused on executing to our plans for the remainder of the year and look forward to ramping our new Ryzen and Radeon products as well as the upcoming launch of Roam. With that, I'll turn it back to Laura for the question and answer session. Laura?

Thank you, Devinder. Operator, we're ready for our first question, please.

Thank you. If you'd like to be placed into question queue at this time, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star 1 to ask a question at this time. One moment, please, while we pull for questions. Our first question today is coming from Mitch Steeves from RBC Capital Markets. Your line is now live. Hello. Hello.

Hi, Mitch. It's Laura. The team from AMD, we're ready for you.

Oh, yeah, sorry. Yeah, so my question is really just twofold. So number one, first on the gross margin side. So you guys are talking about semi-custom coming down pretty materially, and that's kind of the entire reason for the, I guess, the mid-single-digit growth number. So why, I guess, aren't the gross margins expanding a little bit more if you're seeing more traction on the server side?

I think if you look at it from an overall standpoint, you know, in Q2, we did 41%. It's the third quarter in a row of 41% gross margin. And in Q3, you're right with the decline in semi-custom. There is benefit to the margin. And then the margin guide for Q3 is at approximately 43%. I can tell you that, you know, the richer product mix, especially with the new products ramping in Q3, are going to drive the gross margin, although there's a benefit from the decline of semi-custom also. The margin benefit is more weighted towards the non-semicustom business, and that's where we end up with the 43% in Q3. We've also updated our guidance for 2019 and now are projecting 42% for the year 2019. Right, yeah.

So I guess just to follow up on that, so the assumption there is that by the end of 19, you guys have more share on the server side. So I guess just high level, if I assume that 2020 – Gross margins are going to start going up as well if you keep gaining share in server. Is that a fair assumption for the next year or so?

I think what I would say is, you know, we're very pleased with the progress we have made on the margin in 2019. The product mix continues to get richer, and we'll see as we get closer to 2020 in terms of the specifics. But you're right, the product mix does get better, server, and even in the other businesses, including the client business. the product makes being richer benefits the margin.

Okay, perfect. Thank you.

Thank you. Our next question is coming in from Vivek Haria from Bank of America. Your line is now live.

Thanks for taking my question, and good to see the traction in the new products. Lisa, for my first question, I was wondering if you could give us some more color around the traction you're seeing in Rome, you know, both from if you're able to quantify it somewhat, But importantly, the traction you're seeing with customers, whether there is any pricing pressure from your main competitor. And I think in the past you had outlined targets to reach a certain market share. Just now that the product is out in front of customers, how are you seeing that traction with both the cloud and the enterprise side?

Yeah, absolutely, Vivek. Thanks for the question. So, look, we are very pleased with how Roam is coming up. We did ship initial shipments this past quarter and the second quarter to both cloud and enterprise customers. The feedback that we're getting from customers is that the performance is very compelling, both from a performance standpoint as well as a total cost of ownership standpoint. We've gotten a number of wins on both the cloud and the enterprise side, as well as HPC. From our standpoint, next week is a big week for us. Obviously, we're going to officially launch Roam on August 7th. But from a customer poll standpoint, we see good customer poll. Your question specifically about the pricing environment, the pricing environment is always competitive. We expect it to be competitive. That being the case, in servers, price is not the first factor. the first variable in terms of a buying decision. And so we believe the value proposition that we have for Roam from an overall standpoint is very strong, and we see a good pricing environment for that.

Thanks, Lisa. And as my follow-up, on the quantification side, I think in the last quarter you had given us some color around data centers, CPU and GPU, kind of around that mid-teens as a percentage of sales. I was hoping you could give us some sense of what it was in Q2 and just what the outlook is for 2019 or the second half of the year. Yes. Thank you.

Yes. So in the second quarter, the percentage is similar to the last few quarters in terms of percentage of our business. We were more heavily weighted towards CPU versus GPU in the second quarter. So we saw data center GPU sequentially decline as expected. The CPUs – grew as expected. As we go into the second half of the year, you should expect that the percentage of our revenue through the data center will increase as we ramp from.

Thank you.

Thank you. Our next question is coming from from Goldman Sachs. Your line is now live.

Great. Thanks so much for taking the question. Lisa, obviously it seems like you're making a lot of progress with Roam, or at least the initial feedback continues to be very positive. That said, the overall hyperskill environment seems pretty slow based on commentary from your peers and your customers, I guess. Could that impact the ramp into the second half? Is that a concern for you going forward? Can I have a follow-up?

Sure. So, look, we certainly have heard the same conversation, especially around the cloud environment in the first half of the year. Our plan was always very heavily second-half weighted, and from our standpoint, we have seen significant customer engagement and pull for the Roam product, and we see a number of new installations that will come online over the next couple of quarters. So, I believe that there is some cloud digestion that's happening out there. I also believe that given where we are from the product cycle standpoint, we are well positioned to grow.

Got it. And then as a follow-up, I was hoping to learn a little bit more about the partnership with Samsung, the IP win in the quarter, and also frontier on the HPC side. Just from a modeling perspective, how should we think about those two deals, if you will, over the next couple of years and the accretion to the P&L? Thank you.

Sure. So look, we're very pleased with both. They're both very significant announcements for us. On the Samsung side, it's a multi-year, multi-generational deal that we have across our graphics portfolio for mobile. In terms of 2019, the revenue is approximately $100 million that would be added. This was not originally in our guidance, and it offsets some of the headwinds that we talked about in semi-custom and China. It's not pure IP, though, so the way you should think about it is there is some specific development expenses that are being – that are part of that deal. And so those will be part of the COGS portion of that. As it relates to Frontier, Frontier, again, very significant deal for us. It is NRE for the next couple of years to really get the software and infrastructure. I would say that's not material. It's a a relatively smaller number, and then the actual deployment will be in 2021. So the bulk of the CPU and the GPU revenue will be in 2021, with a small portion of that perhaps in the second half of 2020. Thank you.

Thank you. Our next question is coming from Matt Ramsey from Cowan & Company. Your line is now live.

Thank you very much. Good afternoon. Lisa, I think we'll be hearing plenty about Roam next week. I wanted to ask some questions about your PC business going into the back half of the year. The desktop momentum seems there. The notebook space, Intel's obviously going on to 10 nanometer for a portion of that portfolio, and it seems the 7 nanometer refresh on your side is a little bit later. Yet the SKU coverage you've talked about, I think, is 50% higher than it was last year for Roam. back to school and holidays. So maybe you could talk a little bit about the momentum in the PC business into the back half and the differences between what you might see in desktop and notebook. Thank you.

Yeah, sure, Matt. So look, we're pleased with the progress of our PC business. In the second quarter, we had notebook perform very well. We saw a ramp of our second generation mobile product. And that is due to some of the additional platforms that we mentioned. Going into the second half of the year, on the desktop side, our third-generation Ryzen products are very well positioned. We expect to ramp significant production here in the third quarter, and we expect that to lead to share gains. And we're also feeling quite good about the mobile products into the second half of the year. We've made progress on both consumer and commercial. We had always been strong in consumer, but on the commercial side, we have a number of new platforms as well, and those are ramping here into the second half of the year. So overall, I think the PC business continues to be a good opportunity for us to gain share through the second half of the year.

Got it. Thank you. And as a follow-up for me, a couple things for Devinder. I wonder... if you might talk about the margin or gross margin differential between some of the new 7-nanometer products that you're rolling out versus some of the predecessor products that were either on 12 or 14, just so we can get an understanding of magnitude. And before you take that, just congrats on cash positive for the company overall, even including some of that portable. Yeah.

Okay, yeah. So on the margin side, the new products, as we have said previously in aggregate, are greater than 50% margin. And so as we launch the new products, in particular on the 7-nanometer known, those are, you know, accretive. And that's why, you know, you see us updating the guidance in terms of the margin, not just for the quarter in Q3, but also for the year. And from that standpoint, if the product mix gets richer with more 7-nanometer products ramping, that should benefit the gross margin. Thank you.

Thanks, Matt.

Thank you. Our next question is coming from Hans Mosesman from Rosenblatt Securities. Your line is now live.

Thanks, guys. Congrats on the execution with the 7 nanometer. Hey, Lisa, are you guys constrained in terms of 7 nanometer at TSMC?

Hans, yes. So we do have a number of products ramping at TSMC and 7 nanometer, and we are not constrained per se. I will say that cycle times of 7 nanometer are longer, and so it just takes more time to ramp up, but we are not constrained. TSMC has supported us quite well.

Great. And can you give us a sense, if you can, on 7 nanometer high-end Navi and mobile 7 nanometer CPUs, if you can, please?

Hans, you asked the good product questions. I would say they are coming. You should expect that our execution on those are on track, and we have a rich 7-nanometer portfolio beyond the products that we have currently announced in the upcoming quarters.

Thank you, Hans. Thank you.

Thank you. Our next question is coming from Mark Lepasis from Jefferies. Your line is now live.

Hi. Thanks for taking my question. Lisa, you have a lot of things working for you. You've got Roam, Ryzen, the GPU portfolio. Where are you seeing the biggest upside surprise on the feedback that you were getting relative to your original expectations?

Yeah. So, look, Mark, I think all products have really performed quite well. I think the – third-generation Ryzen desktop, both in terms of the reviews, third-party reviews, as well as just the customer interest. What we see is, obviously, it's only been in market for three weeks, and so we watch the data points very carefully. But across the globe, we're seeing sort of significant uptick in our share in the desktop market. I think Navi has come out positioned very well We're very pleased with our DNA architecture. Navi is the first step, and we have a couple more steps going. And then we'll talk much more about Epic next week. I think the key thing is the products have been on schedule and at or above the performance. So our goal is, of course, to turn that into revenue growth in the second half of the year.

Yeah, that's great, Collar. Thank you. And a follow-up, if I may, you mentioned the The Gen 5 game console wins at Microsoft and Sony. Can you give us a sense, when do these start to ramp? When they ramp, do you book the revenues as you build inventory as you did the previous generation? Should we think about anything differently on the gross margin profile? Is it going to be similar to what you've had in the past on these things? So just some color in the Gen 5 game consoles. Thank you.

Sure. So, Mark, we're proud of the wins at Sony and Microsoft. Those are big wins for us, and as you know, over many years. We can't comment on specific customers and their ramp profiles. The only thing I will say is you can expect that, in general, consumer ramps are second-half weighted, especially weighted towards the holiday season. So you would expect that. And then as it relates to the gross margin profiles, with our semi-custom business model, I think the margins will be under the corporate average. However, our business model is actually quite different. If you look forward to our business model, the growth that we see across all of our other products, Ryzen, Epic, Radeon, is actually quite significant. And so the percentage of semi-custom as a percent of the overall business will be lower than, for example, in the last few years.

That's very helpful. Thank you.

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

Hi, guys. Thanks for taking my questions. For my first one, I want to follow up on that second half gross margin question again. I want to put some numbers behind it. So you're guiding 43% for Q3. Your implied guidance for Q4 is 43% and maybe a little under. It's only up about 160 bps year-over-year and flat sequentially, but your guiding Q4 revenue is up over 50% year-over-year, and consoles have to be falling like 40% to 50% sequentially, so the mix must be massively switching over to the new products that in aggregate have gross margins over 50%. Why are gross margins only being guided up like 160 bps year-over-year in Q4 revenue? given that kind of a revenue trajectory, and why are they only flat sequentially, even with revenues growing over 20% quarter of a quarter into Q4? I don't understand.

Yeah, Stacey, let me start, and then maybe Devinder can add to it. So look, we guide approximately to full margin points. What you should expect as we go from Q3 to Q4 is that the product mix will get better. So we will expect more new products. And, you know, from the standpoint of semi-customs, some semi-custom will be down sequentially Q3 to Q4. And so you should expect that we are not implying that the margin will be down in Q4. And, you know, we'll get to the Q4 guide as we get through the next 90 days.

Okay. For my follow-up, The $100 million from Samsung, does your 20% year-over-year growth excluding the semi-custom include that $100 million that wasn't in the prior guidance? And what is the impact on the gross margins of that Samsung revenue as well?

Yeah, so the Samsung additional revenue is included as part of the 20% year-on-year, and it offsets some weakness that we have in China due to the entities list. As to the gross margin profile for that, you can expect that to be somewhat above corporate average.

So somewhat over low 40s?

Somewhat above corporate average.

Okay. And it is in the 20%. Thank you very much. I appreciate it.

Thank you. Thank you. Our next question is coming from Aaron Rakers from Wells Fargo. Your line is now live.

Yeah, thanks for taking the question. I have one question and a follow-up as well. Just building on that last kind of question, I think the last couple of quarters you've talked about your semi-custom business being down somewhere in the 20% plus range. It looks like by my math, your assumption now is that that business declined maybe as much as 40 plus percent. And so when you parse through that, you kind of factor in the Samsung relationship and the incremental 100 million revenue. Has your estimate at all changed X those items, you know, meaning revenue X the semi-custom decline and then also X the 100 million Samsung?

Yeah, so let me try to help you, Aaron, with that math. So, look, originally when we started the year, we thought semi-custom would be down, let's call it approximately 20%. In the first half of the year, it was down more than that, and based on what we see today, We would expect the full year now to be down, let's call it mid-30s, you know, year on year. If you talk about now the rest of the business, I think the rest of the business is close to where we thought it would be. Close, plus or minus, you know, a couple percent. And if you think about all of the moving pieces, you know, we do have some customers that we're not shipping to in China. You know, that is offset by, you know, the Samsung upside. and, you know, the new products and how they're coming in. So I think we are pretty close, plus or minus, to where we thought we would be, you know, X those factors.

Okay, that's very helpful. And then, you know, just looking at your product segmentation, I'm curious of how you, you know, think about church of center business going forward.

Obviously, I don't know if that could be, but I'm just trying to understand how you think that there is a time where we get

to that incremental growth driver or revenue stream going forward. Thank you.

Yeah, I think that's a fair comment. It is a little bumpy, you know, because it's fairly concentrated on a couple of customers. I would say that we're going to recognize your role with this, and we see good across both cloud as well as HPC. It is both, you know, cloud streaming,

as well as machine learning. And on the HPC side, we have a number of other programs that we're working on. So I think we're going to go forward, but it continues to be a good growth driver for the next few years. Thank you. Thank you. And today is coming from David Wong from Internet. How are you? Thanks very much. On the income statement as a revenue or the line as a specialized something? It's revenue and then offset by COGS.

Like I said earlier, revenue and the COGS offset is somewhat above corporate average.

Okay, excellent. And can you give us any numbers for the June quarter, your sequential growth in desktop units, growth in GPUs? Let's see, David. So your question is about the second quarter? That's correct.

Yes. So the second quarter, we sequentially moved our desktop units down.

And the desktop, you know, is somewhat due to the second quarter as well as the fact that we're going through a transition as we were comparing operations that happened at the end of the quarter. Graphics, you know, we were up double digits. That's, you know, and revenue statements as it relates to primarily the graphics channel. Great. Thanks.

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

Great. Thank you.

So your full year, guys, sort of project percent, you need to get to a billion dollars. How literally is that?

Is there anything, you know, I understand there's a lot of product momentum, but that still seems like a big number. Just anything we should understand in terms of season out that would kind of give you confidence in the budget for the full year.

Yeah, I think, you know, there are reasons that we have a significant amount of challenges to happen.

So, you know, as we go through the third quarter and the fourth quarter, the PC side, GPU as well as the driver side. So, yes, it is significant growth, and, you know, I think we feel, you know, good about, you know, sort of the drivers there.

Okay, great. That's all I had. Thank you. question today. It's coming from John Pitzer. You guys, congratulations on the results.

Paul, to the Samsung revenue, is that $100 million all coming in into the calendar fourth quarter, or will there be some in the September quarter?

Yes. Approximately for the year, there was a little bit, too.

And then it will be in Q3 and Q4.

Is there a limit between Q3 and Q4? And then just a similar question on bridging the gap between your Q3 guide and your full year guide on OPEX.

If you look at kind of the full year guide you're giving on OPEX, it could imply that OPEX dollars are actually flat to down sequentially in Q4 on full revenue growth.

with great leverage and understandable in the A line, but I'm kind of curious how you're thinking about de-spending and how you're going to start to see revenue accelerating. I think you should expect that OPEX will be slattish through the rest of the year.

And we have increased OPEX. Obviously, the first half of the year was higher OPEX as a percentage of revenue. We are investing in the right places, and, you know, I think the product execution shows that. You know, we will evaluate, obviously, in 20 years through the revenue growth.

But I think we have investments, and we'll continue. And just if you're looking at, you know, data that expect a profit of $420 million in Q2. point of consideration. Perfect. Thanks, guys.

Thank you. Our next question is coming from Ross Seymour from Deutsche Bank. Your line is now live.

Hi, guys. Thanks for letting me ask a question. Lisa, maybe this is something you'll address next week on the Rome launch, but in aggregate, now that we're this much closer to the launch and the second half ramp, which you sound very confident on, a year ago you talked about the market share of goals. I think it was double-digit market share, four to six quarters after you hit the 5% market share. Any sort of update on the timing and or comfort around hitting that target?

Yeah, so I think for us, we feel good about the right target. I'm not ready to state that yet.

There's a lot of platforms here. But we feel that the targets are Got it. Thanks for that. Part of a prior question, I don't think I heard the answer to, but is the account for the semi-customer whenever it makes their next year the same as when it makes their next year's revenue? So even if the customer tends the second half of the year, You guys obviously have to build and stage much earlier. Therefore, that will change. I was asked.

I don't think I responded to it. The accounting is the same, so I don't think the accounting changes. The only difference, though, is we would not prior to qualification. When you're doing a more involved qualification cycle, And so, you know, I think there would be more accurate with the actual product.

It would happen more simultaneously. Great. Thank you. Thank you. Our next question is for the service. BMO Capital Markets, your line is now live. I'm not sure I quite understand.

Delta for revenues, you talked about semi-custom, and then you also said that China is having an impact. What specific product do you have for those? And what is the follow-up for the vendor?

We did have a small cost to China. We have a small cost to China. We are shipping to those

And so it's a small impact that is offset by some of the products in the rest of the business.

Assuming that you use and operate, right? There is some PC and there's some service.

Okay. Okay. Thank you for that. And, Devendra, my follow-up is on pre-cash. The gap between pre-cash appropriation, right,

if you have roughly 300 million negative free cash flow. Guiding for the full year. What's the rate for that? Thank you. If you ask PQ3, we expect 10 free cash flows for the year. It won't be tens of millions from a year's point. I think it's right, but I don't know. Thank you. Thank you. I have one more question.

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

Hey, good afternoon. Thanks for taking my question. I'm curious on the notebook market, but also short market, your ramp products. I just wanted to get a parcel of that because I know it's wrong for you.

Sure, Blaine. From our standpoint, you know, our notebook ramps were due to, you know, we ramped a number of

second-generation platforms, as well as some new Chrome platforms. I can't point out in particular.

I think we're still expecting that, you know, we see a seasonal uplift in the second half of the year.

Thanks.

And then just to follow on to that, in your guide, when computing graphs are segmented, between the two, you can do what you expect to do.

So, let's see, is that, you know, amongst the clients that are in their NAMP cycle, you would expect perhaps to be next.

Thank you.

Thank you. This is coming from Timothy from UBS. Your line is up.

Thanks a lot.

Lisa, so I have a question to ask about sort of the long-term and, you know, maybe about cloud gaming and sort of how you think about its long-term effect on you. Because on one hand, you've done quite, you know, with some of these big launches coming up, but you're also exposed to competition on the custom side.

What do you think about that?

I think we like sort of gaming overall. So if you think about gaming overall, there's PC gaming, there's cloud gaming, and then there's console gaming. We believe a rich ecosystem is important. We want to have our Radeon graphics architecture across all those three segments. I've been asked about the cannibalization question. I think it's too early to talk about that. Maybe in a few years. We think cloud gaming is going to be important. But it's, you know, too early to say whether it's, you know, really a cannibalization thing or is it an additive, you know, getting access to more users overall.

So, you know, our architecture is very friendly to all. Okay, thanks.

I just have a question that Ross just asked about the, you know, server share target to get. So it's not that you're not reiterating that here. It's more that you're going to update us on a target.

Is that the right way to think about it?

I think we do target a double-digit, you know, sort of four to six quarters after the initial 5%. I think we've got a target. I'm not being more specific on that until we get through, you know, the ramp.

It's awesome. Thank you so much. Thank you. At the end of our session, I'd like to turn the floor back over to management for any closing comments. No, we're good. That was a good one. Thank you, Eric. We appreciate your support for our company. Thank you. That does conclude the conference. You may disconnect your line. Thank you for your participation today.