Advanced Micro Devices, Inc.

Greetings and welcome to the Advanced Micro Devices third 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's now my pleasure to introduce your host, Laura Graves. Please go ahead.

Thank you and welcome to AMD's third quarter 2019 financial results 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 items, 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. I would like to highlight some important dates for you. On Wednesday, November 6th, Mark Papermaster, Executive Vice President and Chief Technology Officer, will present at the Bernstein Technology Summit in New York City. On Monday, December 9th, Ruth Cotter, Senior Vice President of Worldwide Marketing, Human Resources and Investor Relations, will present at the UBS Global Technology Conference, also in New York City. On Thursday, December 12th, Forrest Norod, Senior Vice President and General Manager of the Data Center and Embedded Solutions Group, will present at the Barclays Technology Conference in San Francisco, and our fourth quarter 2019 quiet time is expected to begin at the close of business on Friday, December 13th. 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 metrics 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 statement 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 June 30th, 2019. Now, with that, I'll hand the call over to Lisa. Lisa?

Thank you, Laura, and good afternoon to all those listening in today. I am pleased with our strong third quarter execution and results. We delivered our highest quarterly revenue since 2005, our highest quarterly gross margin since 2012, and increased net income significantly, all driven by our first full quarter of 7 nanometer Ryzen, Radeon, and EPYC processor sales. Third quarter revenue of $1.8 billion increased 9% year-over-year and 18% sequentially, and we expanded gross margin by three percentage points year over year. Turning to our computing and graphics segment, revenue increased 36% year over year and sequentially. Demand for Ryzen desktop and notebook processors drove a significant increase in unit shipments and ASP, resulting in our highest client processor quarterly revenue since 2011. We saw particularly strong demand for our top-end Ryzen processors and believe we gained client processor unit share for the eighth straight quarter. In desktops, we are seeing strong demand for our Ryzen 3000 and previous generation Ryzen 2000 processors. Both product families are consistently among the top sellers at leading e-tailers and retailers globally. In commercial, HP and Lenovo announced new desktop PCs powered by our Ryzen Pro 3000 series processors in the third quarter. We are continuing to expand our presence in the commercial market as more financial, retail, education, and healthcare customers purchase AMD-based PCs and Chromebooks to power their businesses. We are on track to expand our desktop product offerings in November with the launches of the industry's first 16 core mainstream desktop processor, as well as our third generation Ryzen Threadripper processor family. These products will offer unmatched combinations of core counts, performance, and energy efficiency for the most demanding high-end desktop and content creation applications. In mobile, we had another quarter of strong double-digit percentage notebook processor revenue growth, driven by a richer product mix and increased unit shipments. The number of AMD-powered laptops for major OEMs has increased by 50% this year, including multiple premium notebooks like the first-ever AMD-powered Microsoft Surface laptops. We collaborated closely with Microsoft over several years to develop the AMD exclusive 15-inch consumer Surface Laptop 3, which includes a custom Ryzen Microsoft Surface Edition processor and multiple operating system and software optimizations that will benefit all AMD-powered Windows systems. We are very pleased with our momentum in the client business this year and expect client processor revenue to grow sequentially in the fourth quarter as we head into the seasonally strong holiday season. In graphics, revenue increased year over year, driven largely by higher channel GPU sales. Shipments of our Radeon 5000 GPU family, featuring our RDNA architecture, increased sequentially, and we are seeing solid demand for the new products based on their competitive performance and features. For mainstream gamers, we began shipping the Radeon RX 5500 GPU in the third quarter. Acer, HP, Lenovo, and MSI announced plans to offer the new GPU in their upcoming PCs, and multiple AIB partners plan to launch RX 5500 cards during the fourth quarter. Data center GPU sales were down sequentially and roughly flat year over year. We added multiple cloud and HPC wins in the quarter, highlighted by Microsoft's announcement of a new remote desktop offering for graphics-intensive workloads powered by Epic CPUs and Radeon Instinct GPUs. We are making good progress growing this margin-accretive part of our business as we continue expanding our footprint with marquee customers and targeted data center workloads. Turning to our enterprise embedded and semi-custom segment, Revenue decreased 27% from a year ago, as significantly higher server processor revenue was offset by lower semi-custom sales. We expect semi-custom demand to further soften in the fourth quarter, now that both Microsoft and Sony have announced new AMD-powered consoles for holiday 2020. In server, we had our highest quarterly CPU revenue since 2006, as strong second-generation EPYC processor demand drove a greater than 50% sequential increase in unit shipments and revenue. Second-gen EPYC processors are the highest performance server CPUs in the industry and have set more than 100 world records. Our newest EPYC processors feature up to 64 cores and deliver a 25% to 50% TCO advantage versus competitive offerings. As a result of our clear performance leadership and differentiated feature set, we are building momentum with cloud, enterprise, and HPC customers. In cloud, Amazon AWS, IBM Cloud, Microsoft Azure, OVH Cloud, Twitter, and Tencent all announced plans to deploy Epic processors in their data centers. At our launch event, Google became the latest mega data center provider to adopt Epic processors as they announced second generation Epic processors have been deployed across their internal infrastructure production data center environment and will also be used to power the Google Cloud platform. In enterprise, Dell, HPE, and Lenovo more than doubled their AMD powered server portfolio as they launched new platforms featuring second-gen EPIC processors, helping us add dozens of new telecom, healthcare, financial services, manufacturing, and energy customers in the quarter. We also secured multiple new HPC wins in the quarter, including three separate US Department of Defense supercomputers and what is expected to be the fastest scientific computer in the UK. We expect server revenue to grow sequentially by a strong double-digit percentage in the fourth quarter as we continue ramping our second-generation Epic processors. We remain on track to achieve our near-term goal of double-digit server CPU share by mid-next year. In summary, we are right where we want to be on our long-term strategic plan. We have the strongest product portfolio in our history. We executed our product launches and production ramps very well in the third quarter as our new products drove higher revenue, margin expansion, and increased profitability. We're on track to exit 2019 with another quarter of significant growth driven by the ramp of our seven nanometer products and believe we are well positioned to build on our momentum in 2020 and beyond as we deliver an even stronger set of leadership products that can drive sustained growth and increased share of the $75 billion market for high performance computing and graphics technologies. Now I'd like to turn the call over to Devinder to provide some additional color on our third quarter financial performance.