Advanced Micro Devices, Inc.

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. 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 to you Mitch Hawes, Vice President, Investor Relations. Thank you, Mitch. You may begin.

Thank you, John, and welcome to AMD's third quarter 2023 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 slides posted on our website. Participants on today's conference call are Dr. Lisa Hsu, our Chair and Chief Executive Officer, and Jean Hu, our Executive 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 note that Forrest Norod, Executive Vice President and General Manager, Data Center Business Solutions Unit, will attend the UBS Technology Conference on Tuesday, November 28th. AMD will host its Advancing AI event on December 6th when AMD and its key ecosystem partners and customers will showcase the AMD products and partnerships that will shape the advancement of AI. The event will be live streamed on our website. Gene Hu, Executive Vice President, Chief Financial Officer and Treasurer, will attend the Barclays Global Technology Conference on Thursday, December 7th. And our fourth quarter 2023 quiet time is expected to begin at the close of business on Friday, December 15th. Today's discussion contains forward-looking statements based on current beliefs, assumptions, and expectations, speaking only as of today, and as such involve risks and uncertainties that could cause actual results to differ materially from our current expectations. Please refer to the cautionary statement in our press release for more information on factors that could cause actual results to differ materially. With that, I will hand the call over to Lisa. Lisa?

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 roadmaps, 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 Rockum 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 rise in 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 third and fourth gen EPIC processor families resulted in record quarterly server processor revenue. We gained server CPU revenue share in the quarter as fourth gen Epic 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, Epic CPU revenue grew by a strong double digit percentage sequentially as hyperscalers expanded deployments of Epic 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 Epic platforms on-prem increased significantly quarter-on-quarter. We also expanded our fourth gen EPYC processor portfolio with the launch of our Ciena processors that deliver leadership energy efficiency and performance for intelligent edge and teleco applications. Dell, Lenovo, Supermicro, and others launched new platforms that expand our EPYC CPU TAM to address teleco, 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 Zen5 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 2024. Looking at our broader data center portfolio, we made significant progress in our data center GPU business in the third quarter, as the multi-year investments we have made in our hardware and software roadmaps resulted in significant customer traction for our next generation Instinct MI300 accelerators. in 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 continued 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 Rockum software in the quarter. In addition to Rockum 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 startup Lam and I 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 longstanding 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, Epic, Versal, and Radeon processors. Based on the rapid progress we are making with our AI roadmap 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 a billion dollars 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 a multi-year Ryzen AI roadmap 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 Vercel 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 a year and a half 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 in 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 Epic 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 roadmaps, 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?