Q1 2020 Earnings Call

[music].

Greetings and welcome to be Am D first quarter financial results Conference call.

At this time, because that's where he was remote.

For the watch require operator assistance during the conference. Please press Star Zero Wonder telephone keypad as a reminder, this conference is being recorded.

So my pleasure introduced Ruth Cotter Senior Vice President worldwide market Human resources, That's relations Ruth. Please go ahead.

[music]. Thank you and welcome to Mds first quarter 2020 financial results conference call by now you shouldn't be I've had the opportunity to review a copy of our earnings release slide.

If you have not reviewed these documents they can be found on the Investor Relations page MTS website <unk> Dot com.

On today's call are Dr., Lisa said, our president and Chief Executive Officer, and vendor Kumar, Our senior Vice President Chief Financial Officer and treasure.

This is a life call I will be repaid via webcast on our website.

Before we begin today. Please note that our annual shareholder meeting will be held on Thursday, the seventh of May as a virtual events accessible from A.M.D. Dot com.

We will also be attending several virtual wall Street events during the second quarter, including the Bernstein strategic decisions conference on Thursday May 28.

Our second quarter 2020, quiet time is expected to begin at the close of business on Friday, the 12 Joe.

Today's discussion contain forward looking statements based on the environment as we currently see US those statements are based on current beliefs assumptions expectations speak only as of the current days under 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 segments operational results, which are on a GAAP basis. The non-GAAP financial measures referenced are reconciled to their most directly comparable GAAP financial measures in today's press release posted on M.D. Dot com.

Please refer to the cautionary statements in our press release for more information on risks related to any forward looking statements that we may make you also find detailed discussions about a risk factors in our filings with the FCC and in particular and <unk> annual report on form 10-K for the year ended December 28, 2019 now.

With that I'd like to hand, the call over to Lisa.

Thank you Bruce and good afternoon to all those listening in today.

Before covering our quarterly results I want to provide some comments addressing our response to covert 19.

First I want to recognize the told the pandemic has taken on the world.

The breadth and speed at which coal good 19 has changed the world since our last earnings call has been staggering.

I want a safe the countless health care professionals and social workers, serving on the front lines every day.

At M.D., our first priority has been to protect the health and safety of our employees.

We have transitioned the vast majority of our more than 12000 employees worldwide to working from home, while ensuring we maintain focus on reliably supplying our customers with the products and services their businesses depend on.

We're also supporting the communities, we call home drew for natural and personal protective equipment donations and providing our technology to accelerate medical research.

More than ever the pandemic has placed technology at the forefront of how we work learned shop and connect and we're proud to be providing many of the components powering piece a central technologies.

Against that backdrop, we performed well in the first quarter.

Revenue increased 40% year over year to 1.79 billion as demand for seven nanometer rising ready on an epic processors drove record first quarter revenue and are highest gross margin in eight years.

I'm pleased with our execution in the quarter as we quickly adopted our global operations to navigate pockets of supply chain disruption and addressed geographic and market demand shift caused by covert 19.

Turning to our computing and graphics segment first quarter segment revenue increased 73% year over year to 1.44 billion driven by increased rising and radio unprocessed or adoption.

We saw some softness based on the Kobin 19 situation in China that impacted PC related sales in the first quarter.

Well, both component and system demand were relatively strong at online vendors offline channel sales were weaker than expected as many retail locations across China were closed for much of the quarter.

PC demand in the rest of the world with strong offsetting the softness in China.

[noise] quiet processor revenue grew significantly year over year, a strong rising processor demand resulted in significant double digit percentage increases in unit shipments and Asap.

As a result, we believe we gained quiet unit market share for the 10th straight quarter.

In desktop overall demand for our latest rise in 3000 and prior generation rise in 2000 processor families with strong both of which continue to talk retailer bestseller lists and have more than 50% sure a premium processor shelves at many top global Etailers.

In mobile unit shipments increased by a strong double digit percentage year over year.

We set a record for quarterly notebook processor revenue driven by sustained demand for our previous generation offerings and the ramp up the first rise in mobile 4000 design wins.

Initial consumer notebooks, featuring our new rising 4000 processors watched a strong demand based on reviews that demonstrated their performance and battery life leadership for ultra thin and gaming notebooks.

We also gained momentum in the commercial market, winning multiple large scale deployments as Lenovo announced new think pads and H.P. launched a commercial class pro books powered by our latest rising 4000 mobile processors.

We're on track to accelerate our mobile growth this year as Acer issues, Dell HP Lenovo and other Oems are expected to launch more than 135, new rides empowered consumer and commercial notebooks over the coming quarters.

In graphics first quarter unit shipments and revenue both grew by double digit percentage year over year, driven largely by sales of our radio and Rx 5000, juries desktop and notebook Gpus.

Desktop channel sales increase based on solid demand for both seven nanometer, our DNA graphics cards and previous generation radio on or X 500 series Gpus.

And mobile demand for notebooks powered by our radio on 5000, and mobile Gpus, including the latest Apple Macbook Pro and other gaming notebooks drove a richer mix as customers transition their platforms toward new our DNA mobile offerings.

Development of our our DNA to Gpus continues to progress well.

We're on track to launch our next generation gaming Gpus later this year, what they 50% performance per watt increased compared to our current offerings.

In the data center, Microsoft for introduced new virtual machines optimized for visualization workloads powered by our radio on instinct and my 25 Gpus.

Microsoft is using our differentiated virtualization technology to partition a GPU for the first time in the same way they protection multi core sheepish, allowing customers to tailor the GPU capability to meet the needs of their specific workload.

Turning to our enterprise embedded in semi custom segment revenue of 348 million decreased 21% year over year as lower semi custom revenue more than offset a significant increase in server revenue.

As expected semi custom product revenue was negligible in the quarter, Sony and Microsoft both reduced inventory in advance of next generation console launches.

We expect semi custom revenue to increase in the second quarter and be heavily weighted towards the second half of the year as we ramped production to support the holiday launches of the new Playstation five and export series ex console.

In server unit shipments grew by a double digit percentage sequentially and more than tripled year over year as we continue gaining momentum across cloud enterprise in HPC customers.

We saw particular strength with cloud providers, introducing new instances accelerating current deployments.

Microsoft Azure, Google and I'd be all announced new offerings powered by second generation epic processors highlighted by Google launching multiple general purpose, Vms and Microsoft Rolling out and all A.M.D. virtual desktop offering that also includes radiata instinct Gpus.

Several cloud providers accelerated their infrastructure deployments to address rising demand from the growing number of users working and schooling from home.

For instance, one of our large cloud customers was able to deploy 10002nd Gen epic servers in less than 10 days to support the surge in demand for their collaboration services.

Okay.

In the enterprise, we expanded our second Gen epic processor portfolio with new high frequency processors that expand our performance leadership to advance modeling database and hyper converged workloads.

With these new offerings, our second Gen epic process or family now includes both the highest performance for core and performance per socket processors in the industry.

We continue winning in HPC highlighted Lawrence Livermore National laboratories announcing they selected next generation A.M.D. epics Gpus and radio in instinct Gpus to power their l. copy time supercomputer, which is expected to deliver more than two extra flops of computing performance when it is.

Deployed in early 2023.

We're incredibly proud that two of the three publicly announced U.S. excess skills supercomputing systems will exclusively use M.D.C.P. use and Gpus clearly positioning A.M.D. as the extra scale computing leader based on our high performance computing and graphics technologies and software capabilities.

In closing, our long term strategy and growth drivers remain unchanged.

Although there are some near term uncertainties in the demand environment, we are well positioned to navigate through the situation.

We have a solid financial for now foundation and our product portfolio is very well positioned across the PC gaming and data center markets.

While demand indicators across commercial education and data center infrastructure markets are strong we expect some softness in consumer demand in the second half of the year, depending on how overall macroeconomic conditions evolve.

We remain on track to launch our next generation, then threes Gpus and our DNA to Gpus in late 2020, and believe we can deliver another year of strong revenue growth and margin expansion based on the strength of our product portfolio and the diversity of markets we serve.

Now I'd like to turn the call over to the vendor to provide some additional color on our first quarter financial performance the vendor.

Thank you Lisa.

Good afternoon, everyone.

Well as opposed to court, though as we navigated a challenging environment has sold on the ongoing impact called Govies 19.

Let's talk about revenue was 1.79 billion up 40% from a year ago and down 16% from the prior quarter.

Yes.

It was driven by strong sales of rise in an epic processes and regional products, partially offset by lower semi custom sales gross margin was 46% 490 basis points from a year ago, driven by why isn't that big process is operating expenses of 580.

4 million compared to 545 million a year ago, primarily due to increased investments in R&D and go to market activities.

Operating income was 236 million.

152 million from a year ago, driven by revenue growth and a greater percentage of rice isn't an epic process sales, while operating margin increased to 13% as compared to 7% a year ago.

Net income was 252 million from 62 million is yet to go and diluted earnings per share was 18 cents per share compared to six cents per share a year ago.

Now turning to the business segment results computing and graphics segment revenue was 1.44 billion up 73% year over year, driven by rising Brasada and video product channel sales growth.

Computing and graphics segment operating income was 262 million or 18% of revenue compared to 16 million a younger goal driven by significantly higher revenue.

Enterprise embedded and semi custom segment revenue was 348 million down 21% from 440.

Well on that 41 million to prior year.

Due to the expected decline in semi custom sales, partially offset by strong data center drilled.

He has he segment had a loss of 26 million compared to operating income of 68 million you have a goal which included the benefit of 60 million licensing gain.

Turning to the balance sheet cash cash equivalents and marketable securities totaled 1.4 billion.

In addition in early April we took the cautionary steps the drawn up 200 million from a 500 million revolving line of credit.

Inventory was 1.1 billion.

Sen from the prior quarter.

On a trailing 12 month business adjusted EBITDA was 1.2 billion, resulting in gross leverage or 0.5 times free cash flow was negative 150 million in the first quarter and in my.

I'm not that 55 million from the prior Gen cash flow from operations was negative 65 million and improvement of 148 million from a year ago.

Let me turn to the outlook for the second what golf Twentytwenty deduce outflow is based on current expectations and contemplates the colony Cove, 19 environment and customer demand signals.

We expect revenue to be approximately 1.5 billion plus or minus 100 million an increase of approximately 21% generally yes, and an increase of approximately 4% sequentially. The Yo Yo increase is expected to be driven by strong growth in ryzen an ethnic process.

Sales the sequential increase is driven primarily by helping processa semi custom says.

In addition, folk you do Twentytwenty, we expect non-GAAP gross margin to be approximately 44% due to higher semi custom revenue.

Non-GAAP operating expenses to be approximately 600 million non-GAAP interest expense sexism, although to be approximately 20 million and the diluted share count in the second quarter is expected to be approximately 1.3 billion shares.

For the full year twentytwenty, despite expectations of weaker Colgate 19 related consumer demand in the second half of the young we expect annual revenue growth of approximately 25% plus or minus five percentage points. In addition, we expect non-GAAP gross much.

Good to be approximately 45% unchanged from prior guidance and non-GAAP operating expenses to be approximately 29% on revenue.

In closing, while the market environment has become more challenging given the impact of Colby 19, I'll first quarter results demonstrates the strength of all business model.

Notwithstanding some near term demand uncertainties, our long term strategies on change and we know that position with our competitive products and the strength of old balance sheet to navigate today's on Mylan.

As I finish I would also like to think there's a bunch more needs of thank all employees for their dedication flexibility and focus is these exon many times with that I'll turn it back to the root for the question answer session wrote.

Thank you to vendor and operator, if you could Paul the audience for questions. Please.

Thank you will not be conducting your question answer session. If you like to be placed and the question Q. Please press star one under telephone keypad.

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One moment, please what we pull for questions.

First question things coming from Matt Ramsey from Cowen Your line is gone.

Thank you good afternoon, everybody and hope everyone at M.D. is doing well considering the interesting times, we live and Lisa I I wanted to start with a couple of questions on the server business I guess, one of which is how do you.

Yes see results in a quarter that you just printed were a bit below at least where I had modeled them. So maybe you could talk a bit about how you feel the epic business is tracking toward that sort of 10% target you guys. It's set for the second quarter and I noticed in.

Vendors comments on on the June quarter guidance. Most some of the upside is gonna be driven I guess outside sequentially is gonna be driven by epic. So how are you tracking against that and then the last little pieces I keep getting.

More and more questions still about the timing of Milan and I know you guys reiterated that would be this year at the analyst day in and if that's still the case.

Thanks.

Yeah, absolutely Matt. Thank you and I. Appreciate the question. So look we are very pleased with the progress in our server business. You know I think if you look at turned the progress. We've made there were a number of key things that we wanted to see happen. What we saw in the quarter that we just finished in the first quarter, we actually saw a a very nice acceleration.

Of the cloud business as a as we went through the quarter I think as we go into the second quarter. There's an additional significant yeah ramp of the server business and so what we expect to continue to gain share as we go through these next couple of quarters I think what we're seeing from the.

He the current no cobot 19 environment, obviously, there's a lot of puts and takes but as it relates to data center. It's positive for the data center market No certainly we've seen.

Some of our largest customers ask us to accelerate some of our deployments and we look forward to continuing to ramp our server business I think you asked about.

Milan and yes, we are.

Expecting to a to be.

Watching that at the end of this year.

Got it thank you.

Wanted to switch to quickly into the PC business one of the things that stood out to me from your commentary in the prepared script was the contrast between strength in the PC business globally versus the weakness in China, I imagine that weakness in China was both on the <unk> and on the I'd be graphics.

Business, if there's any way that you could help.

Quantify that and and we've heard some commentary about the economy restarting in China have you seen some of those trends start to improve ended the second quarter. Thank you.

Sure. So you know the PC business has I'm actually held up pretty well. So if we look at you know the PCB business in the first quarter. We saw the rest of the world PC business actually get some benefit.

Yeah from some of the acceleration in demand sort of towards the end of the quarter of we did see some weakness in China as I'm trying to was shut down in the months. So February in early March we saw that primarily in the channel business to show an offline channels.

No we have seen that pick up as a we've gone through the month of April and what we're seeing in general and the PC business is the first quarter and the second quarter is actually relatively strong with accelerated notebook demand and Ah you know desktops sequentially lower just based on yes, where the preference around.

No no book versus desktop in this and this framework. So those are the key dynamics for the PC business.

Thank you very much.

Thanks, Matt.

Thank you, ladies and gentlemen, as a reminder.

Please ask one question one follow up to return to the Q. Our next question is coming from Joe Moore from Morgan Stanley. Your line is no wise.

Great. Thank you [noise].

You guys are one of the few companies kind of.

Giving a full year guidance I just wonder if you could talk us through how you're thinking about the second half. Obviously, you guys have OEM visibility into a bunch of new sockets and new designs, but your customers don't seem to have visibility. So what just little bit more color maybe on how you are thinking about forecasting beyond the visibility you haven't Q2.

Yeah sure Joe. So look we are you know we understand that yeah. There's a lot of questions about visibility as we go into other second half the year you know the way we look at our business is we have sort of a lot of positives in terms of just market drivers that yeah. We do have good visibility too.

I think our progress in the data center market is a positive we see that with a number of platforms wrapping and nearly at the number of.

Or customers that we have coming onboard so we see that as a positive for us as we go through this year console gaming as a positive for us there's lots of anticipation around the console. Its one of the largest launches I think of the year and yeah from that standpoint, there's no change in our view.

As it relates to cobot 19, just given.

What we see today no as you look at the range. You know we have increased the range of our guide and that sort of the biggest I'm sort of question Mark in my mind is kind of the shape of the PC market. This year as I mentioned earlier, you know the first half actually looks a little bit stronger than expected, particularly on the noble.

Oxide you know we are potentially expecting some weakness in the second half due to consumer spending you sort of have the too.

But the two forces are there I mean, one is on there is a pool with the strong work from home trends, but then there's also the view that I'm from a macro standpoint, you know will be weaker in the second half a year. So that's the primary variants in our model is what happened to the PC market I will say, though that.

Underneath the market trends I'm, we're very pleased with our portfolio I mean, the the notebook portfolio that we have in Pcs is the strongest we've ever had and we eat yeah. We have a good opportunity to out to getting share throughout the year, even as you know the market, maybe a little bit weaker than originally expected.

So that's the reason for the guidance to try to give the puts and takes and of course, we'll see how the your plays out.

That's helpful. Thank you and then in terms of data Center. If you I know you talked a lot about the analyst day about the newer products and penetration of new workloads in the second half can you talk about you know the workload that you've been dressing so far cloud gaming and whatnot and you know how how is that business progressing before we get to this he didn't airwatch.

Yeah. So the data center GPU business isn't important strategic business you know in terms of size, it's still relatively small compared to the datacenter sheep you business, we are making progress a good overall progress in a number of workloads cloud gaming is one that has been good one for us and we continue to.

The opportunity in that as we go through this year with the current products that we also just launched the VDI instance, with Microsoft Azure, a which show no. We feel will be a up a good workload for US and then we have a number of the HPC wins that that we that we've talked about that are going to be based on the cdna architecture.

Sure, which is an important strategic.

Area for us as well as you know continued focus on improving our machine learning overall machine learning you know frameworks and capabilities. So those are the key workloads that we're going after and I do think it's a it's an important business for us as we as we go forward.

Thank you.

Your next question is coming from the Oreo from Bank of America Securities. Your line is I want it.

Thank you for taking my question Lisa for my first one I just wanted to go back to your epic a separate business.

So very strong units in Q1, but a it appears that the mix was very kind of cloud heavy so perhaps ask fees.

Were lower than they are used to seeing I was I was wondering if they could just give us some sense of how we should think about somebody Sps going forward and importantly, if you think off silver sales for you for this year versus what you've talked a 90 days ago, how is that looking like because I think your competitor.

Her set that they expect some kind of.

Digestion of cloud capacity and the back half so I would just hoping to get some more color around SP and just what you're part of your overall several business powerful this year.

Correct, yes, so though that is correct there was a a mix shift towards cloud I'm in the first quarter and that did.

We have an impact with the ASP is lower that being the case. The agencies are very healthy. So I you know I think from the standpoint of how our business evolves. Its within you know the plus or minus of the business model in terms of where we believe demand will be versus 90 days ago. It's it's pretty similar and the way I would say it.

Is we see cloud being strong what we see is not just putting on more capacity, but really the ramping up new platforms and and so we view that as a positive we have strong enterprise adoption as well when we look at our pipeline and enterprise. It's continued to grow and continue to grow in first quarter to come to.

In your to grow you know in sort of the first month I'm here of the second quarter, we do expect a perhaps at the transactional business, where the the SMB type of business.

Maybe more impacted by cobot 19, but that was never a large piece of our business to begin with so we feel good about the server business and you know it continues to be a very strategic focus for us I think the relationships with our partners and our customers are getting closer as we go through you know sort of the the the pro.

Process of ramping of volumes and and so we continue to view it as a strong growth driver for us on a year over year basis.

Very helpful. And then maybe a follow up for the vendor on gross margins. So first off kind of tracking toward your 40 fiveish percent target for the year, but Q2 is 44% and I recall I think you the lease out there when do you said that second half it'd be more semi custom weighted but that's.

Suggest some more pressure on gross margin. So I would just hoping you could walk us through how we should think about gross margins in the back half given all the puts and takes off makes that are you expecting thank you.

Thanks, I think the keys puts and takes is as you said continued ramp for the semi custom Oh suggests margins as you observed going than corporate average, but they'll offset by the center that data central revenue. So that's got some then the back half and that does in fact, the gross margin maybe lower than corporate average, but these are satisfied at least.

So I just referenced.

Then we are pleased with the ramp into independent business and data center business. The margins are significantly higher than corporate average that that's how does the offset to help us deliver as we guided toward 2020, 25%.

Gross margin for Twentytwenty.

Yeah and maybe.

Does that I can just add to that so in addition to the data center a mix that defender mentioned.

We also expect to see the console gross margins improved as we go through the year.

And yeah. That's the reason for the full year Guy that are at 45%. So usually what happens is in the very for second quarters, our very first quarter of ramp for the consoles and so the margin starts a little bit lower and continues to ramp as we go through the year.

Okay. Thanks very much.

Your next question today is coming from work what pieces from Jefferies. Your line is no line.

Hi, Thanks for taking my questions.

On the first question on the client side, I guess M.D. it historically.

Hi, there are a good question on the consumer side, but it sounds like you're making great progress on the commercial side with the HP and and think pad design wins can you give us a sense roughly like what is the split between consumer and commercial and the notebook side and like how is how does that play going forward. Its commercial just continue to go.

Faster than the consumer side and is there an impact on the gross margin between.

Commercial does grow faster that's the first question. Thanks.

Oh, yes, Mark so RPC business does tend to be I'm much more consumer weighted I mean, we've made progress in commercial you know commercial has grown nicely, but it's still no consumer weighted we expect to continue to gain a commercial share as we go through this year as that happens I think theres Theres two things end up then.

The the PC margins that oh that affect PC gross margins heavier weight of commercial its certainly positive for the overall gross margins I think the other pieces, we should expect that education will be strong and that tends to be.

Lower in the mix and so you know there there are lots of mix dynamics, but overall I think our confidence level in notebooks are being a strong growth driver for us as we go through this year is good and yeah. We continue to work on the <unk> commercial versus consumer mix.

Great. That's helpful and then on the server side.

If you look at cloud instances versus cloud internal versus clock versus enterprise versus HPC.

Can you give us a sense of the split today, it's not it's not by percentage seemed like a rank order and what you would expect to drive.

Going forward or on our own field work.

Indicated that your instances, where a growing nicely on epic too I wonder to what extent is not being deployed internally on the cloud guys also.

Thank you.

Oh sure Mark So when you look at our cloud instances I would say that our cloud some of the cloud acceleration I referred to was acceleration of internal workloads that some of our top cloud customers. So I think that's it that's an area actually where we get more visibility yeah.

<unk> instances in terms of numbers for Oh for external usage, Hasbro and you know we announced the GCP platform, we announced the I'd be EMM platform I'm as well as additional Microsoft platforms, you will see more cloud instances of rollout over yeah. The next.

Quarter, or so, but a that much of the growth that we've seen has been around the internal deployment of Ah of the cloud companies and then as it relates to enterprise. It is more heavily weighted towards HPC, we've done very very well in HPC, we're pretty.

Hi, I'm excited about our new high frequency skews that were just launched here in April they're actually very well suited for large enterprise applications and financial sector as most of the technology sectors and and so that's that's a key focus for us in terms of growing those other pieces of the enterprise business.

Thank you.

Your next question today is coming from Stacy Rasgon from Bernstein Research. Your line is there a lot.

Hi, guys. Thanks for taking my questions on first will hurt a little bit again on on the server business I guess, they don't quite understand why a big shift toward cloud mix will drive ASP down sequentially. Your next is in mostly cloud all along so why all of a sudden is that driving ASP is down.

And you know I know you said units were up double digits I guess in that context, what did revenues do sequentially, maybe what would datacenter revenue CP plus GPU I'm as a percentage problem quarter like if you could give any color on any of that that'd be really helpful.

Sure. So we did have a positive cloud mix, but I would say that you know the Q4 to Q1 mix had significant improvement in cloud or significant.

Grossing <unk> cloud so that was the ASP you know sort of shift that we talked about as it relates to data center overall, we were in the high teens, a this quarter and you had one other question Stacy.

I said did what did revenues do sequentially Oh, yes doubled yeah, yeah, but so revenues were also up sequentially.

Okay, not as much as units, but revenues were sequentially yep.

Thank you for my follow up again, I want them I want to talk a little bit about the on the share target. So I know you'd said, 10% she'll give or take by the middle of this year you. If I guess if I, even just take your entire E. C revenue when I take Intel datacenter revenue this quarter you'd be about 5% on revenue share.

And our you know I know you're guiding for growth next quarter, but I mean, just given the magnitude it doesn't feel like that's going to double in the quarters. So just how are you feeling about that 10% died.

In the middle of this year is that getting pushed out are we define it wrong like how should we be thinking about that.

So the way we define the the share target and it very much is a sort of the view of we expect about 20 million units a year in terms of I'm single socket and dual socket servers, that's about 5 million units a quarter, so 10% shares about half a million units from where you know we.

Yeah look today, we look to be on track to that Q2 is actually like to yes, Yes, Q2 is actually our strongest backlog a quarter you know that we've seen so you know I think that's that's our current visibility today.

Is that 20 million an appropriate number though given your now playing and calm, whereas maybe when you gave that target before you weren't planning and column.

Isn't the total target at the total Mark it's more like 30, you know even more.

Well again, I think I'm not to.

[laughter] not to go back on on how we define the target I think I've given you how we define the target and I think that's an appropriate way to find the target I think our our coms exposure is very very early and I would say is not a significant part of the revenue at this point.

Got it thank you guys.

Thank you.

Thank you next question is coming from for she already from Goldman Sachs. Your line is alive.

Hi, Thank you so much for taking the question Oh lease I wanted to go back to your for your guide I'm I appreciate there's a wide range of outcomes here and.

You did put up or not get a number but.

If we take the midpoint of your updated guidance will be comparing contrast that with your old guidance you are lowering the midpoint of your revenue outlook by about 250 million, maybe a little bit more in response to Joe's question. I think you focused very much on the notebook business is that sort of the primary part of your business, where you're lowering numbers or is that.

Little bit more broad based across GPU, and perhaps a game console business as well.

Yeah, So I would say from the full year standpoint, the biggest variable is the PC business in its entirety, so that's notebook and desktop and like I said, it's a variable if I know you can model various scenarios as to what it can be and I think from our standpoint, when we started the year.

We had the expectation of a pretty normal PC environment I think we would all say that the environment is is different than when we started and given the size of that market. We have you know given ourselves a wide range as it relates to what we thought before it's primarily Pcs and when you look at the other markets you know game console.

Oh data center I'm worried about what we expected and the the signals continue to be positive in those areas.

Great and by the way I think Paul.

I'm sorry, if I can just finish off on Pcs I would say, though that I think we're all <unk>.

Waiting to see some of the data as we go through a the second half the year show I want to say that I'm like I said, there so as to competing forces. One is there's a strong pull for work from home trends and the other is just you know what is the impact on macro going to be for discretionary consumer spend and so I think that's the play.

Just where are we lack full visibility and you know we continue to talk to our customers and I think we're all trying to make sure that we're well prepared for any of the scenarios as they come about.

Appreciate that another quick follow up if I wanted to ask about the competitive landscape.

Your nearest competitor.

It continues to grow wafer capacity.

And you talked quite a bit about accelerating the ramp for 10 last week on their call.

Are you seeing any changes in how they compete in the marketplace either from a pricing perspective or from a marketing dollar perspective relative to how you saw the mark in 90 days ago. Thank you.

You know, it's it's the PC market is always a competitive market and from that standpoint, I don't think the environment has changed substantially from a oh, no either capacity standpoint, or a marketing dollar standpoint, you know from our view you know, it's all about ensuring that the platform.

Arms that are that we launch actually a ramp into production smoothly and so you know we've been working on that and we feel very good about that I think you know we mentioned that we have a significant number platforms over 135 mobile platforms that are coming to market here in 2020.

And they're very very competitive there are some of their best platforms from a a from just a overall performance and capability standpoint. So we're we're bullish on our ability.

Two out of the turned that into revenue growth.

Thank you.

Thank goodness question today is coming from Ross Seymore from Deutsche Bank. Your line is the long.

Hi, Thanks for letting me ask your question, we felt no to kind of will go back to the same well as everybody else, but I wanted to get on the epic side of things I.

I guess the good news is you guys are growing very rapidly and taking share in your reiterated that 10% market share goal for the June quarter, but overall it seems like the number has not really outside it anybodys expectations over the last few quarters. Despite the market accelerating from a demand perspective your primary competitor upsizing their data center.

Loop or even their cloud segment within that for three to four quarters in a row. So just wanted to to get your feeling on is there something that is capping the growth. There is it the ASP is going down because of who the customers are a I'm just wondering why if the market. It is strong as it seemed to be for the last three or four quarter, you're doing really well, but not actually.

Citing our expectations.

Yeah, Ross the way I look at it and I mean, this was very very similar to the ramp that we saw in the PC business you know the the ramp in server is it something like steady as she goes and you know each quarter, we had platforms each quarter more platforms are qualified each quarter, yeah. They ramp it's a little bit different.

From a pure market phenomena and again, I mean, I understand that they're our market phenomena and then there are no growth expectations based on you know platform launches as well as.

Software being qualified and so on and so forth. So as it relates to our expectations is actually going quite well as it relates to yeah. The yeah acceleration of cloud I think we're pleased with it we're not ready to upside numbers at this point I think we want we already had very aggressive growth assumptions.

In a in what we went through I think you'll see us I'm a little bit less.

Market specific and a little bit more A.M.D. specific as it relates to our customers and their qualification plans. So no I think we are I'm confident that or data center business is doing well and you know we need to continue to demonstrate that over a number of course.

Thanks for the answered it just for my follow up one that switch gears or to the computing and graphics side could you just get a little bit of color. What you expect for that in the second quarter and then as you look into the second half I know you mentioned that the area greatest uncertainty for many logical reasons, but any sort of difference between the computing in the graphic side both in Europe.

Quarter expectations, and then the puts and takes on the back half of the year.

Yeah. So we are expecting that the computing and graphics business will be down sequentially. So its offsetting some of the growth on the on the epic in semi custom side within the computing and graphics business. You know, we see notebooks up strongly as a result of the launch of our new rising.

4000 platforms and some of the other trends that we've talked about we see desktop down sequentially and we see graphics down sequentially.

Q2 is normally a sequentially down quarter for the channel business for us. So that's not unusual and yeah. We that's those are the dynamics in the second quarter and as we go through the second half the year as I mentioned.

Yeah, we'll have to see how consumer spending holds up against the other demand environment.

Thank you.

Thank you next question please coming from John Pitzer from Credit Suisse. Your line is alive.

Good afternoon, guys. Thanks, Let me ask the question Lisa just my first question, maybe you could just help me kinda better understand and Ms. current environment of shelter in place.

Tax sort of.

New customer new work mood engagement, and I guess to better kind of underscore that just given that you're expecting pretty good share gains in the back half of your given your second half guidance notwithstanding the gaming cycle or most of those wins already in your back pocket and so you kind of high visibility or how do I think about.

Dynamic.

Yeah. So I think there there are many that are already in progress and that would be our you know sort of our typical view of how long it takes to wrap a customer from beginning of engagement to ER to actual ramp can it be anywhere from six to nine months if.

And that's that's a good number as it relates to what we see what the as you call. It children play. So we see pretty strong activity I mean, the activity level continues to be high.

On both the cloud as was the enterprise side, you know the only place where you know, perhaps we see a little bit of a slowdown is as I said on some of the transactional business, which you know we had a plan to grow as we go through this year and that that might that might grow more slowly.

You know just as people aren't focused on new infrastructure right now, but in terms of cloud and large enterprise. You know there continues to be you know good activity on both current already won a design platforms as well as you know new pipeline engagement.

That's helpful leases as my follow up as you guys are painfully aware one of the metrics look good we probably focus probably too much on is just gross margin in gross margin progression.

Given the gaming sort of ramp coming it sort of combo boots. The issue. So I was hoping maybe you would quantify both in your Q2 guide in your full year guide what impact you know the gaming console business is having on gross margins are you what would gross margins be trending to right now X gaming.

For both June at the full year.

Yes.

Thank you Sean [laughter] go ahead. Please go ahead [laughter].

So I do look at Q2, if they if you asked me to specific Q1. The Q2 Q2, we came in at the 46% should do is down.

One of them and they primarily due to the ramp in the game console.

I'll say it earlier, you mentioned that a margins and the initial ramp of semi custom revenue artificially low and they do improve over time for semi custom, but also from a company standpoint, when you look at.

But average gross margin is low and EFL hi, This is having an impact in terms of sequentially. The margin is going down from Q1 to Q2.

But I guess kind of into my.

My question is the non gaming more gross margins continuing to move higher sequentially every quarter this year.

I use it more than 100 basis point impact from gaming in the June quarter.

I think.

Hi, Hi, Lisa Star he wasn't the vendor and I'm not in the same rooms, though [laughter].

[laughter].

The answer is yes, John the impact of the sequential decline of two point is is semi custom if you take semi custom out the rest of the portfolio would be what do you would see in the rest of the portfolio is you would see server up and you would see desktop.

Offset some of that but the sequential decline is also because.

Perfect. Thanks, guys.

Your next question is coming from Timothy Arcuri from you'd be S. One is alive.

Hi.

I had two I guess first question given your I think you said that data center with high teens of revenue. So that we put it sort of them a low to mid threes for March can you break out how much we CPQ versus GPU and I guess I'm, a GPU side that can be pretty lumpy. So.

Anything to call out that's assumed for June.

Yes, we did one of the SIFI use if you take that they send us he views and Gpus together.

One is high teens, Oh revenue in Q1, but primarily weighted towards the CP goes up because that's a annual growth from Oh, So what's your view business standpoint.

Okay.

And then I guess bigger picture question, So Lisa I think there's some new.

Regulations in China. They go into effect on June 1st around the additional cyber security review for.

Critical information infrastructure.

And I would think that maybe you could fall under that so any thoughts on how that could impact demand for you and maybe if you can sort of tell us how much of your revenue on a consumption day. Since you think right now is in China.

Yeah. So a we're looking at that new regulation, so I don't have any.

Specifics at this point in time, we'll continue to look at that that new regulation you know as it relates overall I would say the majority of our business in China is consumer or let's call it consumer related cloud.

Excellent.

Thank you operator, operator, we'll take two more questions.

Certainly our next question is coming from Mitch Steves from RBC capital markets. Your line is alive.

Hey, guys. Thanks for taking my question I've got one in a follow up but the first one just kind of on the bookings do you guys are saying so most worried about kind of the near term revenue number you guys put up for server, but if you're sitting here today and you compare that to a quarter ago, what what does it bookings look like or backlog has that changed at all is that improving or is it getting better or is it pretty much in line with what you guys expect in terms of the.

Overall.

Backlog.

Yeah, I think its I think I said earlier, but Mitchell. It is certainly better so we have no better visibility.

A month into the quarter versus 90 days ago.

Okay and then the second one I had is just more broad it's a it's on China actually I have to one thing we're picking up is that a lot of the Chinese companies supposedly a buying a lot of semiconductor chips ahead, just in case, they get banned from the U.S. and China relationship deterioration. So since you guys are not really involved in that you're more exposed to the hyperscale.

So do you guys have any comments, where you guys think is actually happening. There. If you were actually trying to build up I guess build up in inventory levels for semiconductor chips that they may get band or do you think that's kind of just noise and it's not really occurring right now now and that geography.

[music].

Yeah, Mitch, it's a little bit hard for me to generalize I would say from what we see and you know we track, both selling and consumption pretty pretty closely.

It looks like it's it's normal patterns, but.

We don't have exposure to some of the market you're talking about.

Got it thank you.

Thank you.

Thank you next question is coming from Blayne Curtis from Barclays. Your line is alive.

Thanks for squeezing me in Baby, Lisa just look into fiscal guided.

Yeah, I'm kind of curious if you look at first half first second half it seems like you still would require grouping geographic.

Wanted to just make sure that was right and then I'm just kind of curious how you think that sort of privacy or share gainer.

Yeah, I think cloud in enterprise intermingled, together, particularly with work from home. So I'm kind of its kind of curious as you look at that business first half that second half do you think until we're talking about some weakness in enterprise and government thought of exposure for you, but it's kind of curious how you're thinking about is there any headwind at that work from home. It's been holds off a server as well.

Yeah. So as it relates to you know first half second half I mean, as as we said Theres. A you know the <unk> 8.4 billion plus or minus a 5% is <unk> is a wired than normal range for us I think you can see outcomes within that range that would have computing and graphics up as well as you can see out.

It comes with it no more flattish.

So that being the case, so I think the trends that I talked about are likely the right trends, which is you know the a consumer spending or perhaps a little softer enterprise and commercial positive for us notebook share gain a positive for us and we want to see how you know sort of.

A desktop channel behaves as we go into the second half the year and then your second question.

As you look at a server business first that second half you had seen thing you saw some strength and cloud in March in June and kind of curious are you thinking about is there any work from on benefits within that that would then turn into had been a second up.

Yeah, well I think from what we see we see a mostly platforms ramping and and so that's that's how we're thinking about the datacenter business. No of course now we're in this call. Good 19 environment and so we'll have to actually play out the next couple of quarters, but within the ranges that we see we.

He and opportunity to continue growing I'm in the second half the year given the visibility that we have with customers. The platforms that are ramping and you know I still feel very much like we're in the early stages of our second Gen epic ramp and I know, it's been a couple of quarters, but that's just the way surfers ramp so when the.

Early stages of the ramp lots of customer activity a significant pool.

Yeah from the customers to get 'em up and running as soon as possible and you know as you said, we don't have as much exposure to some of the the other end markets, which which may have.

Have a have more volatility in the second half the year.

Thanks.

Thank you we reach of our question and answers sets and how that's true the port for their corporate pretty for closing comments.

Thank you and Kevin that concludes today's call. We appreciate everybody participating and stay safe stay well and we'll look forward to engaging with you throughout the quarter. Thank you.

Thank you that does conclude todays teleconference. You may disconnect your lines as prime and have a wonderful day, we thank you for your participation today.