Q4 2020 Advanced Micro Devices Inc Earnings Call

January 26, 2021

[music].

Greetings and welcome to the a M D for quarter 2020 financial results Conference call. At this time, all participants for any listen only mode. If anyone should require operator assistance. Please press star zero on your telephone keypad as a reminder of this conference is being recorded its now my pleasure to turn the.

All of it's your host Ruth Cotter Senior Vice President worldwide marketing human resources and Investor Relations. Ruth. Please go ahead.

Thank you and welcome to Amd's fourth quarter, and full year, 'twenty and 'twenty financial results Conference call by now you should have had the opportunity to review of copy of our earnings press release and accompanying slide where if you've not reviewed these documents yet they can be found on the investor relations page of AMD dotcom parts.

It just depends on today's conference call, our Doctor and Lisa Su, Our President and Chief Executive Officer, and da Vinci Kumar, Our executive Vice President and Chief Financial Officer, and Treasurer. This is of live call and will be replayed via webcast on our website before we begin I would like to note that on the second of March Mark Papermaster.

The Chief Technology Officer, and executive Vice President of Technology, and engineering will attend the Morgan Stanley TMT Conference. In addition, our first quarter 'twenty 'twenty. One quiet time is expected to begin at the close of business on Friday March 12th.

Today's discussion contains forward looking statements based on current beliefs assumptions and expectations and speak 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 and our press release for more information on factors that could cause actual results to differ materially we will refer primarily to non-GAAP financial measures. During this call.

The full non-GAAP to GAAP reconciliations are available in today's press release and slides were posted on AMD dotcom now with that I'd like to hand, the call over to Lisa Lisa.

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

2020 marked an inflection point and our long term journey as we made significant progress establishing a M D. As the high performance computing leader.

We significantly accelerated our business and exceeded our aggressive growth goals for the year, while navigating industry wide challenges caused by COVID-19.

We built substantial momentum throughout the year as we successfully ramped volume production of more than 27 nanometer PC gaming and datacenter products.

The annual revenue grew 45 per cent setting a new record at nine seven and 6 billion.

We also expanded gross margin for the fifth straight year and more than doubled net income from the prior year.

Yeah.

While the PC market grew approximately 13% in 'twenty and 'twenty to surpass more than 300 million units for the first time since 2014.

Our annual client processor revenue grew by more than 50% as AMD ryzen processor adoption increased.

We delivered record client annual processor revenue as we gained significant share in 2020.

Adoption of epic processors across cloud enterprise and H P. C customers also accelerated significantly in 2020.

We set of new all time record for annual server processor revenue.

Server processor sales more than doubled year over year and our overall data center sales are now of high teens percentage of our total annual revenue.

Looking at the fourth quarter, we ended the year very strong.

Revenue grew 53% year over year to a record $3 to 4 billion, while net income increased 66%.

Turning to our computing and graphics segment fourth quarter revenue increased 18% year over year to $1 96 billion.

Desktop CPU revenue grew by a strong double digit percentage year over year and sequentially driven by strong demand for our ryzen processor family and both Oems and systems and the channel.

Sell through of our new Ryzen and 5000 processors, featuring our Zen three core was particularly strong more than doubling the launch quarter sales of any prior generation ryzen desktop processor.

And mobile CPU shipments increased by a double digit percentage, both sequentially and year over year.

We set records for both quarterly and annual mobile processor unit shipments as ryzen 4000 notebook shipments continued to ramp and support of the 100 notebook design wins launched in 2020.

At CES earlier this month, we launched our rides and 5000 mobile processors for ultra thin gaming and commercial notebooks.

These new mobile processors, featuring our Zen three processor core extend our performance and battery life leadership, delivering up to 23% higher performance compared to our previous generation and 17 and a half hours of battery life.

We are on track to increase the number of notebook designs powered by our new Ryzen 5000 processors by 50% compared to our prior generation positioning us well for further growth in 2021.

And graphics revenue declined year over year and increased sequentially.

Desktop GPU sales increased significantly from the prior quarter driven by the ramp of our new radio and 6000 series Gpus, featuring our rdna two architecture that deliver up to twice the performance and 65% more performance per watt and our prior generation.

We're seeing very strong demand for our new Gpus the.

The radio and 6000 series, our fastest selling high end gpus ever with launch quarter shipments three times larger than any prior AMD gaming GPU priced above $549.

We continue to ramp production to meet the strong demand and are on track to expand our Radeon 6000, GPU portfolio and the first half of the year with the new rdna, two based desktop and mobile Gpus.

Data center GPU revenue decreased year over year, but increased sequentially, including initial shipments of our AMD instinct and my 100 accelerator.

And my 100 features our new cdna datacenter GPU architecture, and as the industry's fastest HBC accelerator for scientific research and the first data center GPU to break the 10 teraflops barrier.

We are making strong progress on our datacenter GPU hardware roadmap and expanding our software ecosystem and preparation for the launch of the first extra scale supercomputer in the United States. The all AMD powered frontier system planning to go online later this year at Oak Ridge National Laboratory.

Now turning to our enterprise embedded and semi custom segment revenue of 1.28 billion increased 176% year over year, driven by strong growth in both semi custom and server processor sales.

Semi customer sales increase year over year and sequentially based on strong demand for the next generation, Sony and Microsoft consoles.

Our semi custom SSD sales are ramping faster than the last console cycle, and we expect sales to be better than typical seasonality and the first half of this year based on the current strong demand.

Now turning to server, we had record revenue and the fourth quarter as both cloud and enterprise sales grew sequentially.

Cloud adoption remains strong as Google, Microsoft Tencent, and others continue expanding their use of epic processors. The power of larger portions of their critical internal infrastructure and the number of AMD powered cloud instances expense.

28, new public cloud instances launched and the fourth quarter from Alibaba, AWS and Oracle, while Google expanded general availability of their confidential computing Vms powered exclusively by epic processors to nine regions.

For the year the number of AMD powered instances available from the largest cloud providers doubled to more than 200.

And the enterprise adoption of the AMD powered servers grew as Dell HPE, and Lenovo secured new and customer wins with fortune 1000 accounts across key verticals, including manufacturing financial services and automotive.

And HBC the number of AMD powered supercomputers on the November top 500 list increased to 21 systems, including two of the top 10, and the fastest supercomputer and Europe.

We expect our data center business to accelerate in 2021 as we further extend our performance efficiency and Tcl leadership with the launch of our Nexgen server processors code named Milan.

And Milan production began in the fourth quarter as planned with initial shipments to cloud and HBC customers.

We are very pleased with the performance of Milan.

We conducted the first public preview of Milan at CES, highlighting 68% better performance compared to two of the highest and dual socket processors from our competition when running a compute intensive weather modeling simulation.

We're on track the publicly launch our third Gen Epic Milan processors and March with very strong ecosystem support.

In summary, our strong 2020 results and 2000 and 'twenty one guidance demonstrate the growing momentum for our leadership product portfolio and the robust demand for high performance computing.

And the last year, we have all seen firsthand the of central role of high performance computing now plays and our daily lives and we expect adoption to accelerate over the coming years as we enter our high performance computing Mega cycle, driven by the growing adoption of cloud computing services accelerating digital transformation of industries and <unk>.

<unk> is the transition to extra scale supercomputing and the mainstream adoption of AI.

Against this backdrop, we are very confident we of the right long term strategy and capabilities to deliver a strong cadence of leadership products and make AMD the premier technology growth franchise.

Longer term, our strategic acquisition of Xilinx further strengthens our technology capabilities and positions us well for growth across a broader set of markets.

We passed several important regulatory milestones to date and remain on track to close the transaction by the end of 2021.

I am very proud of what AMD has accomplished over the last few years as our talented and dedicated employees established a new pace for innovation in the high performance computing industry.

I'm, even more excited about what we can accomplish over the coming years based on our Roadmaps and the strong opportunities we see to play an even larger strategic role with our customers and partners.

Now I'd like to turn the call over to the vendor to provide some additional color on our fourth quarter and full year financial performance day.

Winder.

Thank you Lisa and good afternoon, everyone 2020 was an outstanding year for AMD.

The industry, leading product portfolio and market share gains drove record annual and quarterly revenue with full year revenue growth of 45% the.

We also achieved record annual net income and free cash flow. We are pleased with all the strong performance and the leverage and our financial model.

Fourth quarter revenue was $3 4 billion up 53% from a year ago and up 16% from the prior quarter driven by strong sales of ryzen and epic processes and semi custom game console and sources gross margin was 45%.

Approximately flat year over year.

Operating expenses was 789 million up 45% year over year.

Driven by increased investments in R&D and go to market activities and higher variable employee compensation related expenses all for.

Operating income was $663 million up $258 million of 64% from a year ago, driven by significant revenue growth and.

And operating margin was 20% compared to 19% a year of.

<unk> net.

Net income was $636 million up $253 million for six months to 6% from a year ago and diluted earnings per share was <unk> 52 cents compared to 32 cents per share a year ago.

Now turning to the business segment results fourth quarter computing and graphics segment revenue was 196 billion up 18% year over year, primarily driven by significant ryzen processor growth computing and graphics segment operating income was 420 million.

And our 21% of revenue compared to 360 60 million a year ago, driven by higher revenue and.

Enterprise embedded and semi custom segment revenue was $1 2 billion up 176% year over year, driven by strong semi custom product sales and continued epic silver process of momentum across the cloud and enterprise markets.

A big processor revenue grew sequentially, including early shipments of third generation epic Milan processes.

S. C segment operating income was $243 million or 19% of revenue compared to and operating income of $45 million a year ago driven by higher revenue.

Turning to the balance sheet, we had record free cash flow of $480 million in the fourth quarter inventory was $1 4 billion up 8% from the prior quarter and preparation of 2021 sales.

Fourth quarter, adjusted EBITDA was $753 million compared to $469 million, a year ago, driven by higher quarterly earnings.

Before I turn to the full year financial results, let me address our GAAP tax item based on of our financial results and strong outlook. We released a significant portion of our tax valuation allowance totaling $1 $3 billion, which had a GAAP EPS benefit.

Of $1 <unk> in the fourth quarter and the benefit of $1 seven.

For the full year.

Now, let me turn to our full year financial results 2020 revenue was $9 76 billion up 45% year on year, driven by strong growth in both business segments gross margin of 45% was up 190 basis points from the.

The prior year, driven by of Ryzen and epic products, partially offset by semi custom and radeon product sales.

Operating expenses were 28% of revenue improving from 31% in 2019.

2020, operating income was up 97% from a year ago to 166 billion.

For 17% of revenue net income was 158 billion up 108% from the prior year.

Turning to the balance sheet cash cash equivalents and marketable securities totaled $2 3 billion at year end and full year of free cash flow was $777 million as compared to $276 million in 2019, we.

We reduced principal debt by $225 million and 2020 and ended the year with $338 million of gross debt.

Okay.

Now turning to the outlook for the first quarter of 2021, we expect revenue to be approximately $3 2 billion, plus or minus 100 million and increase of approximately 79% year over year and down 1% sequentially.

The year over year increase is expected to be driven by growth and all businesses. The sequential performance is driven primarily by better than normal seasonality and our PC and semi custom businesses and strength in our data center business.

In addition for Q1 2021, we expect non-GAAP gross margin to be approximately 46% non-GAAP operating expenses to be approximately $830 million non-GAAP interest expense taxes and other to be approximately 105 million include.

<unk> and the effective tax rate of 15% and first quarter diluted share count is expected to be approximately 123 billion shares.

For the full year 2021, we expect revenue growth of approximately 37% driven by growth and all businesses. We expect non-GAAP gross margin to be approximately 47% non-GAAP operating expenses to be approximately 26% of revenue non <unk>.

<unk> effective tax rate to be 15% and we expect the company's cash tax rate to be approximately 3%.

In closing I'm very pleased with our 2020 results, which demonstrate the strength of amd's product momentum customer traction and market share gains.

And we enter 2021 and continue to invest and the business and execute our long term strategy, we are well position to drive gross margin expansion increase profitability and deliver strong shareholder returns with that I'll turn it back to the road for the question and answer.

Session route.

Thank you the vendor operator, please poll the audience for questions.

And certainly will now be conducting a question and answer session.

If you'd like to be placed from the question queue. Please press star one on your telephone keypad of confirmation tone will indicate your line is and the question queue. You May press star two and we'd like to move of your question from the queue for participants using speaker equipment may be necessary to pick up the handset before pressing star one one.

The moment please for the poll for questions.

Our first question today is coming from Blayne Curtis from Barclays. Your line is now live.

Hey, good afternoon. Thanks for taking my question and congrats on the very strong result, but maybe first and some annual guide on the very robust you said all segments up and I was wondering if you could provide any color either by segment of right product, which ones would be better worse and that very robust near the 10%.

Sure. So thanks for the question Blayne.

We're excited going into 'twenty and 'twenty, one and obviously 2020 was.

Quite a strong growth year for us.

We look at the annual guidance, we really do see strength across all of our businesses. So the.

And it's led by our larger businesses, so significant growth, we expect significant growth and server.

Growth in Pcs as well as growth in the semi customer console business, but we also see growth in our graphics business across consumer and data center graphics as we ramp.

For the full product lines there as we go through 2021. So overall I think we're seeing the strength of the new product portfolio as well as a positive demand environment.

Thanks, and then maybe it's the fall of I'm curious about how you think about the shape of the year, obviously, mark the be that much better than seasonal across several product lines and and I'm curious, how you're thinking about the overall PC market.

You can sort of talked about for being first half weighted and.

And obviously semi custom.

And we did as much in December and if you do the first three quarters of 'twenty and 'twenty kind of curious how you're just thinking about first half second half of the demo.

Yeah. So you saw that a little bit and our Q1 guidance I think our Q1 guidance is.

Better than normal seasonality, we normally see.

For the first half.

Weaker than the second half just given the consumer bent.

We see the series of little bit of of different shape. The shape is from a market standpoint.

The <unk> and gaming better than seasonal there is some pent up demand.

Going into the first half of the year and that's that's baked into the guidance, but we're also seeing a strong data center environment. So.

We see server up sequentially in Q1, and that's on the strength of both our current products of our own products as well as the the Milan ramp so a little bit different shape, the normal, but I think we see strong demand across our.

Our PC gaming and data center segments.

Thank you.

Thanks Lynn.

Thank you for our next question today is the move from Matt Ramsay from Cowen. Your line is now live.

Yeah.

Thank you very much and good afternoon.

Lisa the vendor happy new year.

I wanted to start with server and.

And I've modeled a much bigger dollar contribution and 2021 for the growth.

And there had been and prior years and I picked up on the in the prepared script, Lisa that you mentioned.

Celebrating growth for your data center franchise, and 2021, I think that's probably off of business that double.

And last year, so do I have that right and it will accelerate and percentage terms and maybe you could break down a little bit of its all Alibaba and the slides announced.

Theres, the Milan and launch coming that I think could push you into the enterprise a little bit more than you've been in the past and drivers of that sort of our growth would be really helpful. Thank you.

Yeah sure so Matt Thanks for the question.

Are you happy with the progress and the data Center business I think of 2020 was a strong year for US we do see of significant growth into 2021, I think there are a number of drivers first of all I think we're seeing the cloud business strengthen of for us so going into the first half of the year and as I said.

And that's both on the current generation Rome, as well as the next generation Milan.

The reception to Milan is very strong so we're.

Pleased with performance we started shipments in Q4, that's continuing into Q1 youll.

Youll see.

We expect to see sort of more customers to sort of new customers adopt Milan and then.

Perhaps some of that had been on our previous generation. You'll also see a very strong enterprise portfolio. So I think we have a very strong time to market platforms with the key Oems and that's part of our launch of planned later this quarter. So overall I think we are optimistic about the data.

Center, and 2021, I think theres, a lot of need across cloud and enterprise and we.

We think of Milan is very well positioned.

And thank you for that Lisa and <unk>.

The second question and I wanted to ask a little bit about supply.

It's no secret that the industry of supply constrained.

Both due to growth and because of the some of the challenges with Covid and your company's no different maybe you could characterize for us the magnitude of the supply constraints and how much they might've been.

Hindering what was obviously really strong growth as it was but.

That's number one and then number two.

Noticed that a lot of folks and maybe thought that the big cash.

Capex increase from TSMC, you might of been something to do with Intel and and I think.

On the incoming CEO there, it's maybe clarify some of those thoughts, but I wonder as you look forward through this year, how your guidance incorporates increasing supply coming online and if you've guided to an assumption of better supply or what you have line of sight to with your partners.

Yeah sure so certainly.

When I look at the semiconductor environment in 2020. It was very strong. So we saw a strong revenue ramp and our business as well as across some of our peers. It's fair to say that the overall demand exceeded our planning and as a result of we did have some supply constraints as we ended the year those were.

Really I would say in the PC market the low end of the PC market and in the gaming markets that being said I think we're getting great support from our manufacturing partners.

The industry does need to increase the overall capacity levels and so we do see some tightness.

Through the first half of the year, but there is added capacity and the second half and then as.

In terms of how we how we think about these things so for our full year annual guide we do have good visibility on both the demand side and the supply side and that was the basis for the guidance across the businesses.

Thanks, Lisa I appreciate it.

Thank you.

Thank you for our next question today is coming from the carrier from Bank of America and your line is net lives.

Thanks for taking my question and congratulations on the strong outlook, despite all of the industry constraints.

Lisa just one.

Question to go back to a prior one I was hoping you could help us dissect Q1, and the 2021 outlook.

With and without your semi custom business, so we get a sense for the.

The different moving drivers of the business both in Q1 and for the full year.

Yeah, So let's see let me, let me start with Q1 so.

As I said in the earlier that we do see the PC market and the console business.

It better than seasonal normally consoles would be seasonally down.

Right of bid double digits, you would expect.

Consoles this quarter will still be let's call it modestly down.

We do see sequential increase in.

And the server business as well as and the graphics business as we ramp new products there.

And then as we go into the net.

2021, I would say we are now at the place where we have let's call. It three businesses at scale and so the guidance really encompasses a very significant growth.

Across our data center business and the service space.

Growth and Pcs, just given the visibility that we have around platforms and platform launches and <unk>.

Both the notebook side and the strength of our channel portfolio.

Setting the conversation with gross margins I mean, we were right where our roadmap says we would be right. Our long term roadmap says given the the mix of the business, we set out a target to be greater than 50% I think we're right on track for that I think as we go through each.

Each of the product ramps you know there are the ebbs and flows but that being the case I think the yields are right on track.

And with.

There, we expect them to be as well and you know the most important thing is we're now seeing growth across let's call. It.

For now and say.

And say four or five large businesses and so you know again, there are some ebbs and flows between them and sort of the mix between cloud and enterprise the mix between consumer and commercial and then just the mix between.

Consumer and data center graphics, so put all that together and.

Like I said I think we're pleased that we grew margins.

Two points last year and where.

Again guiding to growing margins two points this coming year and it's right on in line with our overall roadmap.

Okay, perfect and that makes complete sense to me I think it's very difficult to grow the gross margin loans and somebody yields ramping up right now, but if I could wanted just in terms of the overall addressable market I realize you guys don't guide by segment, but I think that on one of the big things that happened last year's PSU surprise mastery upside and so maybe you can level set us in terms of the three major markets you guys serve.

GPU CPU PC and servers.

Do you think the total industry is going to do this on.

And maybe you can give us an idea of what you guys view as the full year and then we can kind of come to our conclusions and and conclusion sorry on.

And what that means for AMD.

Yeah. So I think my my commentary was Pcs if you just look at what.

Various sources are saying, we would say sort of mid single digit growth and I think we would agree with that I think server as a market. If you take a look at enterprise and cloud again.

Again, they have different growth rates, but let's call it.

Modest growth and and then gaming is hard to call because again, it's a different cycle within that sort of market backdrop I think we see.

Let's call it 37% growth and much of that is because of the product ramps and the product portfolio that we have so and we're pleased with the growth. We think we're growing significantly ahead of the market.

That being the case.

I'll have to see what happens in 2021, because as you said 2020 market was stronger than most projected at the beginning of 2020.

Operator.

Two more questions. Please.

Certainly our next question is coming from Mark were pieces from Jefferies. Your line is now live.

Hello, Mark perhaps your phone is on mute please pickup your handset.

Mark if you can hear me I cannot hear you.

Operator, we can move on thank you Andrew our next question is coming from.

Joe Moore from Morgan Stanley. Your line is now live.

Great. Thank you and I Wonder if you could talk about your cloud business for server and maybe give us a sense you've talked about in the past about the need to to sell twice you sort of selling to the cloud service provider and then they are selling it to the enterprise that they service how are you doing with that and where are you with sort of internal cloud work.

It's better that they are internally focused on versus the enterprise facing workloads to the cloud.

Yeah. Thanks for the question Joe Yes. So if you look at the cloud environment, we call it both internal as well as.

On the external facing workloads I would say, we've done very well with internal workloads and the last couple of quarters ago, we've seen on.

Number of applications.

Just a ramp.

And you know here, India and the second half of this year and going into next year and so we're pleased with the performance on the internal workloads.

We see that carrying over to Milan.

And.

The.

And let's call it the move from room Tomorrow and is not too heavy lift and so we expect that that will continue going into 2021.

And in terms of the external facing workloads.

We spent quite a bit of effort and I'm sort of building, our let's call. It sort of the business development engine that sort of let's call. It sells along with.

And the cloud vendors as well as frankly enterprise Oems and so our conversation with large enterprises is usually a hybrid conversation. It's if you want to buy on Prem and let me tell you what AMD epic can do if you want to use cloud instances, we have a wide variety of cloud instances across all of the largest.

Cloud vendors and and that's actually progressed very nicely. So.

I think overall, that's leading to some of our positive commentary and cloud is that we have seen both progress on internal as well as external sales with motion.

Great. Thank you and then I wonder on the in terms of data center GPU, you've talked about some of the emerging applications and Macau gaming has been and investment that some of your customers have made.

And what's the status of that and how big a portion of your data Center GPU business do you expect to be driven by cloud gaming and 2021.

Sure so.

I think.

Cloud gaming.

A portion of the business was a larger portion of the business and sort of past years for the datacenter GPU in 2021, we do have additional cloud gaming engagements that will ramp, but I would say it would be the smaller portion of the business and <unk> would become let's call. It the larger portion of the business in 2020.

One.

Great. Thank you very much.

Thanks, Joe.

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

Hi, Thanks, Thanks for fitting me in here. So I guess my first question Lisa based on your commentary on data Center revenues and your splits and you answered a question before about Asps and Q4, it sounds like server CPU shares running like 12, 5% on your $20 million Tam base that you use.

So you have Milan, and ramping and you're talking about a lot of visibility on that and have this year. So I'm sort of wondering if maybe you can give us.

And what your guidance implies sort of what the next milepost to think of would be in terms of server CPU share as you sort of exit the year and good luck into next year.

Yeah, So Tim Thanks for the question.

What I would say is I don't have a new market share target and I think just given.

All of the the variance and the market, but what I will say is we've given you.

Good view of the business through sort of the percent.

Of revenue it is and.

As I said in the prepared remarks.

The data center business.

Was high teens percentage of annual revenue and it was.

Predominantly.

Predominantly server so the datacenter GPU was a very small piece of that and it was predominantly server as.

As we go into 2021 again, we see significant growth I would say, it's one of the.

The key growth drivers for the company and we will give you updates as we go along the way and in 2021 in terms of how it's growing as a relative size of the business.

Okay got it and then just quickly on datacenter GPU.

It looks like and it's maybe flattish this year year over year and <unk>.

Obviously, it's going to grow this year on two fronts.

And to your comes on mid year can you just sort of maybe give us some sense in terms of how much you think it could grow I mean could it double year over year I understand it's not big from a dollar point of view, but could it double year over year, and maybe just talk about how big frontier could be as a contributor to that business ex.

Yeah, So and I think.

No as I previously stated the datacenter GPU business is still relatively small for us it was actually down year over year. So from 2019 and 2020, it was actually down year over year, because some of the cloud gaming ramps in 2019.

Paused and 2020 in terms of what it could do and 2021, we see it as a growth driver.

In terms of relative.

Size, yes, it could double I think that the way to think about it though is.

We said that we would like to get that business to let's call. It a half a billion dollars as sort of the first milestone and I think we're making good progress towards that milestone but.

And that's what I would say about it.

That's helpful.

Thank you.

Operator that concludes our call. Thank you.

Thank you that does conclude.

And this teleconference. You may disconnect your lines at this time and have a wonderful day.

You for your participation today.

Yeah.

Okay.

[music].

Greetings and welcome to the a M D fourth quarter, 'twenty and 'twenty financial results Conference call. At this time, all participants really listen only mode. If anyone should require operator assistance. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded and somebody.

And as you turn the call over to your host Ruth Cotter Senior Vice President worldwide marketing human resources and Investor Relations. Ruth. Please go ahead.

Thank you and welcome to Amd's fourth quarter, and full year, 'twenty and 'twenty financial results Conference call by now you should have had the opportunity to review a copy of our earnings press release and accompanying slide where if you've not reviewed these documents yet they can be found on the investor relations page of AMD Dot com.

Participants on today's conference call, our Doctor and Lisa Su, our President and Chief Executive Officer, and day vendor Kumar, Our executive Vice President and 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 on the second of March Mark Papermaster.

Our Chief Technology Officer, and Executive Vice President Technology, and engineering will attend the Morgan Stanley TMT Conference. In addition, our first quarter 'twenty 'twenty. One quiet time is expected to begin at the close of business on Friday March 20.

The full non-GAAP to GAAP reconciliations are available in today's press release and slides were posted on AMD dotcom now with that I'd like to hand, the call over to Lisa Lisa.

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

2020 marked an inflection point and our long term journey as we made significant progress establishing AMD as the high performance computing leader.

We significantly accelerated our business and exceeded our aggressive growth goals for the year, while navigating industry wide challenges caused by COVID-19.

We built substantial momentum throughout the year as we successfully ramped volume production of more than 27 nanometer PC gaming and datacenter products.

Annual revenue grew 45% setting a new record at $9 76 billion.

We also expanded gross margin for the fifth straight year and more than doubled net income from the prior year.

While the PC market grew approximately 13% in 'twenty and 'twenty to surpass more than 300 million units for the first time since 2014.

Our annual client processor revenue grew by more than 50% as AMD ryzen processor adoption increased.

We delivered record client annual processor revenue as we gained significant share in 'twenty and 'twenty.

Adoption of epic processors across cloud enterprise and HBC customers also accelerated significantly in 2020.

We set a new all time record for annual server processor revenue.

Server processor sales more than doubled year over year and our overall data center sales are now a high teens percentage of our total annual revenue.

Looking at the fourth quarter, we ended the year very strong.

Revenue grew 53% year over year to a record $3 to 4 billion, while net income increased 66%.

Turning to our computing and graphics segment fourth quarter revenue increased 18% year over year to $1 96 billion.

Desktop CPU revenue grew by a strong double digit percentage year over year and sequentially driven by strong demand for our ryzen processor family and both OEM systems and the channel.

Sell through of our new rides and 5000 processors, featuring our Zen three core was particularly strong more than doubling the launch quarter sales of any prior generation ryzen desktop processor.

And mobile CPU shipments increased by a double digit percentage, both sequentially and year over year.

We set records for both quarterly and annual mobile processor unit shipments as ryzen 4000 notebook shipments continued to ramp and support of the 100 notebook design wins launched in 2020.

At CES earlier this month, we launched our ryzen 5000 mobile processors for ultrathin gaming and commercial notebooks.

We are on track to increase the number of notebook designs powered by our new Ryzen 5000 processors by 50% compared to our prior generation positioning us well for further growth in 2021.

And graphics revenue declined year over year and increased sequentially.

Desktop GPU sales increased significantly from the prior quarter driven by the ramp of our new radio on 6000 series Gpus, featuring our rdna two architecture that deliver up to twice the performance and 65% more performance per watt and our prior generation.

We're seeing very strong demand for our new Gpus.

The radio on 6000 series, our fastest selling high end gpus ever with launch quarter shipments three times larger than any prior AMD gaming GPU priced above $549.

We continue to ramp production to meet the strong demand and are on track to expand our radio on 6000 GPU portfolio in the first half of the year with the new rdna, two based desktop and mobile Gpus.

Data center GPU revenue decreased year over year, but increased sequentially, including initial shipments of our AMD instinct and my 100 accelerator.

Yes.

And my 100 features our new cdna datacenter GPU architecture, and as the industry's fastest HBC accelerator for scientific research and the first data center GPU to break the 10 teraflops barrier.

We are making strong progress on our datacenter GPU hardware roadmap and expanding our software ecosystem and preparation for the launch of the first extra scale supercomputer in the United States. The all AMD powered frontier system planned to go on line later this year at Oak Ridge National Laboratory.

Now turning to our enterprise embedded and semi custom segment revenue of 1.28 billion increased 176% year over year, driven by strong growth and both semi custom and server processor sales.

Semi custom sales increased year over year and sequentially based on strong demand for the next generation, Sony and Microsoft consoles.

Our semi custom SSD sales are ramping faster than the last console cycle, and we expect sales to be better than typical seasonality and the first half of this year based on the current strong demand.

Now turning to server, we had record revenue and the fourth quarter as both cloud and enterprise sales grew sequentially.

Cloud adoption remains strong as Google, Microsoft Tencent, and others continue expanding their use of epic processors. The power larger portions of their critical internal infrastructure and the number of AMD powered cloud instances expense.

For the year the number of AMD powered instances available from the largest cloud providers doubled to more than 200.

And the enterprise adoption of AMD powered servers grew as Dell HPE, and Lenovo secured new and customer wins with fortune 1000 accounts across key verticals, including manufacturing financial services and automotive.

And HBC the number of AMD powered supercomputers on the November top 500 list increased to 21 systems, including two of the top 10, and the fastest supercomputer and Europe.

We expect our data center business to accelerate in 2021 as we further extend our performance efficiency and Tcl leadership with the launch of our Nexgen server processors code named Milan.

And Milan production began in the fourth quarter as planned with initial shipments to cloud and HBC customers.

We are very pleased with the performance of Milan.

We're on track to publicly launch our third Gen Epic Milan processors and March with very strong ecosystem support.

In summary, our strong 2020 results and 2021 guidance demonstrates the growing momentum for our leadership product portfolio and the robust demand for high performance computing.

And the last year, we have all seen firsthand the central role of high performance computing now plays and our daily lives and we expect adoption to accelerate over the coming years as we enter our high performance computing Mega cycle, driven by the growing adoption of cloud computing services accelerating digital transformation of industries and <unk>.

<unk> is the transition to extra scale supercomputing and the mainstream adoption of AI.

Against this backdrop, we are very confident we have the right long term strategy and capabilities to deliver a strong cadence of leadership products and make AMD the premier technology growth franchise.

Longer term, our strategic acquisition of Xilinx further strengthens our technology capabilities and positions us well for growth across a broader set of markets.

We passed several important regulatory milestones to date and remain on track to close the transaction by the end of 2021.

I am very proud of what AMD has accomplished over the last few years as our talented and dedicated employees established a new pace for innovation and the high performance computing industry.

Now I'd like to turn the call over to day vendor to provide some additional color on our fourth quarter and full year financial performance.

Winder.

Thank you Lisa and good afternoon, everyone 2020 was an outstanding year for AMD.

Our industry, leading product portfolio and market share gains drove record annual and quarterly revenue with full year revenue growth of 45%.

We also achieved record annual net income and free cash flow. We are pleased with all the strong performance and the leverage and our financial model.

Fourth quarter revenue was $3 4 billion up 53% from a year ago and up 16% from the prior quarter driven by strong sales of ryzen and epic process and semi custom game console <unk> gross margin was 45%.

Approximately flat year over year.

Operating expenses was $789 million up 45% year over year.

Driven by increased investments in R&D and go to market activities and higher variable employee compensation related expenses.

And again income was $663 million up $258 million or 64% from a year ago, driven by significant revenue growth and.

And operating margin was 20% compared to 19% a year ago net.

Net income was $636 million up $253 million or 6% to 6% from a year ago and diluted earnings per share was 52 cents compared to 32 cents per share a year ago.

And our 21% of revenue compared to 363 60 million a year ago, driven by higher revenue and.

Enterprise embedded and semi custom segment revenue was $1 2 billion up 176% year over year, driven by strong semi custom product sales and continued epic silver across some momentum across the cloud and enterprise markets.

And that big processor revenue grew sequentially, including early shipments of third generation epic Milan processes.

And C segment operating income was $243 million or 19% of revenue compared to and operating income of $45 million a year ago driven by higher revenue.

Turning to the balance sheet, we had record free cash flow of $480 million in the fourth quarter inventory was $1 4 billion up 8% from the prior quarter and preparation of 2021 sales.

Fourth quarter, adjusted EBITDA was $753 million compared to $469 million, a year ago, driven by higher quarterly earnings.

Before I turn to the full year financial results, let me address our GAAP tax items based on our financial results and strong outlook. We released a significant portion of our tax valuation allowance totaling $1 $3 billion, which had a GAAP EPS benefit.

On a $1 <unk> in the fourth quarter and a benefit of $1 seven.

For the full year.

Prior year, driven by ryzen and epic products, partially offset by semi custom and radio on product sales.

Operating expenses were 28% of revenue improving from 31% in 2019.

2020, operating income was up 97% from a year ago to $1 66 billion.

17% of revenue net income was $1 five 8 billion up 108% from the prior year.

Turning to the balance sheet cash cash equivalents and marketable securities totaled $2 3 billion at year end and full year of free cash flow was $777 million as compared to $276 million in 2019.

We reduced principal debt by 225.002 million 20 and ended the year with $338 million of gross debt.

Moving and effective tax rate of 15% and first quarter diluted share count is expected to be approximately $1 3 billion shares.

GAAP effective tax rate to be 15% and we expect the company's cash tax rate to be approximately 3%.

In closing I'm very pleased with our 2020 results, which demonstrate the strength of amd's product momentum customer traction and market share gains.

We enter 2021 and continue to invest and the business and execute our long term strategy, we are well positioned to drive gross margin expansion and increase profitability and deliver strong shareholder returns with that I'll turn it back to the road for the question and answer.

Session route.

Thank you to vendor operator, please poll the audience for questions.

Certainly, we'll now be conducting a question and answer session, if you'd like to be placed and the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is and the question queue. You May press star two if he'd like to remove your question from the queue for participants using speaker equipment.

And necessary to pick up your handset before pressing star one one moment, please where we pull for questions.

Our first question today is coming from Blayne Curtis from Barclays. Your line is now live.

Hey, good afternoon. Thanks for taking my question and congrats on a very strong result, but maybe first and so on the annual guide on the very robust you said all segments up and I was wondering if you could provide any color either by segment or by product, which ones would be better worse and that very robust 37%.

Sure. So thanks for the question Blayne and look.

And we're excited going into 2021, and obviously 2020 was.

Quite a strong growth year for us as we look at the annual guidance, we really do see strength across all of our businesses.

So the it's.

Its led by our larger businesses, so significant growth, we expect significant growth and server.

<unk> and Pcs as well as growth in the semi customer console business, but we also see growth in our graphics business across our consumer and data center graphics as we ramp.

And the full product lines are there as we go through 2021. So overall I think we're seeing the strength of the new product portfolio as well as a positive demand environment.

Thanks, and then maybe it's a follow up just curious on how you think about the shape of the year, obviously march be that much better than seasonal across several product lines and.

And I'm, just curious how youre thinking about the overall PC market.

And can tell and talked about for being first half weighted and then obviously semi custom.

You probably did as much in December and he did the first three quarters of 'twenty and 'twenty kind of curious how you're just thinking about first half second half with them all.

Yeah. So you saw that a little bit in our Q1 guidance I think our Q1 guidance is.

Better than normal seasonality, we normally see.

The first half.

Weaker than the second half just given the consumer bent.

We see this year is a little bit of a different shape. The shape is from a market standpoint.

C Pcs and gaming.

And then seasonal and there's some pent up demand.

Moving into the first half of the year and that's that's baked into the guidance, but we're also seeing a strong data center environment. So.

We see server up sequentially in and Q1 and that's on the strength of both our current products of our own products as well as the Milan ramp so a little bit different shape than normal, but I think we see strong demand across our PC gaming and data center segments.

Thank you.

Thanks Lynn.

Thank you. Our next question today and can move from Matt Ramsay from Cowen. Your line is now live.

Thank you very much good afternoon.

And the vendor happy new year.

I wanted to start with server and.

And modeled a much bigger dollar contribution and 2021 to the growth.

And there had been and prior years and I picked up on the prepared script, Lisa that you mentioned accelerating growth for your data Center franchise and 2021, I think that's probably off a business that double.

Last year, so do I have that right and it will accelerate and percentage terms and maybe you could break down a little bit I saw Alibaba and the slides announced.

And Theres, a Milan launch coming that I think could push you into enterprise a little bit more than you've been in the past on drivers of that server growth would be really helpful. Thank you.

Yeah sure so Matt Thanks for the question.

Are you happy.

We're happy with the progress and the data Center business I think 2020 was a strong year for us we do see a significant growth into 2021.

There are a number of drivers first of all I think we're seeing the cloud business strengthen for us so going into the first half of the year and as I said, that's both on the current generation Rome as well as the next generation Milan.

The reception to Milan is very strong. So we're pleased with the performance we started shipments in Q4, that's continuing into Q1.

Youll see.

We expect to see sort of more customers to sort of new customers adopt Milan and then.

Perhaps some that had been on our previous generation, you'll also see a very strong enterprise portfolio. So I think we have a very strong time to market platforms with the key Oems and that's part of our launch plans later this quarter. So overall I think.

We are optimistic about the datacenter and 2021, I think theres, a lot of need across cloud and enterprise and.

We think our Milan is very well positioned.

Thank you for that Lisa and <unk>.

My second question I wanted to ask a little bit about supply.

It's no secret that the industry is supply constrained.

Both due to growth and because of some of the challenges with Covid and your company is no different maybe you could characterize for us the magnitude of the supply constraints and how much they might've been hindering what was obviously really strong growth as it was but that's.

And that's number one and then number two I know.

Noticed that a lot of folks had maybe thought that the big cash.

Capex increase from TSMC, you might've been something to do with Intel and and I think.

On the incoming CEO there, it's maybe clarify some of those thoughts, but I'm wondering as you look forward through this year, how your guidance incorporates increasing supply coming online and if you've guided to on assumption of better supply or what you have line of sight to with your partners. Thanks.

Yeah sure so certainly.

When I look at the semiconductor environment in 2020. It was very strong. So we saw a strong revenue ramp.

And our business as well as across some of our peers. It's fair to say that the overall demand exceeded our planning and as a result, we did have some supply constraints as we ended the year those were primarily I would say in the PC market. The low end of the PC market and and.

And the gaming markets that being said I think we're getting great support from our manufacturing partners.

The industry does need to increase the overall capacity levels and so we do see some tightness.

Through the first half of the year, but there is no added capacity and the second half and then.

Thanks, Lisa I appreciate it.

Thank you.

Thank you. Our next question today is coming from is that Korea from Bank of America. Your line is now live.

Thanks for taking my question and congratulations on the strong outlook. Despite all the industry constraints.

Lisa just one.

Question to go back to a prior one I was hoping you could help us dissect Q1, and 2021 outlook with and without your semi custom business. So we get a sense for.

And the different moving drivers of the business both in Q1 and for the full year.

Yeah, So let's see let me, let me start with Q1 so.

As I said in the earlier that we do see the PC market and the console business.

Better than seasonal normally you know consoles would be seasonally down.

Quite a bit double digits, you would expect.

Consoles this quarter will still be let's call it modestly down.

We do see a sequential increase in.

And the server business as well as and the graphics business as we ramp new products there.

And then as we go into the net.

'twenty one I would say we are now at the place where we have let's call. It three businesses at scale and so the guidance really encompasses a very significant growth.

Across our our data center business and the service space.

Growth and Pcs, just given the visibility that we have around platforms and platform launches on.

Both the notebook side and the strength of our channel portfolio and then we do see growth and the console business as well as you know theres a lot of demand for the new consoles. So I think those are the three big drivers.

For the full year and I would say, it's well balanced between the three and.

And then in addition, we also have growth and our consumer and data center GPU business as a result of some of the new products launched there. So it's a fairly let's call it broad based.

Set of drivers, particularly around the product launches.

Got it and for my follow up and it's interesting that as Youre launching Milan. Your competitor is also launching.

And their data.

Data Center server and so what kind of a near term and then another 20%. One question. So on the near term debt has been some discussion of cloud digestion and I know youre talking about your business actually growing sequentially. So I was hoping you could address what day.

And environment.

You are seeing and the very near term from your cloud and enterprise and HBC customers, but looking out to 'twenty and 'twenty one.

Got you and your competitor will actually be on very almost the same manufacturing node.

So how do you think that will play a role in your cash.

Decision, making of your customers because I think a lot of times the discussion kind of becomes one dimension on who is that Richard manufacturing node. So talk to us about even if you are on the same node as your competitor, what's your ability and confidence and visibility to take market share and the server CPU business. Thank you yeah yeah.

Thanks for that.

And that's a very a very good question, so and in the near term.

What we're seeing and the cloud is actually a period of strong demand and so that's we saw strengthening as we went through the fourth quarter and we see a demand environment robust and.

And the first quarter so I.

I think that's a those are good signals for us I think for the year 2021, and we're excited about the launch I mean, it's a very strong product.

You've already seen a bit of what Zen three can do in just our desktop and notebook portfolio.

I think it builds upon what we did and Rome. So I completely agree with you I think manufacturing technology is one aspect of what makes a product competitive but we've been very focused on.

Overall our performance.

Overall system performance how it performs.

On the cloud and enterprise environments, I will say that I think one is the most balanced product that we have.

Both for let's call it.

Enterprise applications as well as for the broad set of cloud applications and in terms of visibility I would say that we have better visibility starting this year than we've had.

And in the past years, because this is our third generation.

With epic So we're now on let's call it deep customer relationships and there are many of the decisions.

Have been made.

Earlier as they were testing out our product.

And we have good confidence that we're going to ramp well so exciting year for the data center.

But certainly.

We're pleased with how our Milan is performing and.

The interest and the marketplace.

Thank you.

Thank you. Our next question is coming from Steve Heroes and colorful Bernstein Research. Your line is now live.

Hi, guys. Thanks for taking my questions.

I wanted to start on margins first quarter, you had record server revenue, you said high teens and put it to something like 550 to 600 million, which looks pretty good.

At the same time like gross margin sort of barely came in line with guidance I mean, they actually miss by a few and kind of tens of basis points.

And I guess I'm, just a little surprised is that all.

Console mix, and Wisconsin like that much better than expected relative to servers.

I wouldn't see gross margin upside and the quarter and I guess the same comments on the guide.

A little bit of upside to the center and we've got console down we've got everything else growing and yet we've only got a little bit of upside on gross margin. So I guess, if you could help me square that or square that with what you're seeing now that'd be helpful. Please. Thank you.

Yeah, sure Stacy and be happy to do that so first on the fourth quarter I think we saw strength across a couple of different businesses relative to what we had what we had guided so and so.

And strength.

Bit of strength and the console business, some strength and servers as well as some strength and Pcs and Pcs and the fourth quarter tend to be a bit more weighted to the consumer side of the business. So those were some of the puts and takes but from an overall.

Sort of margin ex base expectation standpoint, I think we were right, where we expect it to be and then going into 2021, if you're talking about the first quarter guide.

And my commentary was that.

We see.

<unk> and console is a bit better than seasonal so consoles would normally be let's call it down double digits and that's not the case and this particular quarter, we have server up and so again these are just.

A few puts and takes but we do see the sequential increase into Q1, and then for the full year as we see the mix of business.

Got it I guess for my follow up just to push on that a little bit. So what are you seeing on the pricing environment, especially and servers I mean, your competitor has actually talked quite actively.

About a more competitive environment for servers wax and starting to see some impact on their asps and their margins on.

What are you seeing I guess, what did you see in terms of server pricing specifically on those kinds of trends in the quarter and what are you incorporating in your guidance for price the pricing environment and data center and 2021.

Yes, so in the quarter, we saw asps.

And the server business actually up sequentially and that was mostly because of mix just mix between customers and the ramp up and Milan. So.

As we go into 2021 again.

I would say the environment and competitive so I don't know that it's gotten more competitive I think it's about as competitive as it's always been.

Our focus has not been to compete on price, but to compete on overall value and total cost of ownership as we go into 2021 again I think for us and Asps are primarily determined by the mix between cloud and enterprise and any given quarter.

Still cloud weighted and I would expect us to be cloud weighted as we go into 2021, but overall I would say the ASP environment.

Is.

About what it's been for the last.

Okay.

Got it and just one last thing just high teens data center, that's in the quarter or that was that was put up for the for.

Q4 was high teens percent of revenue data center.

It was high teens for the year.

Oh for the year, Okay, what was in the quarter.

And it was given and given the strength yeah, thanks to vendors.

What was that the wind and I'm sorry.

It's similar similar.

Yes.

Remember the data Center data center GPU is a little bit lumpy and the silver business is where we've had strength and 2020 compared to 2019.

Okay.

Okay. Thank you.

Thank you. Our next question today is coming from Toshi Hari from Goldman Sachs Carolinas and their lives.

Thank you for taking the question and congrats on the strong results.

I'm sorry, if I missed this but can you speak to.

Your expectations for the PC market. This year, obviously, there is a bit of <unk>.

Concern following the very strong year in 2020.

Sort of embedded in your full year guidance for the PC market and then as sort of a second part to that question. If you can give us an update on your traction on the commercial side of the market as opposed to consumer and that'll be helpful.

Yeah sure. Thanks for the question so.

2020 was a very strong year for the PC market I think you've heard that from a number of the Oems and the.

And the market 2021, most people are saying, let's call it mid single digit type growth we.

We see something similar to that.

<unk> is perhaps a bit different than normal and the sense that the first half is a bit stronger.

And then it would normally be our focus and the PC market. Though is has been very clear on sort of the sub segments, where we could actually move up the stack. So if you look at our focus on gaming, particularly gaming notebooks and desktops.

Premium.

Tumor as well as commercial and we made very nice progress on the commercial side and I think that that business tends to also develop.

Over a number of quarters. So overall I think our expectations are.

And market will continue to be strong.

And as we go into 2021 that being the case, it's one element of our growth and particularly we're focused on growth and commercial growth and gaming.

As well as sort of and the premium.

Tumor segment and the <unk>.

And 5000 and series that we just launched and both mobile and desktop.

Have a have actually gotten very strong reception.

And from the Oems in terms of overall platforms.

Got it and then as a quick follow up on Opex.

The rate on what you're spending is very consistent with your long term target, but that said I mean, you are growing spending on a very fast clip can you remind us where the focus is today in terms of in terms of your spending profile and how do you see that translating into future growth and over the next couple of years.

This 20% and topline growth target out through 2023, you just grew 45% last year, you're guiding this year to up 37% is 20% still the right number or could we.

Could we envision something something better thank you.

Sure so so.

So I don't think we're going to change our long term.

Growth rate, just yet and we set that in March and I think it's the right long term growth rate and that being said, we're very happy with the growth of the business and from our standpoint. This is a great time to invest and the business. So the model has always been.

Invest and the business, let's call it at a rate slower than revenue growth, so that we get leverage and the model and so we're doing that.

And see the.

The percentage of Opex as a percent of revenue has come down over the last couple of years and will come down as well in <unk>.

2021, but the overall dollars have allowed us to expand considerably and it really gets build out the foundation of the company. So.

Our investments are really across R&D.

Pending our product portfolio.

We've leaned in and hard on.

Both the CPU foundational IP, the GPU foundational IP as well as on the GPU side, we have.

Can you split out the architectures between gaming and compute so that we have very competitive offerings and both spaces.

As we go forward.

More investment on some of the system Ips that link.

And linked to Cpus, and Gpus as well as investments on the software side, and then investments and go to market. So across the board I think we're becoming.

Let's call it a company of scale and that that helps ensure that we have the breadth and depth of roadmap as well as customer support to support the long term growth objectives.

Thanks, so much good luck thank.

Thank you.

Thank you. Our next question today is coming from Aaron Rakers from Wells Fargo Goodbye and as their life.

Yes, thanks for taking the question and congratulations on the quarter as well.

And I wanted to go back to the Milan processor commentary.

At the Analyst day, you talked about just continually expanding your ability to address workloads in the enterprise market as we think about the positioning of Milan, how would you compare that relative to Rome, and and how should we possibly think about the is there a potential ASP uplift that one should consider with Milan as it starts to ramp.

Yeah. So.

Definitely so we do see sort of ex the expansion of let's call it our competitiveness.

Across the enterprise set of workloads as well as the broad set of cloud workloads.

Our goal in life is to make sure that we're offering improvements and total cost of ownership to our customers.

So as the performance goes up we do.

And I expect.

Some asps.

<unk> as well, but overall from a customer standpoint, it's so important debt the tcl.

Really improved generation to generation, and particularly with Milan and some of them.

Single threaded performance.

Very very helpful and we expect on some of the enterprise workloads that are perhaps can't use on all of the quarters.

Sure.

Net that we have we'll be able to benefit significantly from Milan, and just given the uplift and.

And overall performance. So we're excited to tell you more about it you know like I said, we'll be launching that later this quarter, but.

Overall, we feel very good about the positioning of Milan.

And then as a quick follow up on the datacenter side as well on the GPU side.

No it's been lumpy and it looks like it might continue to be a lumpy business, but is there a point and time over the next couple of years that you foresee that actually being a consistent incremental revenue growth driver, but what should we be thinking about to kind of get us to see that as a key.

Additional growth driver for the company.

Yeah, absolutely look I think the datacenter GPU business is definitely coming in and into its own and.

It will still likely be lumpy quarter to quarter just because.

The number of customers is not that large but in terms of as a growth driver for the company. We see 2021 as a growth year for data center GPU, especially at the cdna architecture comes into manufacturing and production and goes into some of the larger HBC installments as.

And as well as some work that we're doing and the cloud around machine learning and AI and more importantly, we see it as a multiyear growth driver over the next couple of years. So we feel very good about the cdna architecture. It's positioning I think this is a important year for the datacenter GPU business and it'll be a.

Important growth driver for us over the next few years.

Thank you.

Thank you. Our next question is coming from Ross Seymore from Deutsche Bank. Your line is non life.

Hi, congratulations on a really strong quarter and year, Lisa just had a question competitively on the GPU side of things more so on on the traditional client side of the equation you've done a great job, taking a ton of share on the CPU side. It sounds like you are optimistic about what the client GPU business is going to do and 2021 can you just walk us through some of the difference.

Some of the opportunities and challenges of taking share on the GPU market versus where you are already succeeded so much and and we'll continue to on the CPU side of things.

Sure Ross so the.

Graphics business I think has has really.

<unk> been focused on ensuring consistency and roadmap very similar to the CPU side. So we launched the first generation rdna architecture that had.

50% performance per watt improvement.

We launched the second generation of our DNA too.

And just a few months ago, and then we're going to fill out that portfolio here in the first half of the year and I think that consistency is important and the roadmap. There is a lot of pent up demand for graphics cards, and and gaming and we see that and we see it as an attractive market. So I do.

You see that.

The consumer graphics business will grow in 2021.

We expect to continue to make progress both with the OEM business as well as the AD and board business and over the coming years.

The team is working very hard on the next generation rdna architecture as well so I think the consistency and the road map on the top to bottom stack.

And really using it.

Sort of the the depth and breadth of our customer relationships is and sort of our strategy there.

Thanks for that color and I guess as my follow up on for either you or day vendor on the gross margin you gave the shorter term answer for the fourth quarter and the first quarter, but I wanted to ask one about 2021 as a whole it's good to see that it's rising again up to that 47% target I just wanted to walk through the puts and takes on that and I guess the core question is if the semi custom.

Business is going to grow substantially as a percentage of your revenues, what's offsetting that to have the gross margin rise year over year or is it mixed between segments. So server. For example is going to keep up with that or is there something within the segments that is also improving whether it be and semi custom or graphics or some area like that.

Yeah, let me start and at least.

And given where you start.

So if you look at the businesses, we've been pretty consistent and silver and client up in 'twenty and 'twenty. One obviously you have the gross margin and you are right.

Semi custom and 2020 as the initial ramping and a couple of quarters, and then and close in 2021 and with the guidance that we gave we were talking about going from 45% and 47%.

Overall for the year on a year on year basis, and semi custom obviously lower than corporate average with higher revenue.

Full year in 'twenty and 'twenty, one does have an offset from client and silver.

Alright, so maybe just to add to that Ross so.

I think the answer that too.

What you asked is yes consoles are let's call it below corporate average margin although.

Right.

Quite reasonable operating margins.

Servers above and server is growing substantially.

In 2021, and also the PC business within the PC business.

Do see some mix improvement as we focus on let's call it the more premium.

Part of the stack and those are some of the drivers for the margin in 2021.

Great. Thank you.

Yes.

Thank you. Our next question today is coming from John Pitzer from Credit Suisse. Your line is now was.

Yes. Good afternoon, guys. Thanks for let me ask a question Lisa maybe I can ask for US is gross margin question, a little bit differently I would kind of argue.

Given the mix and the December quarter, and the fact that there was the first quarter of the console ramp that the gross margins you were able to put up where were quite good and I'm kind of just trying to understand how we should think about gross margins ex console and as we think about 'twenty, one unfold typically and the console business gross margin start relative.

Pretty low, but there is good improvement over time, and so what's kind of the exit rate of gross margins and your 47 and full year guide and I guess why isn't it higher and it might just be that you guys are being conservative, but it seems like you've got a lot of tailwind as the year unfolds.

Yeah. So again, maybe it's vendor I'll start and see if you'd like to add to this John and I think it's early and the year. So let me state that we.

We have good visibility into.

And the puts and takes and the various places, but obviously theres a lot to unfold over the next 11 months I.

And I do think all of the statements that you've made are accurate so.

The console business.

And it does have a history of improving over over time I do think though that we'll just have to look at the mix of all of the businesses.

Again as it as it plays out and from an exit velocity standpoint.

<unk> to <unk> 46.

On for Q1, and then 47 for the overall year so.

And we'll see improvements over the year and the <unk>.

He is what is the mix amongst the businesses and in any given quarter.

That's helpful and then Lisa as my follow up it's pretty clear.

Net semiconductors are becoming much more strategic to nation States and world government and Theres a lot of speculation that your chief competitor is lobbying Washington pretty hard to get some incentives for domestic manufacturing and I'm just kind of curious how you are trying to be part of that conversation because clearly given the IP.

Fully you have given the share that you are taking I would argue you're as much and national champion as anyone and semi is but it does seem like the focus is on manufacturing. So how do you kind of get the year of Washington to make them understand how important you are and this whole mix.

Well I think the overarching point that you make John is the right one which is semiconductors are becoming increasingly important and increasingly strategic and I think we all believe that.

As it relates to whats important.

And I think the focus on manufacturing is it certainly.

Well documented I think Theres also a focus on leading edge research and making sure that.

The leading edge research is also a very well supported.

And the overall conversation so we participate in many of the industry associations and the conversations and the key is to continue to invest at both the leading edge and in both research and manufacturing.

And to sort of push the envelope on sort of the next five to 10 years and that's one of the reasons, we're investing as much as we are and and we continue to also agree that it is important as an industry that we continue to invest.

And so because if you think there'll be a direct beneficiary of any incentives and come out of Washington, and will be more indirect through your foundry partners.

I think much of that is still playing out so I think we'll see how that plays out but in terms of the.

On the manufacturing side it would be through our foundry partners in terms of the research side as some of that plays out we've certainly been very involved and some of the.

On the research and we'll continue to do so.

Thank you.

Thank you. Our next question today is coming from Mitch Steves from RBC capital markets. Your line is that lives.

Hi, Mitra, Okay, perhaps.

Yeah, Yeah, Okay, perfect, Yeah, and he had two questions.

The first one is actually on the manufacturing side and feel like people are posting a bit on the gross margin, but when you're looking at the company you guys are having three products ramp up so the question on kind of on oppose here is what would the gross margin look like if you didn't if you had yields similar to what you had about two years ago, meaning that the yields for TSMC and your.

And I guess your foundry partners improving at the same rate as a normal environment and then I have a follow up after that.

Yeah well.

Maybe let me start by level setting.

The conversation with gross margins.

And where.

And our roadmap says we would be right our long term roadmap.

Says given the the mix of the business, we set out a target to be greater than 50%.

I think we're right on track for that.

As we go through each of the product ramps there are the ebbs and flows but that being the case I think the yields are right on track.

With where we expect them to be as well and the most important thing is we're now seeing growth across let's call. It.

For now and.

Consumer and data center graphics, so put all that together and.

Like I said I think we're pleased that we grew margins.

And two points last year and where.

And again guiding to growing margins two points this coming year and it is.

Right on in line with our overall roadmap.

Okay, perfect and that makes complete sense to me I think it's very difficult to grow the gross margin line and somebody yields ramping up its right now the second one and just how does it in terms of the overall addressable market I realize you guys don't guide by segment, but I think that one of the big things that happened last year's PC and surprise and asked me up side. So maybe you can level set us in terms of the three major markets you guys serve.

GPU CPU P C thought and servers just what do you think the total industry is going to do this Robert maybe you can give us an idea of what you guys view as the full year and then we can kind of come to life.

<unk> and on conclusion, sorry on.

And what that means for AMD.

Yeah. So I think my commentary was Pcs if you just look at what the.

Various sources are saying, we would say sort of mid single digit growth and I think we would agree with that I think server as a market. If you take a look at enterprise and cloud again and.

Again, they have different growth rates, but let's call it.

Modest growth and and then gaming is hard to call because again, it's a different cycle within that sort of market backdrop I think we see.

Call it 37% growth and much of that is because of the product ramps and the product portfolio that we have so and we're pleased with the growth. We think we're growing significantly ahead of the market.

That being the case and we will have to see what what happens in 2021, because as you said 2020 market was stronger than most projected at the beginning of 2020.

Operator.

Two more questions. Please.

Certainly our next question is coming from Mark what pieces from Jefferies. Your line is and our lives.

Hello, and more perhaps your phone is on mute please pickup your handset.

Mark if you can hear me I cannot hear you.

Operator, we can move on thank you Andrew our next question is coming from.

I'm, Joe Moore from Morgan Stanley Your line is that what.

Great. Thank you and I Wonder if you could talk about your cloud business for server and maybe give us a sense you've talked about in the past about the need to to sell twice you sort of selling to the cloud service provider and then they are selling it to the enterprise is that they service. How are you doing with that and where are you with sort of internal cloud workload.

Debt or debt, there internally focused on versus enterprise facing workloads to the cloud.

Yeah. Thanks for the question Joe.

So if you look at the cloud environment, we call it both internal as well as sort of the external facing workloads I would say, we've done very well with internal workloads and the last couple of quarters ago, we've seen a number of applications.

<unk> ramp.

Here, India and the second half of this year and going into next year and so we're pleased with the performance on the internal workloads.

And that carrying over to Milan.

And.

Sort of the.

Let's call it the move from room Tomorrow and is not too heavy lift and so we expect that that will continue going into 2021.

And in terms of the external face and workloads.

We spent quite a bit of effort and I'm sort of building, our let's call. It sort of the business development engine that sort of let's call. It sales along with the.

And the cloud vendors as well as frankly enterprise Oems and so our conversation with large enterprises is usually a hybrid conversation.

If you want to buy on Prem and let me tell you what AMD epic and do if you want to use cloud instances.

Have a wide variety of cloud instances across all of the largest.

Cloud vendors and and that's actually progressed very nicely. So.

I think overall debt, that's leading to some of our positive commentary and cloud is that we have seen both progress on internal as well as external sales with motion.

Great. Thank you and then I wonder in terms of data center GPU, you've talked about some of the emerging applications on the cloud gaming has been.

And investment that some of your customers have made.

What's the status of that and how big a portion of your data Center GPU business do you expect to be driven by cloud gaming in 'twenty and 'twenty one.

Sure so.

I think our debt.

Cloud gaming.

A portion of the business was a larger portion of the business and sort of past years for the datacenter GPU in 2021, we do have additional cloud gaming engagements that will ramp, but I would say it would be the smaller portion of the business and HPE would become let's call. It the larger portion of the business in 2021.

And.

Great. Thank you very much.

Thanks, Joe.

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

Hi, Thanks, Thanks for fitting me in here. So I guess my first question Lisa based on your commentary on data Center revenues and your splits and you answered the question before about Asps and Q4, it sounds like server CPU shares running like 12, 5% on your $20 million Tam basically you use.

So you have Milan ramping and you're talking about a lot of visibility on that and have this year. So I'm sort of wondering if maybe you can give us.

And what your guidance implies or sort of what the next mileposts and think of would be in terms of server CPU here as you sort of exit the year and good luck into next year.

Yeah, So Tim Thanks for the question.

What I would say is.

I don't have a new market share target and I think just given on.

All of the the variance and the market, but what I will say is we've given you.

Good view of the business through sort of the percent.

Of revenue it is and.

As I said in the prepared remarks.

The data center business.

Was high teens percentage of annual revenue and it was.

Predominantly.

Predominantly server. So you know the datacenter GPU was a very small piece of that and it was predominantly server as.

As we go into 2021 again, we see significant growth I would say, it's one of the.

The key growth drivers for the company and.

And we will give you updates as we go along the way and in 2021 in terms of how it's growing as a relative size of the business.

Okay got it and then just quickly on datacenter GPU.

And it looks like it was maybe flattish this year year over year and.

Obviously, it's going to grow this year on too.

And here comes on mid year can you just sort of maybe give us some sense in terms of how much you think it could grow I mean could it double year over year I understand it's not big from a dollar point of view, but could it double year over year, and maybe just talk about how big frontier could be as a contributor to that business ex.

Yeah. So.

And I think.

Due in 2021, we see it as a <unk>.

Growth driver.

In terms of relative.

Size, yes, it could double I think the way to think about it though is.

We said debt, we would like to get that business to let's call. It a half a billion dollars as sort of the first milestone and I think we're making good progress towards that milestone but.

That's what I would say about it.

Thanks, a lot Lisa.

Thank you.

Operator that concludes our call. Thank you.

Thank you and it does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day.

Thank you for your participation today.

Q4 2020 Advanced Micro Devices Inc Earnings Call

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