Q1 2021 Advanced Micro Devices Inc Earnings Call

[music].

Hello, and welcome to the a M D first quarter 2021 earnings call and webcast. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

My pleasure to turn the call over to Ruth Cotter Senior Vice President worldwide marketing human resources and Investor Relations. Please go ahead Ruth.

Thank you and welcome to Amd's first quarter 2021 financial results conference call by now you should have had the opportunity to review a copy of our earnings press release and accompanying sidebar, if you've not reviewed these documents yet they can be found on the investor Relations page of AMD dotcom part.

It just depends on today's conference call, our Doctor Lisa Su, our President and Chief Executive Officer, and da Vinci 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 our annual shareholder meeting will be held on <unk>.

Wednesday may 19th as a virtual event accessible from our website Dr. Lisa Su will provide a keynote presentation at the JP Morgan Technology Media and Communications Conference on Monday May 24th Don Mcnamara Senior Vice President and General manager of our server business will attend to the bank of America Global.

Technology Conference on Wednesday, the 19th of June and our second quarter 'twenty 'twenty. One quiet time is expected to begin at the close of business on Friday June 11th to.

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 in 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 posted on our website now with that I'll hand, the call over to me.

Lisa.

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

Our business continued to accelerate significantly in the first quarter driven by the best product portfolio in our history and strong execution and robust market demand.

We delivered our sixth straight quarter of double digit percentage year over year revenue growth and record quarterly revenue and profitability.

First quarter revenue increased 93 per cent year over year to 345 billion with growth and all of our businesses.

Turning to our computing and graphics segment first quarter revenue increased 46% year over year to $2 1 billion led by growth and both ryzen and Radeon processor sales.

And client computing revenue grew by a significant double digit percentage year over year and increased sequentially as we set records for client processor revenue and ASP.

Against the backdrop of strong overall PC demand our revenue is growing significantly faster than the market, particularly in the ultra thin gaming and commercial segments.

As a result, we believe we gained client processor revenue share and the quarter.

Our revenue share has doubled over the last two years as we've expanded and the premium products.

And notebooks, we delivered our sixth straight quarter of record mobile processor revenue based on sustained demand for Ryzen 4000 series processors and the launch of our new Ryzen 5000 and series processors.

Ryzen mobile 5000 and series processor revenue has ramped twice as fast as the prior generation.

We expect continued growth and 2021 as the number of notebook platforms powered by our new processors is on track to increase by 50 per cent compared to our prior generations.

We're also making good progress and the commercial market as unit shipments of our ryzen Pro processors grew by a strong double digit percentage sequentially.

We secured multiple high volume wins across Fortune, 500, aerospace and automotive electronics and engineering companies for the quarter and we're well positioned for further growth as we have tripled our commercial notebook design wins with the largest Oems this year.

And graphics revenue increased by a strong double digit percentage year over year and sequentially led by channel sales growth as revenue from our high and Radeon and 6000 Gpus more than doubled from the prior quarter.

We introduced our Radeon and 6700 ex T desktop GPU with leadership for $2 40 P. Gaming performance in March and are on track for the first notebooks, featuring our leading edge mobile rdna two architecture to launch later this quarter.

We expect radio and 6000 series GPU sales to grow significantly over the coming quarters as we ramp production.

Data center graphics revenue grew year over year and sequentially driven largely by adoption of instinct accelerators across cloud and HBC customers.

We're making great progress on our datacenter GPU Roadmaps and expect revenue to grow in the second half of the year as we begin the production ramp of our next generation AMD instinct GPU to support multiple HBC wins, including frontier. The first U S extra scale supercomputer.

Frontier will use next generation, AMD, Cpus, and Gpus and software to deliver unprecedented scientific computing and AI capabilities.

Creating a blueprint for scientific cloud and enterprise customers to enable extra scale class computing and AI performance over the coming years.

Now turning to our enterprise embedded and semi custom segment revenue increased 286% year over year to 135 billion driven by strong growth and both semi custom and epic processor sales.

Semi custom revenue declined by a single digit percentage sequentially, which is better than typical seasonality.

We expect semi custom sales to remain strong throughout 2021, driven by significant demand for the latest generation, Sony and Microsoft consoles.

Okay.

And server, we delivered another quarter of record server processor revenue as epic processor sales more than doubled year over year and grew by a strong double digit percentage sequentially.

Sales of both our second and third Gen epic processors increased sequentially as growing adoption of our second Gen offerings was complemented by third Gen epic processors successfully ramping into production across multiple cloud and enterprise customers.

Third Gen epic processors offer 25% more performance per watt compared to our previous generation and deliver both per socket and per core leadership across database ERP data analytics, Java virtualization cloud and supercomputing workloads.

Cloud demand was particularly strong in the quarter as tier one providers expanded their epic processor deployments to power more of their internal infrastructure and introduced 11, new AMD powered instances.

We expect the number of AMD powered instances to double by the end of the year to 400, as Microsoft Azure, Amazon, Google IBM, Oracle and Tencent significantly expand their offerings with third Gen epic processors.

Yeah.

For the enterprise, Cisco Dell HP enterprise, Lenovo and Supermicro, all announced plans to expand their AMD based offerings with more than 100, New third Gen. Epic processor powered server platforms that deliver superior performance and total cost of ownership.

And HBC, we built momentum with new high volume wins, including the National Center for Atmospheric Research, Sweden Institute of Science as well as the unique on Prem and cloud solution for the United Kingdom's National weather modeling service that will be the world's most powerful weather and climate forecasting supercomputer.

Taking a step back I am very pleased with the progress we have made in our datacenter business over the last several years as each new epic processor generation has ramped significantly faster than the previous generation.

We have established AMD as a trusted strategic partner to the largest cloud enterprise and <unk> customers based on developing and consistently delivering a leadership multi generation CPU roadmap.

2021 marks an inflection point in terms of the scale ecosystem support and customer adoption of our epic and instant processors.

In the first quarter data center product revenue more than doubled year over year and represented a high teens percentage of our overall revenue.

We expect data center product revenue to grow significantly as we go through the year driven by our strong pipeline of new cloud enterprise and <unk> wins.

We significantly accelerated our business and the first quarter and now see higher growth for the year driven by increased customer adoption for our products overall market strength and additional supply from our supply chain partners.

We also passed another major milestone with our pending acquisition of Xilinx and the quarter as shareholders voted overwhelmingly to approve the transaction.

We remain on track to close the strategic acquisition by the end of the year.

In closing we have entered a high performance computing Mega cycle with the strongest products and the deepest customer relationships and our history.

Our success is built on delivering a consistent cadence of leadership products.

We are increasing our R&D investments and aggressively driving our roadmaps to continue setting the pace of innovation for the industry and deliver best in class growth over the coming years.

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

<unk>.

Thank you Lisa and good afternoon, everyone and we had excellent execution and very strong financial performance and the first quarter.

And our multi generation product roadmap is driving significant revenue growth and we delivered record financial results and free cash flow.

Driven by this momentum we delivered first quarter revenue of 345 billion up 93% from a year ago and up 6% from the prior quarter.

Year over year growth was driven by strong increases in sales across all businesses.

Gross margin was 46% flat from a year ago, despite significantly higher semi custom product revenue.

Operating expenses were $830 million compared to $584 million a year ago as we continue to invest and our business operating income was $762 million up $526 million from a year ago, driven primarily by revenue growth.

Operating margin increased from 13% a year ago to 22%.

Net income for $642 million up $420 million from a year ago, excluding $15 million of Xilinx acquisition related costs.

Diluted earnings per share was <unk> 52 per share compared to <unk> 18 per share a year ago current quarter results include a 15% effective tax rate compared to a 3% tax rate a year ago. We continue to anticipate our cash tax rate of approximately three.

Percentage for 2021.

Now turning to business segment results computing and graphics segment revenue was $2 1 billion up 46% year over year due to the significantly higher client processor and graphics revenue.

Computing and graphics segment operating income was $485 million or 23% of revenue compared to $262 million a year ago.

Enterprise embedded and semi custom segment revenue was 135 billion up 286% from 348 million the prior year.

The revenue increase was driven by the ramp of semi custom product sales and very strong growth and epic processor revenue, which more than doubled year over year.

<unk> segment operating income was $277 million or 21% of revenue compared to an operating loss of $26 million a year ago. The higher operating income was driven by higher revenue.

Turning to the balance sheet cash cash equivalents and short term investments were $3 1 billion up from $2 3 billion at the end of the prior quarter.

Inventory was $1 7 billion.

Free cash flow was $832 million in the first quarter compared to negative free cash flow of $120 million in the first quarter of 2020.

Principal debt was $314 million, including a $24 million reduction in our 22% convertible notes, which have only $2 million remaining.

Let me turn to the outlook for the second quarter of 2021 today's outlook is based on current expectation and contemplates the current global supply environment and customer demand signals.

And we expect revenue to be approximately $3 6 billion, plus or minus 100 million and increase of approximately 86% year over year and an increase of approximately 4% sequentially.

For the year over year increase is expected to be driven by growth in all businesses.

The sequential increase is expected to be primarily driven by growth in data center and gaming.

In addition for Q2 2021, we expect non-GAAP gross margin to be approximately 47% non-GAAP operating expenses to be approximately $900 million non-GAAP interest expense taxes, and other to be approximately $130 million and the diluted share count.

And the second quarter is expected to be approximately 123 billion shares.

For the full year 2021, we now expect revenue growth of approximately 50% over 2020, driven by growth across all businesses up from the prior guidance of approximately 37%. We continue to expect non-GAAP gross margin to be.

Approximately 47% non-GAAP operating expenses to be approximately 26% of revenue non-GAAP effective tax rate to be 15% and we expect the company's cash tax rate to be approximately 3%.

In closing we had an excellent start in 2021 with very strong year over year growth in both segments, we continue to invest and the business and drive strong financial returns with that ill turn it back to root for the question and answer session route.

Thank you day vendor and operator, we'd like to call the audience for questions. Please.

Absolutely 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.

Formation and tone will indicate your line is and the question queue.

Our first question today from me from a cargo from Bank of America Securities. Your line is now live.

Thanks for taking my question.

Lisa you're guiding that you are increasing the full year guidance by almost one to $1 3 billion could you give us some central what has changed and the last three months because your competitor was recently talking about cloud digestion, and you're raising guidance by $1 3 billion and so I'm curious what change and the last three months.

And if you could help us parse which products and markets are contributing to this increase how much from servers RPC or semi custom automotive debt if any.

And back to any any color on what's driving the really strong guidance and increase for the year would be very helpful.

Yeah, absolutely vivek. Thanks for the question. So we are we started the year very strong very pleased with the first quarter performance and what we see overall for the year. So we are increasing our full year guidance.

And we exceeded and the first quarter, we got it up and the second quarter and then that's carrying through to the second half of the year.

What we've seen is the following we came into the year with and.

And overall strong demand picture and that was certainly true.

What we've seen over the last 90 days is consistent and strong demand.

Very strong visibility from our customers on what they need throughout the year, particularly you asked about data center I think we saw.

<unk> strong signals and the first quarter that it would be a strong datacenter year for us.

We're on a product ramp cycle.

Launched new products in Pcs on the mobile side with our Ryzen 5000, we launched new products on the graphics side.

With radio and 6000, and then the launch of the third generation Milan.

Has actually gone very very well so in terms of what we see we see very strong demand for our products, we see good customer ordering patterns and strong backlog and then we.

<unk> also seen that the <unk>.

Apply chain has been tight overall for the semiconductor industry and we've been working very closely with our supply chain partners and so we also have good visibility to additional supply as we go throughout the year, so with all of that and place.

I would say we feel very good about how the year shaping up in terms of where you see the strength overall I would say strength across all businesses, but particularly the.

The strength and datacenter is is good and we also see just again very good visibility and very close working relationships with our customers you asked about crypto and we do not we have negligible crypto and here. So this is really the.

And the foundational business really new products, and just seeing the customers adopt and ramp quickly.

Got it very helpful and Lisa for my follow up should we assume that now you are getting adequate supply for your kind of caught up from a supply perspective and supplies.

And longer constrained or is that still a constraint and and if it is and which end market. Because you are keeping full year gross margins steady at 47%. So I was curious if there is any impact from supply or rising input cost that could be impacting your gross margin Richard Richard decided to keep for kind of flat.

And your last outlook.

Yeah, I would say vivek.

Vivek, it's still early in the year. So the entire semiconductor supply chain is very very tight I think you hear that from all of our peers.

And the marketplace and that being said, we've been working very closely with our supply chain partners.

<unk> seen improvements that have led to the to the improved full year guide, we're going to continue to work on that because.

Now I would say the channel.

The inventories are very low throughout the entire supply chain, whether you talk about at our customers are and the channels.

And so there is there is quite.

Quite more debt that we would like to be able to do that being the case.

We continue to work well with our partners and take lots of actions there.

As it relates to overall costs and things like that we are watching those things I think from logistics and some of the component costs and things like that so there's no mostly the gross margin.

<unk> is reflective of the fact that we do have.

And ramping of our new products and we also have.

Some ramp.

The gaming products, which are a little bit below corporate average, but we will see how things progress as we go throughout the year.

Thank you Lisa.

Thanks Vivek.

Thank you and next question is coming from Blayne Curtis from Barclays. Your line is now live.

Hey, Thanks for taking my question and nice.

<unk>.

Maybe just following up on that question I was just curious.

And semi custom business volume not falling any sort of seasonality, but there's a lot of talk about supply constraints there as well.

No seasonality and margin.

It seems like its not growing much and June maybe just is that still impacted by you know maybe not you're charging for others from any perspective on that business for the year.

Yes. So thanks Blayne for the question I think the semi custom business. If you look at the con.

Console launches that happened last year and they were phenomenally. Good launches right are very very good products. So youre right seasonality is completely different this year than <unk>.

And of a typical year, we had a strong first quarter better than seasonal we were down but but down.

Single digits.

There is a bit of growth as we go through the year, but its just starting from such a high point in the first half of the year. So the way I would say it is I think there is a.

A strong secular demand for gaming and whether youre talking about consoles, so you're talking about PC gaming.

Or you're talking about.

The.

The overall sort of gaming ecosystem.

Significant demand and so we believe there's strong demand and were continuing to ramp supply to meet that.

Thanks, and then just want to ask you on the competitive landscape on the client side.

For the game points.

And share in March.

And while we're talking about being more aggressive on their consent of 10 nanometer product and maybe just talk about the competitive landscape and you look.

For the rest of the year and anything any change to that landscape as they ramp 10 nanometer.

Yeah. So blayne I think be the PC business has certainly had a very strong second half of last year and is a strong this year I think within that we feel very good about our progress, particularly in notebooks, and particularly and the premium segments.

Notebooks, so we had a strong record quarter.

For our notebook business, our asps were up sequentially and year over year, I think we're seeing traction and sort of the premium ultra thin gaming and commercial.

And we feel very good about the platforms that we have and the platforms that we have throughout the year right.

<unk> 5000 is very competitive product.

I will say that there are lots and a bit of low and units have come into the.

Come into the.

The market, but our focus on.

The premium segments have they'll have done very well. So overall pleased with the PC environment and feel that we're very competitive.

Okay.

Yeah.

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

Yes, Thanks for taking my question and congratulations on the quarter I wanted to ask a little bit about the server CPU cycle.

I know you've talked about kind of and expanding footprint with the cloud guys book, but I'm curious of where we stand today as far as more of the traditional Oems the.

And the progression of their systems I think you've said 100 plus systems. When do you think that those will all be shipping and the market and.

How would you put the context of Milan relative to roam on that front and I have a follow up.

Sure So and the data center business.

Obviously as a very strategic focus for us and with epic with each generation, we've really tried to expand the reach.

I think here in.

And the first quarter, what we saw as very strong results doubling year over year it.

It is on the strength of cloud, but what we saw was both Rome ramping so we saw Rome units up sequentially and we also saw Milan ramping and.

And what that says this is what we expected we actually expected debt.

Have a good footprint in Rome, and that that would continue to be well deployed as we come into the first half of this year and that's played out and then Milan is just a very very good product I mean, it's extremely well positioned.

And not only do we have per.

For socket leadership, but we have per core leadership.

And again expands the footprint. So in terms of your question about cloud versus enterprise, we were more cloud weighted.

And in the first quarter as some of those those instances, both internal and external ramped.

We would expect.

And that enterprise up both enterprise as well as HBC deployments will increase as we go through the.

A couple of quarters, but we will see Rome, and Milan in the market together all through this year and and we.

We expect strong adoption.

On the enterprise side.

And then and then the other question and kind of Dovetailing off that you talked in response to a couple of different questions you've talked about visibility our visibility is very strong it's improved et cetera. So.

And how would you characterize your visibility today relative to let's say what it was three months ago and what gives you. The confidence has there been something thats happened as far as discussions with the cloud guys that for.

Giving you more confidence and the visibility for growth through the remainder of this year.

Yes, so erinn.

And when we started this year, we expected to have a strong product cycle, just given everything that we saw in terms of platforms design wins.

Sort of customer engagements and process.

And the last 90 days I think we've seen debt really firm up so from the standpoint of just.

Just the consistency in all of the schedules that were supposed to be met.

I think customers liking what they see.

Having multi quarter conversations just given the tightness overall and the supply chain I think everyone is wanting to be clearer and more transparent about their needs and.

And that's very helpful for US frankly, that's very helpful for us in a tight environment. It gives us the ability to plan.

Several quarters out and so I think that's that's the differences we have strong visibility into what customers want and what we can deliver and and so that that gives us confidence that we have the right signals and place.

That's great. Thank you.

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

Thank you very much and good afternoon.

And I noticed you highlighted in the release and and the slides.

Where you are and in several different verticals and design wins on enterprise notebook and the Fortune 500, and I Wonder if you might speak a little bit about the relationships that you are building with the big enterprise customers do you have support software support.

For a more support et cetera, do you have the right people in place to really ramp that business more materially going forward. Thanks.

Yeah.

<unk> met its been a high focus for us to ramp our enterprise notebook business as well as the enterprise server business and they actually share and many of the same customers and it departments and so so yes. We've made very good progress on the enterprise notebook business I think we have a great set of platforms.

With our OEM partners, we've also ramped up our field application support and our.

Customer engagement models for deployment overall, I think we've gotten some very nice commercial notebook design wins and again in this environment.

For us the important thing is to stay very focused on the longevity.

The business that we win and so a lot of focus is on those commercial pipelines and how they develop both on the notebook side as well as and the server side and I think we've made good progress, but we still have a lot of opportunity to grow as we go through the coming quarters.

No thanks for that.

For my follow up it's a bit unrelated.

One of the businesses that maybe you have not had supply or and or theres been other parts of the business growing much more quickly.

I wanted to ask a bit about gaming.

The new rdna two architecture I think brings some new features but obviously there is a strong incumbent competitor and the gaming market.

And maybe you can just talk about where you are competitively right now how you see supply coming online and that might support that gaming franchise, a bit better and and just maybe though.

Lay of the land and and gaming right now because it's one piece of the business everything else is going so well I think there are some opportunities there.

Yeah, so the consumer graphics or the gaming.

Graphics business as you talk about has actually done well for us grew.

And double digits this past quarter.

We had a very deliberate strategy here with the launch of rdna two.

We started at the top of the stack.

Our big Navi product and then we've now introduced.

A couple of additional products and Youll see that.

From the channel.

AD and board cards into more OEM systems, and notebook business as well as additional variance. So it's an important market segment for us we're happy with the progress I think gamers really appreciate the product it's fair to say that the graphics demand is very high across the marketplace. So we've actually put quite a bit of product into the March.

But the demand still exceeds supply.

Youll see that increase as we go through the second half of the year and overall I think the.

The progress that we've made with rdna two is it's fantastic.

And we continue to believe that gaming overall.

<unk> secular growth story.

Thanks, Lisa I appreciate it.

Yeah.

Thank you and next question today is coming from <unk> Hari from Goldman Sachs. Your line is now live.

Yeah.

Hi, good afternoon. Thanks, so much for taking the question.

Lisa I wanted to ask about the datacenter GPU business I realize it's still a relatively small percentage of the overall business you've talked about <unk>.

Production ramping and in the second half of this year, you talked a little bit about frontier as well, but what kind of customer pull or you're seeing.

And your data center GPU business and I got a quick follow up.

Yeah tissue and thanks for the question, we're making very nice progress and the datacenter GPU business. It is and it's in the investment mode. Now so we're investing heavily and business.

We launched the cdna architecture or the compute optimized architecture last year, you'll see updates to that this year as we as we bring out the next generation with our frontier.

Systems revenue is albeit on the lower side in terms of the size of the business relative to the rest of the business, but we will see growth into the second half of the year and the business here is actually very strategic right. It's the idea of really putting together heterogeneous systems and bringing our CPU technology with <unk>.

Together with our GPU technology with instinct with the software capabilities that we have been have been investing in and really getting strong HBC systems as well as AI and machine learning capabilities. So we will see growth and the second half this year it'll still be.

And a smaller business, but we see it growing in the strategic timeframe over the next couple of years and it is very much debt end to end story of what you need to to really.

Satisfy.

The key workloads and the data center.

Great and then as my follow up I wanted to ask about the potential threat from arm longer term.

Within <unk> exited effects, obviously, you've got significant runway from a market share perspective, but how are you thinking about the potential threat from from arm based processors, both and your client business as well as your server business you've got Apple.

Obviously internalizing some of their some of their Cpus on the client side.

And to Hyperscale or is talking about internal solutions and.

Your closest GPU competitor launched or introduced rather.

Arm based <unk>.

And CPU multiple years out so and any thoughts on arm versus actually fix and how you address that would be helpful. Thank you.

Yeah, So absolutely I think the key point here is.

And you really have to have a very very strong product roadmap and and that is really what we're focused on.

The overarching trend that computing is becoming very important and so.

For additional.

And additional entrants trying to address different aspects of computing I think is to be expected.

And when you look at the data center in particular, I think the trend that <unk>.

Computing is becoming more workload optimized.

<unk> is also an important trend. These are the things that we've been thinking about for a long time and we've been looking at ensuring that we address that and our roadmap. So our focus is to continue to optimize solutions.

And datacenter and across.

The PC ecosystem make sure that what we have is a very competitive addressing what customers' needs are and we also have the ability to customize solutions as well with our strong IP portfolio. So all of that being the case I think.

The answers very competitive market, but we feel very good about the roadmap that we have in front of us.

Great. Thank you so much.

Thank you.

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

Thanks, guys and let me ask for questions. Congratulations on solid resolved Lisa maybe another way to ask that.

And last question of ex 86 versus <unk> and I'm wondering if you could address it from there.

The perspective of general purpose computing versus semi custom and ASIC because clearly.

As Moore's law is coming up with some issues the move towards semi custom and ASIC is much more prevalent and I know for the answered <unk> question, you said that Youre doing for you have the ability to do semi custom do you actually have engagements and how do you see sort of general purpose computing versus semi custom basic playing out over time.

Yeah, So John the way I would address that is I think there's a whole range of computing solutions that debt you need and this is back to.

A few years ago, our conversations about heterogeneous compute being you need to have the right compute for the right workload. So I think that's the overarching aspect of it.

No question that for our business channel purpose compute is the largest piece of our business.

And we will continue to be so.

We are doing we certainly do optimizations for specific customers today, and and I think thats.

For large cloud customers, they expect that and.

And we were doing that.

And do have the ability to optimize.

On a more.

Specific basis, and if you look at the evolution of our architecture I think that.

When we do these triplet architectures and things like that it really allows that so.

Lots of lots of good engagements going on with customers overall and I think the key is to be able to have the right IP building blocks and that's what we're focused on right having the best CPU cores, the best GPU capability, having great interconnect and and then with the bringing on of Xilinx, having the adaptive computing.

<unk> there as well it gives us a lot of options to optimize solutions with customers.

That's helpful and loose as my follow up you are still relatively early and this new gaming console cycle and typically through those cycles your products gross margin.

Have some pretty good uplift, but I'm wondering if you could just help characterize where you think you are and sort of the gross margin cycle for the gaming console business and then.

If you want to tell us kind of how dilutive do you think it is the overall margins and where that might go by and for the year that'd be helpful.

Yeah, John I would say that we're still very early in the console cycle and for.

If you think about it we're only a couple of quarters into it. So I think this is a this is a big cycle and.

For us.

Lot of momentum and the cycle, we're going to continue to work on improving costs and improving margins and things like that but I would say that we still have a ways to go and lots of opportunity there.

As we go through the next next couple of years.

Thank you.

Thank you. Our next question today is coming from Mark what pieces from Jefferies. Your line is now live.

Hi, Thanks for taking my question.

Lisa I guess you had indicated you believe I believe you said you.

And I thought you gained share and the server market my back of the envelope calculations suggest you gained at least two points of share and service, which is an acceleration.

<unk>.

And my estimate of about 1% share gain and a quarter over the previous for quarters. So I guess can you tell me if my math is materially off and.

If not what is this a new higher rate of share gains and.

And what would you.

Chalk this up to are you guys had a tipping point or your customers had a tipping point for embracing.

AMD is a supplier they have increased comfort or is your ecosystem for support.

Can you just maybe give us a higher level picture about where where you think your customers are and and really embracing and ramping up your your server offerings at a higher rate.

And Mark if I may yeah for sure. So in terms of our data center performance and the first quarter. It was quite strong and when I look at the drivers.

Of that we saw cloud and particular quite strong and.

When I look at the drivers underneath that.

There were there were a couple of things that have come together first of all I mean, we've been very very deeply engaged.

And with our customers for the last number of quarters and qualifying new instances qualifying new internal workloads.

Really expanding the regional capability.

Coverage and so all of those things I think have led to some lift.

Overall.

And the in the data center business and then going forward I think the other piece of it is if you recall when we did the Naples to roam transition that transition was pretty much people switch from Naples to Rome.

And what we're seeing and this cycle is a bit different what we're seeing is that Rome.

Has a set of very strong.

Strong coverage in terms of applications that they are in that are ramping very nicely that are having good demand and then on top of that we're adding Milan, which is just a very strong product on top of that so I think those are some of the things.

And that are perhaps a.

A bit a bit different about what we're seeing right now that being the case, you know things move around from quarter to quarter. So I would say that the datacenter signals that we're seeing positive. We're excited about what we're seeing it's a lot of engagements with customers and the main thing for US is you know as <unk>.

Portent as the current year is we're also very focused on the long term roadmap and so we're engagement we're engaging now on Zen four and beyond so it really is.

A multi generational discussion with our top customers.

Great that's very helpful and then.

And I'll follow up on that.

Just coming back to arm.

You answered the previous questions with.

And I'm talking about.

And the idea of having heterogeneous architectures and semi custom and working with your customers too.

And develop solutions.

If I go back.

AMD ahead and arm server offering before can you give us an update on the state of that that arm server IP is that something that you can rest of racked or have you been keeping it the developed and working on that and can you discuss or are your customers.

And for your help and delivering.

Delivering semi custom solutions that have an arm component to it because from what I can tell it looks like three cloud service providers have arm server offerings and their platform and there's a lot that don't and don't have quite the development capabilities. So.

I was hoping if you could just talk more specifically about the IP that you had and.

Are you, bringing it back to your customers asking for it and thank you.

Yeah sure Mark So look we know the arm architecture, well certainly for.

Our engineers know it well and we consider arm a partner in many respects, we use arm IP and various aspects of our devices in terms of that specific custom arm design, we don't have that and plans right now in terms of whether we would do custom arm designs I think the answer is yes.

That's the whole idea of the semi custom business and so I think it's less about arm versus ex 86 and much more about.

Having the right IP.

And the right.

For a combination to satisfy sort of the customer solutions and that's the way we looked at it it's really.

What problem are you trying to solve and let's look at sort of the collection of IP that we have and the capabilities that we have to help address.

And that that set of that.

And that set of.

Sort of issues.

Got you very helpful. Thank you.

Okay.

Thank you for your next question is coming from Ross Seymore from Deutsche Bank. Your line is now live.

Alright, Thanks, Robert Let me ask the question and congratulations on the strong results and guide Lisa I wanted to ask you a little bit of a conceptual question and your full year guidance you clearly raised the revenue to a very strong number but you kept the margins. The same I think people understand the operating margin side of it that you have an opportunity to invest and great opportunities in front of you to grow.

But on the gross margin side of things and I'm, just a little surprised given the strength that you are talking about and the data center business.

The HTC frontier those things kicking into the back half of the year I'm, a little surprised that it didn't go up now you've delivered very consistent guidance and and crew increases improvements over time, and and I don't I can't recall. The last time you missed your gross margin guidance, but I'm just wondering what the puts and takes are that would keep that gross margin guy.

And it's flat for the year.

Yeah Ross for so let me, perhaps start and then day vendor may have a few comments so I think.

From a from a overall revenue standpoint, I think we are very comfortable with the guide up just given the visibility that we have on the customer demand front and on the supply front.

And the overall margins, we are guiding up sequentially.

As we go from Q1 to Q2, and then I think for the second half of the year. What we would say is look it's still early in the year and it's a very dynamic environment Ross.

Dynamic environment and so.

And we're watching the puts and takes and Theres always product mix things that come into play.

In terms of the puts and takes but I think where we're confident that we're in a good place and as we go through the year, we'll give you more updates on that but there isn't any.

Anything more than that I think it's just where we are and the year and given the dynamic environment we have.

And in the marketplace.

That's what gives us approximately 47% guide to vendor you want to add to that so the only thing I'll add Ross and I think as you know the situation is pretty tight as we talked about the overall global supply situation and semiconductors. So we are seeing some increases and component costs.

Overall, and managing it and on the higher revenue by more than $1 billion, we are maintaining the.

We reported 7%.

Guide for 'twenty, and 'twenty, one which is up from last year and last quarter was 45 this quarter volume.

And <unk> 47, and the trend is very good and we're very very happy with that.

Thanks for those details it's really helpful for my follow up I wanted a little more tactical but it'll somewhat fold into your answers for the first question and that is for your second quarter guide from the midpoint of up roughly 4% could you give us a little bit of puts and takes between your two main segments and and I guess the.

Slightly longer term question part of that would be datacenter being high teens and the first quarter was great sequential growth doubling year over year and any sort of color on how you think that percentage changes throughout the rest of the year given your 50% growth guidance for the entirety of the year.

For us so in terms of the second quarter as we look at sequential growth.

We do see sequential growth.

In the data center business, so on the server side as well as and on the data center graphics side.

And as well as some growth on the gaming side.

As we look at.

The full year.

Our expectation is that the percentage of the company that is sort of the datacenter percentage of the company will will increase as we go through the next couple of quarters and that's just the dynamic of some of the strength and the consumer businesses and the first half so that's not normal seasonality and interest.

The acceleration or some of the some of the growth that we see and the data center business as we go throughout the year would lead to a higher percentage of revenue.

And datacenter on higher revenue.

Perfect. Thank you.

Yeah.

Thank you next question is coming from Stacy <unk> from Bernstein Research. Your line is now live.

Hi, guys. Thanks for taking my question.

Had a question on data center and in the quarter. So.

The <unk> was up almost 100 million epic was up and semi custom was down which means the ethical was up even more than that.

I know it was both Rome, and Milan grew but how much of the actual growth in the 100 million plus sequentially that must have been epic how much of that growth how does that split out between enrollment and no. One was it like the majority of the growth.

And how do you see Milan as a percentage of our data center CPU mix in Q2.

Sure Stacy so.

If I look at the first quarter, we shipped Milan as well and the fourth quarter right. So we shipped a good amount of Milan, and the fourth quarter and good amount and the first quarter.

I would say in terms of growth it was probably more Rome weighted.

And the first quarter.

Compared to Milan, but there was good growth and both.

And then as we go into the second quarter, we would still expect to see growth in both Rome and Milan.

And with Milan growing faster.

And as that ramps and.

We would expect by the third quarter that it would crossover and Milan would perhaps be higher than Rome. Now obviously these things change a little bit as customers go through their ramps, but that's sort of what we see so yes. The meta point is Rome demand is robust and we will stay will stay a good part.

The revenue for this year.

And its entirety and then Milan is ramping quickly and customer adoption is strong and so we expect it'll it'll ramp quickly as we go through the next couple of quarters, hopefully that answers your questions.

And that does thank you I have a for.

Follow up on it.

And I actually do want to ask a question about opex.

So I know we've got the model you gave at the analyst day had a midpoint for Opex revenue and 26 now for 10 and I know you are running ahead of revenue and everything right now, but if I sort of back out the second half implied guidance for Opex and it actually is about 26 and a half for simple I'm right and the second half to get to 26 per cent for the full year should we think about your I guess its like as we go into 2022 do you think you're sort of at the mob.

Opex run rate that sort of.

More than 26 26, 5% on whatever the revenue weighted is that the right way to think about the opex trajectory going forward and I guess like you is.

Do you think you're actually spending enough at this point and given where you are taking the roadmap are you spending at the right levels right now to ensure that that roadmap is actually cemented and term.

Yes Stacy.

Very good question I think we are.

The revenue is well above our long term model and certainly and this year its well above our long term model last year was well above our long term model and we're taking the opportunity to invest and from that standpoint.

Our investments.

And in.

R&D really really as you say cementing roadmap, our investments across sales and field support and all of the customer facing support and frankly, we're making investments and sort of some of the infrastructure surrounding the company as well since it's just a much larger company than it was a few years ago. So I think the answer is yes.

And we're investing enough.

And I think we're taking the opportunity to be very aggressive with.

With those investments too.

And given given the strength of the revenue growth maybe it vendor you want to add to that or no I think thats, good and covered and we've been very disciplined as you know Stacy over the years about managing the opex.

And scale with revenue, but opex is growing lower than the lower rates and revenue and obviously that shows up and the financial results from a model standpoint, the leverage as you mentioned the operating margin is going up for the company.

Got it thank you guys.

Operator, we'll take two more questions. Please.

Certainly our next question is coming from coming from Timothy Arcuri from UBS. Your line is now live.

Thanks, a lot Lisa I wanted to ask also about share gains you've done a great job this year and both client and day.

The center.

Same time as was referenced before.

And tell us tone is definitely changing the you used the word leveraging relationships and they talked about other tactics to sort of stem or arrest some of the share losses and they are now offering activity six cores and you have foundry and things like that so I guess the question and sort of beyond this year because of the competitive.

And pharma dishes and pretty much set so do you think we can extrapolate the success you've had this year into 'twenty, two and 'twenty three or do you think the competitive environment.

And testified in the next few years. Thanks.

Well, Tim I would say that we have always expected the competitive environment to be very strong and we still do so.

And by the way there are lots of competitors.

There.

And from our standpoint, I think over the past few years and the past few generations I think we've built a track record with customers and we built a set of deep relationships and we've learned a ton about what's important to customers where to spend the time the effort.

And where we need to close partnership so.

And I feel very good about where we're positioned this year, but I feel.

Very excited about what we have and the roadmap going forward and I mean, we are we're not slowing down and so theres a theres a lot and the roadmap and we have.

More resources and more capabilities to bring to the market and.

I think we're going to be very competitive going forward.

Yes.

Totally thanks, I guess as my follow up and can you give just given there.

And maybe give some sense of what the loading is for semi custom and first half for the back half. It seems like it's going to be about even back half versus front half a share is that.

Is that correct.

It was slightly up and the second half and because the launch the product and the second half of last year started out strong because it's a new needs and new console generation and then may be slightly up and the second half is what I would say.

Okay awesome. Thank you.

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

Great. Thank you you talked a little bit about the supply constraints that you've been dealing with can you talk about.

And where those are coming from is that a wafer constraint substrate constraint, both or other stuff and where we'd have about making progress from kind of getting more supply out whats the source of that progress.

Yeah, So I.

I think so I would say overall that the.

<unk> demand if we look at coming into this year, the demand has been sort of higher than our expectations and sort of industry wide types of things.

That are going on we work very closely with our supply chain partners, so whether it's wafers or backend.

Assembly test capacity or our substrate capacity and.

We work it on a product line by product line level. So I don't know that there is a single thing that I would point out I would say that on a product line level.

We've done and what we'll continue to do is ensure that there are multiple sources.

And for things, particularly in the back and that gives us flexibility to move things back and forth.

We continue.

And the substrate side in particular, I think there has been underinvestment.

In the and the industry and so we've taken the opportunity to to invest in some substrate.

Substrate capacity dedicated.

Dedicated to AMD and that'll be something that we continue to do going forward. We're also we also have a fantastic engineering teams that are just looking at how we together in the ecosystem just get more productivity into the system and and we work very closely with TSMC to make sure that.

Were forecasting well and getting the right support so I think it's all of the above in terms of making sure that we have the capabilities and.

And the other thing I'll mention Joe is just.

Not just about processors, but it's included it's it's also ensuring that their match sets and the ecosystem and so our teams are also working very closely with our with our Oems to make sure that we're.

And together.

Ensuring that they are the full system components necessary. So it is a complex supply chain environment and I will tell you.

Given everything that I've seen it is a complex environment because all markets are so hot.

But I'm happy that that we've been able to make progress and by the way we're not done right. There's plenty more that we would like to do to to get.

And get more capability in the supply environment and and so we're working closely with our partners across the board.

Great definitely very impressive results from the context of everything going on and thank you.

Thank you we've reached end of our question and answer session I would like to turn the floor back for any further or closing comments.

Thank you Kevin I'd like to thank everybody for joining today's call and we'll look forward to engaging with you throughout the quarter. Thank you everyone.

Thank you that does conclude today's teleconference and webcast and we disconnect. Your lines at this time and have a wonderful day. We thank you for your participation today.