Q2 2021 Advanced Micro Devices Inc Earnings Call

July 27, 2021

[music].

At this time all participants are in a listen only mode.

And so do you want to acquire operator assistance. Please press star zero on your telephone keypad and no question and answer session will follow the formal presentation as.

As a reminder, this conference is being recorded.

And now my pleasure to turn the call over to Laura Graves corporate Vice President of Investor Relations. Please go ahead.

And welcome to Amd's second quarter 2021 financial results conference call by now we hope you have had the opportunity to review a copy of our earnings press release and fly.

If you have not reviewed these documents yet they can be found on the Investor Relations page and A&D Dot com.

And so on today's conference call, a doctor and leases to 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.

Before we begin I would like to note that Chinese Mush, Maloney Senior Vice President and general manager of our client business and Ruth Cotter Senior Vice President.

On a worldwide marketing human resources Investor Relations and strategy will attend the Jefferies semiconductor and hardware semi on Tuesday August 31st day.

And her Kumar will attend the Deutsche Bank Technology Conference on Friday September 10th.

And our third quarter 2021 quiet time is expected to begin at the close.

And the business on Friday September 10th.

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.

We refer to the cautionary statement.

Press release for more information on factors that could cause actual results to differ.

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.

With that I will hand, the call over to Lisa Lisa.

And our thank you Laura and good afternoon to all those listening in today.

Our business performed exceptionally well and the second quarter and strong execution and growing customer preference for our high performance products generated significant market and financial momentum.

We saw very strong demand across all of our businesses, which resulted.

And second quarter revenue growing 99% year over year to $3.85 billion.

We expanded our gross margins by 4 percentage points doubled operating margin and more than tripled profitability year over year.

We also delivered record revenue for the fourth straight quarter and generated record free cash flow.

In the quarter.

Turning to our computing and graphics segment.

Second quarter revenue increased 65% year over year to 2.25 billion driven by significant growth in both ryzen and Radeon processor sales.

And client computing, we had another record quarter of processor revenue.

Both.

Both desktop and notebook revenue increased by a strong double digit percentage year over year, and we believe we gained revenue share for the fifth straight quarter.

And desktop robust demand for our highest and ryzen processors drove a richer mix in the quarter as ryzen 9 processor unit shipments more than doubled year over year.

And notebook unit shipments and Asps increased sequentially and year over year.

We delivered our seventh straight quarter of record mobile CPU revenue led by the steep ramp of our latest generation Ryzen 5000 mobile processors.

And the enterprise Ryzen Pro mobile processor unit shipments nearly.

Nearly doubled year over year as we won multiple high volume deployments in the quarter with Fortune 500 financial services automotive and pharmaceutical companies.

And graphics revenue doubled year over year led by demand for Radeon and 6000 series desktop graphics cards, and the channel and adoption of our data.

And our Gpus rdna, 2 gpus shipments grew by a double digit percentage sequentially as the first notebooks powered by our Radeon Rx 6000 M series Gpus launched including the first AMD advantage notebooks that combined high performance Ryzen Cpus, Radeon Gpus and AMD software.

Premium design features to deliver best in class gaming experiences.

A zeus HP, MSI, and Lenovo announced plans to bring AMD advantage notebooks to market over the coming months as we further expand our presence and the gaming notebook market.

Data center graphics revenue more.

And then doubled year over year, driven by new deployments of our AMD instinct accelerators, including initial shipments of our next generation datacenter Gpus, featuring our cdna 2 architecture.

G and H 2 represents a major step forward and our multi year datacenter GPU strategy delivering more than twice the performance of our.

Our current generation and significantly higher performance than competitive offerings and HTC workloads.

We expect data center GPU revenue to grow and the second half of the year as we ramp production of our next generation AMD instinct accelerators and open source rock and software to support multiple leading edge supercomputer wins.

Including frontier Lumi and policy.

Turning to our enterprise embedded and semi custom segment revenue increased 183% year over year to $1.6 billion driven by strong growth and both semi custom and epic processor sales.

Semi custom revenue grew sequentially and year over year.

<unk> and we expect game console demand to remain strong throughout the year.

We announced a new semi custom win earlier this month as valve chose AMD to power their steam Dirk handheld game console and plan to launch this December.

And embedded we're making good progress expanding our presence across.

Key verticals, including automotive networking and storage.

We ramped production shipments in the quarter of AMD ryzen embedded Cpus and Radeon rdna, 2 gpus to power the index infotainment systems, and Tesla's latest model S and model X vehicles.

Now turning.

And to server.

We delivered our fifth straight quarter of record server processor revenue.

Sales grew by a significant double digit percentage sequentially, driven by higher unit shipments and Asps.

We are seeing very strong demand across our full server portfolio with second Gen epic processor revenue growing sequentially.

And third Gen epic processor sales more than doubling quarter over quarter.

Third Gen epic processor revenue is ramping faster than the prior generation as customers and multiple third party reviewers recognized the absolute performance and price performance leadership of our latest server processors.

Cloud demand further accelerated in the quarter led by growing internal workload adoption and nearly 50, new AMD powered instances by AWS, Microsoft Azure, Google Tencent and Alibaba.

Google announced they chose AMG epic processors to exclusively power the first offering and its new tower.

VM family that delivers industry, leading performance and value for scale out workloads versus other competitive <unk> 6 and arm offerings.

And enterprise, we see demand accelerating as more than 103rd Gen. Epic processor platforms are now in production from Dell HPE.

Lenovo Supermicro, Cisco and others.

In addition, we are seeing a rapid expansion and the number of AMD powered solutions and appliances from our OEM and ecosystem partners targeting hyper converged and virtual desktop infrastructures as well as workloads demanding the highest per core performance such.

<unk> EBITDA and computational fluid dynamics.

We secured multiple HBC wins, and the quarter, including newly announced deployments by the National Supercomputing Center in Singapore, and the French Atomic Energy Commission.

Our substantial momentum and HBC was highlighted by the fact that the number of AMD.

And based systems on the latest top 500 list of the world's fastest supercomputers increased by almost 5 X and the last year and that epic processors power half of the 58 newly listed system.

Looking at our overall data center business revenue nearly doubled year over year and increased.

Sequentially from a high teens percentage of overall revenue and the first quarter to greater than 20% and the second quarter.

We expect data center revenue to continue growing faster than overall revenue based on the strength of our epic processors and instinct accelerators and the significantly expanded engagements we have built with the.

Leading Oems and largest mdc's.

Turning to our Xilinx acquisition, we passed additional milestones and the quarter and received unconditional regulatory approval in multiple jurisdictions, including in the EU and the United Kingdom.

We remain on track to close the strategic.

Transaction by the end of the year and are excited about the opportunities ahead.

In closing I am extremely pleased with our execution as our business accelerated considerably in the first half of the year.

Based on growing customer preference for our products and strong supply chain execution, we now expect.

<unk> annual revenue to grow by approximately 60% year over year.

Up from approximately 37% growth, we guided at the beginning of the year.

Our engineering teams are aggressively driving our product and technology Roadmaps to continue setting the pace of innovation for high performance computing.

We remain on track.

And next generation products, and 2022, including our Zen core processors built with industry, leading 5 nanometer process technology and our rdna 3 gpus.

We also recently demonstrated the next major advanced and our triplet strategy with our differentiated <unk> die stacking technology.

And that enables significantly denser and more efficient connections between stacked chips.

Based on the strength of our long term roadmap and the deep partnerships. We have established we expect to continue growing significantly faster than the market.

In summary, we are making great progress towards our ambitious goal of establishing AMD as the.

High performance computing leader and the best in class growth franchise.

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

The vendor.

Thank you Lisa and good afternoon, everyone.

And we had another outstanding quarter, our high performance compute.

Computing product momentum is driving record revenue growth record profitability and significant cash generation.

Second quarter revenue was $3.85 billion up 99% from a year ago and up 12% from the prior quarter.

Year over year growth was driven by significant revenue.

Pieces across all businesses.

Gross margin was 48% up 360 basis points from a year ago, driven by and improved revenue mix and higher margin contribution from all businesses.

Operating expenses were $909 million compared to 6.

<unk> included $17 million, a year ago, as we continue to invest and business growth and our long term product Roadmaps operating income was $924 million up $691 million from a year ago, driven primarily by revenue growth operating margin doubled to 24%.

<unk> 6 up from 12% a year ago.

Net income more than tripled to $778 million up $562 million from a year ago.

Diluted earnings per share was <unk> 63 per share compared to <unk> 18 per share a year ago. This includes a 15.

<unk> effective tax rate in the second quarter of 2021 compared to 3% a year ago.

Now turning to the business segment results.

<unk> and graphics segment revenue was $2.3 billion up 65% year over year, driven primarily by significantly.

And by.

Client and graphic processor revenue with a richer product mix in both businesses compete.

Computing and graphics segment operating income was $526 million or 23% of revenue compared to 200 million or 15% a year ago.

Price embedded and semi custom segment revenue was $1.6 billion up 183% from 565 million in the prior year.

Strong revenue increase was driven by higher semi custom product revenue and epic process sales.

<unk> segment operating income.

<unk> $398 million for 25% of revenue compared to $33 million or 6% a year ago.

Turning to the balance sheet cash cash equivalents and short term investments were $3.8 billion up from $3.1 billion at the end of the prior quarter.

Cash flow was a record $888 million compared to $152 million in the same quarter last year.

Free cash flow from the first half of 2021 of $1.7 billion was more than double 2020 annual free cash flow.

With our strong.

<unk> financial results and growing cash generation, we announced a $4 billion stock repurchase program in May under which we repurchased 3.2 million shares of common stock for $256 million in the second quarter.

Inventory was $1.8 billion.

<unk> up from the prior quarter in support of higher revenue expected in the second half of the year.

Let me now turn to the third quarter outlook.

Today's outlook is based on current expectations and contemplates the current global supply environment and customer demand signals.

We expect revenue to be approximately $4.1 billion, plus or -100 million and increase of approximately 46% year over year and approximately 6% sequentially. The year on year with year over year increase is expected to be driven by growth across all businesses the sequential.

We increase is expected to be primarily driven by growth and our data center and gaming businesses. In addition for Q3.2021, we expect non-GAAP gross margin to be approximately 48% non-GAAP operating expenses to be approximately 1 billion non-GAAP.

<unk> interest expense taxes, and other to be approximately $150 million and.

And the diluted share count to be approximately $1.3 billion shares.

For the full year 2021, we now expect revenue growth of approximately 60% over 2020.

We also expect non-GAAP gross margin to be approximately 48% up from prior guidance of approximately 47% non-GAAP operating expenses to be approximately 25% of revenue.

Up down from previous guidance of approximately 26% of revenue non-GAAP effective tax rate to be 15% and we expect the company's cash tax rate to be approximately 2%.

In closing, we delivered another excellent quarter with very strong year over year growth.

<unk>, Richard our business momentum and delivered exceptional financial returns.

I'll turn it back to Laura for the question and answer session Laura.

Thank you day vendor operator, we're ready to begin the Q&A session now.

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Our 1.1 moment please pull for questions.

Our first question today is coming from <unk> Hari from Goldman Sachs. Your line is now live.

Good afternoon, and thank you so much for taking taking my questions and congratulations on a very strong set of results.

You didn't really touch on.

On the supply situation and.

The marketplace today that that appears to be a pretty big focus for companies and also for investors.

And how would you how would you characterize the current GAAP between supply and demand and importantly, as we as we look ahead to 2022, how comfortable are.

And you from a from a foundry wafer capacity and ABS substrate capacity perspective, as you continue to grow the business strong double digits and then I've got a quick follow up.

Sure well hey, thanks for the question.

No I think it's fair to say that the semiconductor demand environment, and particularly the AMD demand environment has been very strong.

<unk> thousand and 21.

Been working on supply for the past couple of quarters, I think I'm actually quite pleased with the progress.

That we've made in terms of increasing our supply and what.

I've said previously is you know certainly we do see some level of constraints, but we are making progress each quarter.

<unk> and we made progress and the second quarter that.

Enabled us to exceed the original guidance and as we go into the second half of the year, we're continuing to bring on extra supply each quarter, which is leading to the full year guidance raise that we have so I think overall, we continue to make progress.

Wrong and to say that it's tight like you've heard from many other companies through the end of this year I think it improves in 2022, we've been planning for significant growth you know our model is 1 where we're going to drive significant growth. So we've been planning with that with our supply chain partners and we do have confidence that we can continue to grow substantially.

I will go into the second half of this year and into 2022 with the supply chain.

Great.

Quick follow up.

And I guess, a multipart question on your server CPU business, our data center business more broadly.

And I was hoping you could speak to sort of the revenue construct.

As volume quarter and if.

You can differentiate between.

And second Gen and third Gen Rome versus Milan, and then what Youre seeing on the cloud side versus enterprise side of your business.

And the outlook into the second half as you think about sort of the different segments of that business and.

And then finally.

You talked about data center being more than 20% of revenue in Q2, what's embedded in your and your second half guidance.

Thank you.

Sure Okay quite a few questions. There. So let me try to work through them. So in terms of the makeup of our data center business.

Our server business was very strong I think the product.

Capability and sort of just sort of the net performance and total cost of ownership from Alon has proven out very well with our customers. So we're very happy with that launch in the second quarter, we did see significant growth with Milan.

And that being the case, so Rome, we're still.

And a larger portion of the revenue and I would say and the second quarter. It was more cloud weighted. So we saw you know clouds tends to ramp faster on.

New generation and that was the case and the second quarter. So cloud grew faster.

And then and enterprise as we go into the second half of the year, we expect that Milan.

Ramps very quickly and crossover.

Third general crossover second generation and the third quarter and what we're seeing actually is continued strength across cloud and <unk>, which have been traditionally strong for AMD, but we're actually seeing very good momentum and enterprise and I think with the.

Will.

Breath of the platforms that we have out there and just the coverage and then sort of the per core performance as well as the overall socket level performance, we're getting a very strong traction and and we're pleased to see that so I think as we go into the second half of the year I think enterprise will be a stronger component.

For us and it wasn't the first half of the year and that's the balance that we want but overall, we're pleased with that and then in terms of and your question about server was I'm, sorry, and datacenter was greater than 20% of our revenue in the second quarter. We believe that the data center business will continue to be a strong driver for.

For us into the second half of the year and so it will be a larger percentage of our overall revenue and.

And the second half of the year.

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

Yeah. Thanks, Thanks for taking the question and congratulations as well on the quarter.

Wanted to ask you about kind of the trajectory.

From a margin if we take the full year guidance now.

100 basis points.

The <unk> guide and it could be.

And our ratio it looks like Youre actually pushing towards a 50% gross margin.

How do we think it and maybe you can unpack how we should think about the segment gross margin levels and <unk>.

Take that.

If growth were hitting 50%.

The threshold that we can consider modeling going forward.

Yeah.

I think on on the gross margin and first of all I'd say, we are very pleased with the progress we have made and as you observed we have taken up the guidance for the year from 47 to 48, and our long term model and our long term target model.

You had plans to get to greater than 50% and I think with the strength of the businesses I've read Lisa just talked about especially and the data center to help us get there.

Product mix is important on the ramp and the data center and the client PC business. As we gained revenue share is going to be important to drive that.

And we are confident that we can continue to improve the gross.

Margin given the mix of the business and also the revenue ramp and the businesses that are higher than corporate average gross margin. So feel very good about getting to the grid and.

And 50% and overtime.

And then.

And I'm sorry.

And I was just going to add to that I think the most important thing.

About as you as you think about our business going forward is it really is about the mix of business. So as data center becomes a higher percentage of our business. That's a favorable mix for us and then within the segments as well as.

As we look at where we are strategically focusing as we really mix to the higher and.

And to think folio and those are the key things that we're looking at from a margin standpoint, but there are always puts and takes and the business. It's just really about the mix.

And then just as a real quick follow up as Milan ramps and appreciating that Rome is it sounds like still the majority of the epic.

Lineup.

How successful have you been.

The port leveraging a stronger position with regard to uplift on on blended asps.

As we think about the continuation of Milan, and even starting to think about you know going forward. Thank you.

Yes.

Yeah. So as we as we think about sort of the trajectory of the business. It is about offering.

For a more performance per socket and on that that is what we're doing so I think Milan is certainly a performance uplift relative to Rome, and it does lend itself to a higher ASP or higher mix of the business and then clearly as we go to general and we're going to continue that trajectory. So I think yes.

And then.

And within server, there's also a mix between cloud and enterprise as I said earlier, we're quite cloud weighted here and the first half of the year and as we as we go to a stronger percentage of enterprise that would also be a favorable mix and the surface side of the business.

Thank you and next question is coming from Vivek Arya from.

Then from American Securities Your line is and our lives.

Thanks for taking my question Lisa it's to continue on the server business on day last year.

Our AMD take about 2 to 3 points of <unk>.

Server share annually this year the share gains seem to be accelerating on the order of 4 to 5 points.

From bank and I'm curious, what's driving this acceleration and did you see anything from Intel's roadmap disclosures yesterday that do you think and impact to your server share gain momentum.

Yeah Vivek thanks for the question.

As you know very well, where we are.

Very focused on sort of multi.

Multi quarter multi year progress in the server and the datacenter business I think we're excited with the momentum around our server business I think the product.

Our roadmap is very strong I think the execution has been very strong I think customers also with the third generation and Milan.

And much more comfortable to go more broadly with Milan and just because this was sort of a third time right. They had many of our customers were on Rome already but with with Milan and it was sort of socket compatible and so there was.

And was a faster time to ramp and we're seeing it ramp faster. So we feel good about where.

And I mean, it's a very competitive market out there vivek I'll always say that we expect our competition to be really good and we need to be better than that and so our team is very focused on on execution and we're excited about general I think our customers are excited about Genoa, and so we need to keep the momentum and keep.

We're positioned execution as a strong as it has been.

Got it and from my.

Follow up, but you announced a $4 billion share buyback I believe you kind of midway on that midway through Q2, you only did about $256 million of that how should we think about buybacks.

The road map going forward are you do you.

And timeframe in mind, just how what's going to guide your decision when and how much of buybacks to do thank you.

Yes, I think no specific vivek as you and all of these programs and we will be opportunistic and we will obviously return on.

Capital to the shareholder.

Back to the balance sheet continues to improve although very pleased to initiate the program and Q2 and about 256 million and puts and $3.2 million and you will see us do more over time, but I wouldn't want to get new new specifics on this call.

Thank you. Our next question is coming from Matt Ramsay from Cowen and company. Your line is and that lives.

Thank you very much good afternoon everybody.

I guess, Lisa 1 of the things I was really pleased to see and this set of results and investors have asked me about quite a bit.

That you are delivering the revenue upside, but the operating margin leverage is coming with that.

And you guys are rightly been.

Not being a ton to grow the business and and that's been reflected and the growth and I just wonder.

How youre thinking about the balance of revenue growth versus delivering sort of upside to operating margins going forward because it's.

And I item, that's been a full from from some investors and my conversations. Thanks.

Sure, Matt and maybe I'll start.

And on CF to vendor has anything to add I think we've always been very thoughtful about how we.

Both invest and the business as well as delivering operating leverage and and look I think our revenue growth has been very strong certainly above what we had previously forecasted we are taking the opportunity to event.

And to invest and the business and that's investing in R&D and investing in sales and marketing and really.

The overall capabilities, there, but you do see the operating leverage and the business and I think we intend to continue to deliver improved operating margins as we go forward. So I think we can do it.

All of those things I think we can continue to grow revenue.

And you are significantly above the industry, we will continue to invest and opex at a lower rate and revenue growth and we will continue to deliver operating margin improvement overtime.

And I think you covered and Lisa I think that's what I would say it I mean as you saw we did update the guidance for Opex.

As a percentage of revenue from about 26 percentage of 25% for the year and we continue to be discipline from a viewpoint of the investments we need to make the growth the business.

As well as obviously invest in R&D go to market and hiring people is another area of focus right. Now is the business is growing pretty significantly.

Thank you both for that as my follow up it it it's interesting though more strength.

PC market shows it's almost like the more concern investors have that eventually we revert back towards the mean and Lisa your competitor gave some some fairly bullish commentary about the state of the PC.

The industry going forward and I Wonder if you might share your view and we've heard of.

And our work a few bubbles and the chromebook market.

And maybe a couple of PC OEM, saying they are building a tiny bit of CPU inventories, so and on the back of that commentary about the market. If you have any views on your own visibility and inventories.

AMD parts on maybe the gap between orders and and your ability to fulfill them and the PC market those things would be really helpful. Thank you.

Yeah sure Matt. So look there are lots of different signals and the PC market. So maybe I will make a few comments I think it's fair to say that end user demand has been very strong so very.

Inventories at first half of the year very strong and the second half of last year and that's from all of this work from home school from home sort of and then some of this return to office trend within that there is a little bit of.

Mix shift as you go through time.

When I look at the market I would say that we performed very well.

Strong and within this market backdrop we.

Continue to gain revenue share and what that means is we're focusing on the most strategic strategic segments of the PC market as we go forward.

I do agree that end user demand is strong.

Also believe that if you look.

Look at the second half of this year for the PC market Youll hear about sort of pockets of component shortages or match sets and things like that so we're taking that into account as we think about the second half of the year.

From our perspective, we're planning the PC and the RPC business to be about flattish first.

And the second half and again, we think that Thats very well supported by all of the ordering patterns and all of our sort of look at.

And what are the the PC Oems are doing from an inventory standpoint, we do not believe there is significant inventory, we do track it very closely.

<unk>.

First half of AMD product any ways, we look at it at the retailers as well as that with our OEM. So I think we have this.

Very we're watching it very closely and recognize that the PC market Mei Mei.

It may go up or down we're expecting it to be like I said for our business roughly flattish first half and the second half and and.

Well that being the case, we continue to believe that there is strong and user demand and theres, just some supply matching that needs to happen in the in the marketplace.

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

Yes, good afternoon and Lisa.

Let me ask the question and congratulations on the solid result versus just a clarification I think you said in your prepared comments relative to the June quarter that epic grew solidly double digits sequentially. The overall segment grew about 19% I'm just curious to epic outgrow. The overall segment or was it more in line can you can you give us a sense of how it did relative.

Relative to the segment.

Yes, we we outgrew the segment and the second quarter.

Perfect and then my second question and it's just more of a strategic question around pricing clearly last week on their conference call Intel talked about perhaps being a little bit more price aggressive, especially and datacenter to protect share.

Thanks for that and put to good kind of your thought on pricing I mean and <unk>.

My mind that market is much more about a total cost of ownership than an entry point and given your price performance I'm just kind of curious as to how concerned you are about the pricing environment and how concerned do you think we should be over time.

Yeah. Thanks for.

And I'll, let John look I think the.

And the market has always been competitive.

See that it has become more competitive where that's changed.

You said pricing is not the first order variable when you are buying a server CPU. It really is about total cost of ownership I think the performance leadership that.

Ruth.

Is.

Clearly, there and I think customers see that so yes, we will.

Always fight for every socket I mean, you know that we're very well.

We're very competitive in that fashion, but we think that the way to do that is with the strength of the roadmap and the strength of the deep partnerships and.

We have sort of a second order lever.

And this market.

Okay. Thank you.

Thank you and next question today is coming from Harlan sur from Jpmorgan. Your line, there's not a lot.

Good afternoon, and great job on the quarterly execution, you know now with from Milan on are strong.

Long ramp trajectory and.

And see the momentum and enterprise.

And you guys continue to drive epic into new markets, just wanted to get and upgrade on the pool and the total service provider market right. It's on it's a relatively big market like about 6.7 billion dollar market.

And <unk> supports much more and networking functionality versus prior generations.

And operators continue to virtualize, the core of their networks and with 5 G.

And starting to virtualize their radio access networks and so just wanted to see if the team has been on the momentum with Milan with total equipment Oems.

Well as with some of the large 5 day service providers.

Yes, sure Harlan and thanks for the question.

Yeah look we believe the telco segment is a very good segment.

For us and I would say that there is a lot of interest and I wouldn't say, it's a significant piece of revenue today, So I view that as sort of opportunity as we continue to build out the solutions for Milan, but it is 1 of the areas that we believe is very.

And strategic for AMD, and and as Xilinx comes into.

Sure as we combined the xilinx business with ours, I think there the relationships as well in the communications and telecom market.

And we will be helpful and just bringing the overall solution set together. So yes, we think it's a good.

Big market for us, but I would say where we.

We're still very early on that particular cycle.

Great. Thank you and then on.

On the strong early momentum in enterprise as you move into the second half and.

And you probably have some visibility into next year, because the enterprise close cycles are probably a bit longer.

Longer than some of your cloud customers can you just talk about the breadth of your engagements and enterprise across large corporations and small to medium size businesses.

Yes, Harlan so we have seen a very strong pipeline and that started with that.

<unk> with Rome.

But we see that expanding with Milan I think if you look at the breadth of platform offerings from all the largest Oems from Milan.

Just a broader and.

And then than our past generation and I think people are also starting to come up with more appliances, and we've done quite a bit more ISP optimization.

So our visibility is.

Very good into.

And to the second half of the year and it's also very good into 2020.2 I think the I think the on the good piece about this as you said it is longer design cycles, but with large companies and certainly with some of the tier.

And as well our cloud guys. We've seen good strong visibility for multiple quarters, and then as we think about share.

At the small medium business and more of the channel business I think all of that is a strong opportunity for us.

Thank you and next question is coming from Joe Moore from Morgan Stanley.

Your tubes and our lives.

Great. Thank you I Wonder if you could talk.

And talk about the seasonality of the console business and the back out for the year.

Is there any seasonality or does that continue to be kind of more of a supply constraint.

Sure Joe So the cash.

Console business.

We're quite early.

On your life cycle, and I think you've seen that there's very strong demand.

For those products and so I think the seasonality is.

Not typical so typically we see the second half.

Stronger than the first half and and that that is sort of more muted. This year. So there is.

Some growth into the second half of the.

And the content is not nearly what it is and a typical console and seasonality.

Great. Thank you.

Yeah.

Thank you. Our next question is coming from Steve Here I was gone from Bernstein Research. Your line is now live.

Hi, guys. Thanks for taking my questions on recent around the PC environment.

The year, but and so you you sound a bit more sanguine about it versus your competitor, who does seem to be calling for growth next year and and maybe that's a function.

Some of the opportunity the other opportunities that you have I'm just curious.

Given your other outlook for kind of continued strong growth do you think that strong growth is dependent.

Byron and all on the state of the PC market and Metro. So for example, like a P. C. If they were down 10% next year do you still think you could still grow strongly year over year and 2022 off the rest of the volume.

Yeah sure Stacy so well yeah, I think I mean, there are lots of different signals and the PC market for 2022.

And then I think.

What we're doing is taking let's call it and we're planning for various different scenarios.

But I would say that from our point of view.

And the overall answer to your question is yes, I mean, we believe that there is a we have strong growth momentum across the portfolio and we.

Believe that we will.

We can grow and the PC business as well.

And if the market is.

Let's call it not as robust as some might forecast.

Our view is that we're still underrepresented.

Across the board in and the markets that we play and whether you're talking about data center or Pcs.

And on the PC side in particular, we're making very good progress in sort of commercial.

Premium gaming notebooks premium consumer we have more platforms coming with our ryzen 5000, and our next generation. So I think our sort of outlook is.

Her game less dependent on what exactly happens and the market.

But obviously, we watch the market very closely and we work with our OEM partners very closely to to stay in tune with what Theyre seeing.

Got it. Thank you that's helpful on.

From my follow up I wanted to ask the Opex question, a little more explicitly so you did take a day.

And for the year on year, 25%, but if I'm doing my math right. The Q4, Opex percentage was closer to 28 and and and.

And I and I get why I understand but I.

I think the analyst day model you'd given Oh, 16 months ago have sort of and Opex to revenue mid point somewhere in the mid 26 is should we think about on Opex I guess trending down from that exit.

Right.

To that more kind of like model level or are you still going to be taking this opportunity at least for the next several quarters, maybe maybe do investor day, and it had a bit of a higher level is that exit rate of opex to revenue more representative of what we might see in the near to medium term.

Yes, I think Stacy first of all you hit a drive the priority for this as they invest.

So it's about growth and we are growing significantly and just took up the guidance. So obviously, there's a lot of areas to invest and to.

And to support that growth, whether it's R&D and go to market or even hiring a search.

Of the year, you also have salary increases kick and Paul employees, and obviously that does drive the opex higher.

And given the guide we gave for.

And on the <unk>, III, which is higher than Q.

2 from an overall opex standpoint, and it's 1 of the numbers are concerned and I know, you're probably running your model there, but those numbers on approximate.

And really if you ask me from an overall standpoint, I would expect that for the year, we come and a little under 25%.

We gave them.

For Q guidance of 25%, but I think it will come in.

On the 25% for the year nothing extraordinary there is just making sure we plan the business support the growth and make sure that into 2022 as we have new product introductions that Lisa just talked about we continue to support that because they are not.

<unk> products coming into 2020.2 so really that's what it is.

Got it thank you very much.

Thank you Stacy operator, 2 more questions. Please.

Certainly our next question is coming from Blayne Curtis from Barclays. Your line is now live.

Thanks for letting me ask a question I just wanted to ask on on the graphics strength I think you said it doubled.

No problem just carry on.

And the way to parse out how much is coming from crypto and then I think what I heard you say is and the back half and to drive it for September.

Driver and in December of <unk>.

Just maybe you could describe how much and the strength in graphics, and it's kind of more client graphics versus the data center.

Yeah sure Blayne so too.

To your question about the quarter and second quarter.

And we do not believe there was a significant crypto component in and our graphics revenue I mean, the graphics revenue as we see it is really our DNA to ramping.

And we.

And we launched some new products and mobile and we're pleased with the reception of our DNA to in and mobile as well as we started shipments of some of our datacenter Gpus and so our view is that the crypto based component is is really negligible and then as we go into the second half of the year I wouldn't say graphics and is the largest driver.

And of our business you know that the driver really is around data center and data center.

Across <unk>.

Cpus as well as some of the early ramp of the Gpus.

But we do expect there continues to be strong demand for gaming graphics, and we know there are a lot of gamers out there who are still looking to get some of their.

Their cards and so we will we will support that.

And that that demand but.

And I don't think crypto was a big piece of it and we will continue to focus our efforts on getting our gaming graphics over into our into the gamers hands.

Thanks, and then maybe just to follow.

Flow up on the datacenter GPU opportunity you've mentioned you have from new wins with HBC and a couple of Mercury early chunky and just kind of curious and want to think about that impact and the model is that a next year story or is it a bit further out.

Yeah. So I mean, we will see some some growth and the second half of the year off of a small base.

I think it becomes a more meaningful driver as we go into next year and then certainly the following year. So think about the datacenter GPU story is sort of the early innings of what we did on the on the CPU side.

We're excited about the product Blayne I think it is.

Very exciting.

Product with our next generation.

And cdna too I think.

We have won some early wins with HBC and we're continuing to work with some cloud customers on the.

And machine learning and AI aspects of it but it's really a multi year journey and the larger driver of our data center business is the <unk>.

Server CPU side.

Thank you.

Our final question today is coming from Mark replaces from Jefferies. Your line is not a lot.

Hi, Thanks for taking my questions.

Lisa I have a question about your announcement with Google for their child.

And I thought it.

And what's fascinating because it looks like they are disabling and 1 of the threads and money.

Milan, and a single threaded mode, which.

It seems to me like a flow back to 20 years ago. So.

I had a couple of questions on this already.

And I haven't seen Intel Xeon processors, and this mode and is there something about the AMD architecture, the Milan architecture beyond higher courts and all.

It just makes it more sense to use AMD processors, and this mode versus Intel processors.

Are you seeing a lot of demand outside of Google for this kind of single threaded implementation and and if you are what it would it make sense to make a like a separate line of Cpus that streamlines the logic for only.

1 processing and Fred and then you can set you know potentially you could spend a lot more cores on the CPU and cut the power dissipation and it seems like it would be the next logical step would that even be feasible or is that something you consider you're getting demand for thank you.

Sure. So so mark on the way I would say is this.

And you know again, and I Wanna be a little bit sort of broad and how I answered the question and I think what you see in the and the server land is that there are lots of different use cases for.

And for the processors and you know you have some that are looking for sort of the bleeding edge of performance and there the.

You know the the multi threading is very very useful and.

And you get better performance per watt performance per dollar.

And just overall socket level performance I think what we've seen is that as you look across use cases, there are some use cases, where youre more focused on performance per dollar.

And then overall performance.

And you might choose to optimize sort of what you do sort of how you configure the processor differently I think what youll see from US up Mark is we're spending a lot of time with our with our Hyperscale.

<unk> partners and what we want to do is offer them the type of incidence.

We need and that their customers need and so you'll see us do more customization.

And you know across the board and with the idea of and we want to satisfy that range of performance.

That you know across you know across the entire range of use cases, so I think we'll talk more about how we think about.

On the roadmap as we go forward, but I will say that we're being very thoughtful in ensuring that we have the right product for the right workload and that it's optimized for poor performance and power and cost and and all those are all those areas.

Great. Thank you very helpful. I appreciate it.

Thanks Mark.

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

Thank you everyone. We appreciate your time today and printing and your interest and A&D and fraud waste and we appreciate your support and we look forward to seeing you and an apparent here in Q3.

Have a great day.

Thank you and that does conclude today's teleconference and webcast.

You may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.

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Hello, and welcome to the AMD second quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.

And if anyone should require operator assistance, Please press star zero.

On your telephone keypad, a question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Based on my pleasure to turn the call over to Laura Graves corporate Vice President of Investor Relations. Please go ahead.

Thank you and welcome to Amd's second quarter 2021 financial results Conference.

And on Prince call by now we hope you have had the opportunity to review a copy of our earnings press release and slides. If you have not reviewed these documents yet they can be found on the investor relations page of <unk> Dot com.

Participants on today's conference call, a doctor and leases to our President and Chief Executive Officer, and day vendor Kumar our executive.

And as Vice President and Chief Financial Officer and Treasurer.

And this is a live call and will be replayed via webcast on our website before.

Before we begin I would like to note that Saeed Mush, Maloney senior Vice President and general manager of our client business and Ruth Cotter Senior Vice President of worldwide marketing human resources Investor Relations and strategy.

D G will attend the Jefferies semiconductor and hardware summit on Tuesday August 31st day.

And then your Kumar willing and the Deutsche Bank Technology Conference on Friday September 10th.

And our third quarter 2021 quiet time is expected to begin at the close of business on Friday September 10th.

Today's.

We refer to the cautionary statement in our press release for more information on factors that could cause.

<unk> actual results to differ.

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.

With that I will hand, the call over to Lisa Lisa.

Thank you Laura and good afternoon to all of those.

Listening in today.

Our business performed exceptionally well and the second quarter and strong execution and growing customer preference for high performance products generated significant market and financial momentum.

We saw very strong demand across all of our businesses, which resulted in second quarter revenue growing 99%.

Sent year over year to $3.85 billion.

We expanded our gross margins by 4 percentage points doubled operating margin and more than tripled profitability year over year.

We also delivered record revenue for the fourth straight quarter and generated record free cash flow in the quarter.

Turning to our computing.

Computing and graphics segment.

Second quarter revenue increased 65% year over year to 2.25 billion driven by significant growth and both ryzen and Radeon processor sales.

And client computing, we had another record quarter and processor revenue.

Both desktop and notebook revenue increased by a strong.

Total digit percentage year over year, and we believe we gained revenue share for the fifth straight quarter.

And desktop robust demand for our highest and ryzen processors drove a richer mix in the quarter as ryzen 9 processor unit shipments more than doubled year over year.

And notebook unit shipments.

From the ASP increase sequentially and year over year we.

We delivered our seventh straight quarter of record mobile CPU revenue led by the steep ramp of our latest generation Ryzen 5000 mobile processors.

And the enterprise Ryzen Pro mobile processor unit shipments nearly doubled year over year as we.

We won multiple high volume deployments in the quarter with Fortune 500 financial services automotive and pharmaceutical companies.

And graphics revenue doubled year over year led by demand for Radeon and 6000 series desktop graphics cards, and the channel and adoption of our datacenter Gpus.

Our DNA.

<unk> and <unk> GPU shipments grew by a double digit percentage sequentially as the first notebooks powered by our Radeon Rx 6000 M series Gpus launched <unk>.

Including the first AMD advantage notebooks that combined high performance Ryzen Cpus, Radeon Gpus and AMD software with premium design features to delay.

And 8 best in class gaming experiences.

A serious HP MSI, and Lenovo announced plans to bring AMD advantage notebooks to market over the coming months as we further expand our presence and the gaming notebook market.

Data center graphics revenue more than doubled year over year driven by.

Deliver appointments of our AMD instinct accelerators, including initial shipments of our next generation datacenter Gpus, featuring our cdna 2 architecture.

G and H 2 represents a major step forward and our multi year datacenter GPU strategy delivering more than twice the performance of our current generation and significantly.

New different performance than competitive offerings and <unk> workloads.

We expect datacenter GPU revenue to grow and the second half of the year as we ramp production of our next generation AMD instinct accelerators and open source rock and software to support multiple leading edge supercomputer wins, including frontier Lumi.

Antley higher and policy.

Turning to our enterprise embedded and semi custom segment revenue increased 183% year over year to $1.6 billion driven by strong growth and both semi custom and epic processor sales.

Semi custom revenue grew sequentially and year over year, and we expect game console demand.

Lumi to remain strong throughout the year.

We announced a new semi custom win earlier this month as valve chose AMG to power their steam Dirk handheld game console planned to launch this December.

And embedded we're making good progress expanding our presence across key verticals, including automotive.

Demand networking and storage.

We ramped production shipments in the quarter of AMD ryzen embedded Cpus and Radeon rdna, 2 gpus to power the index infotainment systems, and Tesla's latest model S and model X vehicles.

Now turning to server.

We.

<unk>, our fifth straight quarter of record server processor revenue.

Sales grew by a significant double digit percentage sequentially, driven by higher unit shipments and Asps.

We are seeing very strong demand across our full server portfolio with second Gen epic processor revenue growing sequentially and third Gen epic processor.

We deliver sales more than doubling quarter over quarter.

Cloud demand further.

<unk> celebrated in the quarter led by growing internal workload adoption and nearly 50, new AMD powered instances by AWS, Microsoft Azure, Google Tencent and Alibaba.

Google announced they chose AMG epic processors to exclusively power the first offering and its new Tao VM family.

That delivers industry, leading performance and value for scale out workloads versus other competitive X 86 and arm offerings.

And enterprise, we see demand accelerating as more than 103rd Gen. Epic processor platforms are now in production from Dell HPE Lenovo Super.

Further and Cisco and others.

Mike rational fluid dynamics.

We secured multiple HBC wins, and the quarter, including newly announced deployments by the National Supercomputing Center in Singapore, and the French Atomic Energy Commission.

Our substantial momentum and HBC was highlighted by the fact that the number of AMD based systems.

On the latest top 500 list of the world's fastest supercomputers increased by almost <unk> and the last year and that epic processors power half of the 58 newly listed system.

Looking at our overall data center business revenue nearly doubled year over year and increased sequentially from a.

A high teens percentage of overall revenue and the first quarter to greater than 20% in the second quarter.

And largest mdc's.

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

The year and are excited about the opportunities ahead.

In closing I'm extremely pleased with our execution as our business accelerated considerably in the first half of the year.

Based on growing customer preference for our products and strong supply chain execution, we now expect annual revenue to.

By approximately 60% year over year.

Up from approximately 37% growth, we guided at the beginning of the year.

Our engineering teams are aggressively driving our product and technology Roadmaps to continue setting the pace of innovation for high performance computing.

We remain on track to launch next generation.

Grow <unk> and 2022, including our Zen core processors built with industry, leading 5 nanometer process technology and our rdna 3 gpus.

We also recently demonstrated the next major advanced and our triplet strategy with our differentiated <unk> die stacking technology that enables significant.

<unk>, probably denser and more efficient connections between stacked chips.

Based on the strength of our long term roadmap and the deep partnerships. We have established we expect to continue growing significantly faster than the market.

In summary, we are making great progress towards our ambitious goal of establishing AMD as the high performance computing.

Significant and a best in class growth franchise.

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

The vendor.

Thank you Lisa and good afternoon, everyone.

AMD had another outstanding quarter, our high performance computing product momentum.

Leader is driving record revenue growth record profitability and significant cash generation.

Second quarter revenue was $3.85 billion up 99%, probably a year ago and up 12% from the prior quarter on.

Year over year growth was driven by significant revenue increases.

Across all businesses.

Gross margin was 48% up 360 basis points from a year ago, driven by and improved revenue mix and higher margin contribution from all businesses operating expenses were $909 million compared to 617.

$10 million a year ago, as we continue to invest and business growth and our long term product and the NPS operating income was $924 million up $691 million from a year ago, driven primarily by revenue growth operating margin doubled to 24% upfront.

As a percent a year ago.

Net income more than tripled to $778 million up $562 million, probably a year ago.

Diluted earnings per share was <unk> 63 per share compared to <unk> 18 per share on a year ago. This includes a 15% effective.

Growth rates in the second quarter of 2021 compared to 3% a year ago.

Now turning to the business segment results computing and graphics segment revenue was $2.3 billion up 65% year over year, driven primarily by significantly higher.

Client and graphics cross sell revenue with a richer product mix and both businesses computing.

Computing and graphics segment operating income was $526 million or 23% of revenue compared to 200 million or 15% a year ago.

Enterprise embedded.

<unk> semi custom segment revenue was $1.6 billion up 183% from 565 million in the prior year. The strong revenue increase was driven by higher semi custom product revenue and epic process sales.

<unk> segment operating income was 300.

$98 million or 25% of revenue compared to 33 million or 6% a year ago.

Turning to the balance sheet cash.

Cash cash equivalents and short term investments were $3.8 billion up from $3.1 billion at the end of the prior quarter free.

Free cash flow.

It was a record $888 million compared to $152 million in the same quarter last year free cash flow from the first half of 2021 of $1.7 billion was more than double 2020 annual free cash flow.

With our strong financial.

Initial results and growing cash generation, we announced a $4 billion stock repurchase program in may and under which we repurchased 3.2 million shares of common stock for $256 million in the second quarter.

Inventory was $1.8 billion upfront.

From the prior quarter in support of higher revenue expected in the second half of the year.

Let me now turn to the third quarter outlook.

Today's outlook is based on current expectations and contemplates the current global supply environment and customer demand signals we.

<unk> revenue to be approximately $4.1 billion, plus or -100 million and increase of approximately 46% year over year and approximately 6% sequentially.

Year over year increase is expected to be driven by growth across all businesses the sequential increases.

<unk> is expected to be primarily driven by growth and our data center and gaming businesses.

In addition for Q3.2021, we expect non-GAAP gross margin to be approximately 48% non-GAAP operating expenses to be approximately $1 billion non-GAAP interest.

Expense taxes, and other to be approximately $150 million and.

And the diluted share count to be approximately $1.3 billion shares.

For the full year 2021, we now expect revenue growth of approximately 60% over 2020 upfront.

Our prior guidance of approximately 50% driven by growth across all businesses.

We also expect non-GAAP gross margin to be approximately 48% up from prior guidance of approximately 47% non-GAAP operating expenses to be approximately 25% of revenue down.

Down from previous guidance of approximately 26% of revenue non-GAAP effective tax rate to be 15% and we expect the company's cash tax rate to be approximately 2%.

In closing, we delivered another excellent quarter with very strong year over year growth accelerated.

Our business momentum and delivered exceptional financial returns.

I'll turn it back to Laura for the question and answer session Laura.

Yeah.

Thank you <expletive> vendor operator, we're ready to begin the Q&A session now.

Thank you, we'll now be conducting a question and answer session.

And if you'd like to be placed on the question queue. Please press star 1 under telephone keypad.

Confirmation tone will indicate your line is and the question queue. You May press star 2 if you'd like to remove your question from the queue.

For participants using speaker equipment may be necessary to pick up on handset before pressing star.

SAR 1.1 moment please poll for questions.

Our first question today is coming from Toshio Harry from Goldman Sachs. Your line is now live.

Good afternoon. Thank you so much for taking taking my questions and congratulations on a very strong set of results.

Lisa you didn't really touch on the.

Situation and in the marketplace today.

Appears to be a pretty big focus for companies and also from investors.

How would you how would you characterize the current GAAP between supply and demand and importantly, as we as we look ahead to 2022, how comfortable are you from.

<unk> from our foundry wafer capacity and ABS substrate capacity perspective, as you continue to grow the business strong double digits and then I've got a quick follow up.

Sure well hey, thanks for the question.

I think it's fair to say that the semiconductor demand environment, and particularly the AMD demand environment has been very strong and too.

2021.

Been working on supply for the past couple of quarters, I think I'm actually quite pleased with the progress.

That we've made in terms of increasing our supply and you know what.

I've said previously is certainly we do see some level of constraints, but we are making progress each quarter.

And we made progress on the second quarter that.

Enabled us to exceed the original guidance and as we go into the second half of the year, we're continuing to bring on extra supply each quarter, which is leading to the full year guidance range that we have so I think overall, we continue to make progress I will.

And it's tight like you've heard from many other companies through the end of this year.

And improves in 2022, we've been planning for significant growth you know our model is 1 where we're going to drive significant growth. So we've been planning with that with our supply chain partners and we do have confidence that we can continue to grow substantially as.

Sales into the second half of this year and into 2022 with E on the supply chain.

Great.

As a quick follow up I guess on multi part question on your server CPU business, our data center business more broadly.

I was hoping you could speak to sort of the revenue construct and the second.

And we go order and.

And if you can differentiate between a second Gen and third Gen Rome versus Milan, and then what Youre seeing on the cloud side versus enterprise side of your business and the outlook into the second half as you think about.

And with a different segments of that business and.

And then finally you talked.

Second data center being more than 20% of revenue in Q2, what's embedded in your and your second half guidance. Thank.

Thank you.

Sure Okay quite a few questions. There. So let me try to work through them so and in terms of the makeup of our datacenter business.

Our server business was very strong I think the product.

Talked about capability and.

And sort of just sort of the performance and the total cost of ownership from Milan has proven out very well with our customers. So we're very happy with that launch in the second quarter, we did see significant growth with Milan.

And that being the case, so Rome was still on.

But your portion of the revenue and I would say and the second quarter. It was more cloud weighted so we saw clouds tends to ramp faster on.

New generation and that was the case and the second quarter. So no cloud grew faster.

And then enterprise as we go into the second half of the year, we expect that Milan will.

On a large ramps very quickly and crossover.

And third general crossover second generation in the third quarter and what we're seeing actually is continued strength across cloud and H P. C, which have been traditionally strong for AMD, but we're actually seeing very good momentum and enterprise and I think with the.

And.

The breadth of the platforms that we have out there and.

And just the coverage and then sort of the per core performance as well as the overall socket level performance and we're getting a very strong traction and and we're pleased to see that so I think as we go into the second half of the year I think enterprise will be a stronger component.

For.

And it wasn't in the first half of the year and that's the balance that we want but overall, we're pleased with that and then in terms of and your your question about server was.

So our datacenter was greater than 20% of our revenue in the second quarter. We believe that the data center business will continue to be a strong driver for us into.

For us and half of the year and so it'll be a larger percentage of our overall revenue and the second half of the year.

Thank you. Our next question is coming from Aaron Rakers from Wells Fargo. Your line is not a lot.

Yeah. Thanks, Thanks for taking the question and congratulations as well on the quarter.

I wanted to ask about kind of the trajectory of growth.

And to the sector and if we take the full year guidance now guiding about 100 basis points with the <unk> Guide.

And so the ratios it looks like youre actually pushing towards a 50% gross margin.

How do we think and maybe you can unpack how we should think about the segment gross margin levels and do you.

You think about that.

Most margin 50%.

The threshold that we can consider modeling going forward.

I think I think and on the gross margin and first of all I'd say, we're very pleased with the progress we have made and as you observed we have taken up the guidance for the year from 47 to 48, and our long term model and our long term target model we.

Before he plans to get to greater than 50% and I think that the strength of the businesses I've read Lisa just talked about especially on the data center to help us get.

And the product mix is important on the ramp and the data center and the client PC business. As we gained revenue share is going to be important to drive that.

And we are confident that we can continue to improve the gross margin.

We have given the mix on the business and also the revenue ramp and the businesses.

And at a higher than corporate average gross margin so feel very good about getting to the greater than 50% and overtime.

Yes.

I'm sorry.

And I was just going to add to that I think the most important thing.

To think.

But as you as you think about our business going forward is it really is about the mix of business. So as data center becomes a higher percentage of our business. That's a favorable mix for us and then within the segments as well as.

As we look at where we are strategically focusing as we really mix to the higher end of the portfolio.

So those are the key things that we're looking at from a margin standpoint, but there are always puts and takes and.

The business, it's just really about the mix.

And then just as a real quick follow up as Milan ramps and appreciating that Rome is it sounds like still the majority of the epic lineup.

How successful have you been as far.

Portfolio merging a stronger position with regard to uplift on on blended ASP.

As we think about the continuation of Milan, and even starting to think about you know going forward. Thank you.

Yeah. So as we you know as we think about sort of the trajectory of the business. It is about offering.

And as a performance per socket and on that that is what we're doing so I think Milan is certainly a performance uplift relative to Rome.

Does lend itself to a higher ASP or higher mix of the business and then clearly as we go to general and we're going.

And to continue that trajectory, so I think and then.

More than server, there's also a mix between cloud and enterprise and as I said earlier, we're quite cloud weighted on here in the first half of the year and as we as we go to a stronger percentage of enterprise that would also be a favorable mix and the surface side of the business.

Thank you. Our next question is coming from Vivek Arya from bank.

Securities Your line is and our lives.

Thanks for taking my question Lisa it's to continue on the server business on dental.

Last year.

And we saw AMD take about 2 to 3 points of.

Server share annually this year the share gains seem to be accelerating on the order of 4 to 5 points.

And that is what's driving this acceleration and did you see anything from industrial roadmap disclosures yesterday that you'd think and impact your server share gain momentum.

Yeah Vivek. Thanks for the question well you know as as you know very well, where we're very focused on sort of multi.

And from a multiyear progress.

The server and the datacenter business I think we're excited.

The momentum around our server business I think the product.

Roadmap is very strong and I think the execution has been very strong I think customers also with the third generation and Milan.

And you know felt.

Quarter from more comfortable to go more broadly with Milan and just because this was sort of a third time right. They had many of our customers were on Rome already.

But with with Milan, and it was sort of a socket compatible and so there was it.

And it was a a faster time to ramp and we're seeing it ramp faster. So we feel good about where we're positioned.

Felt money, it's a very competitive market out there vivek I'll always say that we expect our competition to be really good and we need to be better than that and so our team is very focused on on execution and we're excited about general I think our customers are excited about Genoa, and so we need to keep the momentum and keep the roadmap.

And map execution as a strong as it has been.

Got it and from my <unk>.

A follow up but you announced a $4 billion share buyback I believe you kind of midway on that midway through Q2, you only did about $256 million of that how should we think about buybacks.

And going forward you know are you do you have.

And timeframe in mind.

And what's going to guide your decision when and how much of buybacks to do thank you.

Yeah, I think no specific vivek as you and all of these programs I mean, we will be opportunistic and we will obviously return on capital to the shareholders.

On balance sheet continues to improve.

And very pleased to initiate the program and Q2 and about 6 million puts and $3.2 million and you will see us do more over time, but I wouldn't want to get through and the specifics on this call.

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

Thank you very much and good afternoon everybody.

I guess, Lisa 1 of the things I was really pleased to see and this set of results and and investors have asked me about quite a bit.

And that you are delivering the revenue upside, but the operating margin leverage is coming with that.

You guys are right leaf.

And spending a ton to grow the business and and that's been reflected and the growth and I just wonder.

How youre thinking about the balance of revenue growth versus delivering sort of upside to operating margins going forward because it's.

On the item that's been a full from from some investors and my conversations. Thanks.

Sure, Matt and maybe I'll I'll start.

And on CF to vendor has anything to add yeah, I think we've always been very thoughtful about how we.

Both invest and the business as well as delivering.

Operating leverage and and look I think our revenue growth has been very strong certainly above what we had previously forecasted we are taking the opportunity to events.

And to invest and the business and that's investing in R&D and investing in and it sales and marketing and really.

The overall capabilities there, but you do see the operating leverage in the business and I think we intend to continue to deliver improved operating margins as we go forward. So I think we can do it.

All of those things I think we can continue to grow.

Revenue significantly above the industry, we will continue to invest and opex at a lower rate and revenue growth and we will continue to deliver operating margin improvement overtime.

And I think you covered and Lisa I think that's.

And so I'll say it I mean as you saw we did update the guidance for Opex.

And as a percentage of revenue from about 26 percentage of 25% for the year and we continue to be disciplined from a viewpoint on the investments we need to make the growth the business.

And as well as obviously invest in R&D go to market and hiring people is another area of focus right now is the business of drawing pretty significantly.

Thank you both for that as my follow up it is it's interesting to more strength.

The industry going forward and I Wonder if you might share your view and we've heard of.

And our work a few bubbles and the chromebook market.

And Tory of AMD parts, or maybe the GAAP between orders and your ability to fulfill them and the PC market those things would be really helpful. Thank you.

Yeah sure Matt. So look there are lots of different signals and the PC market. So maybe I will make a few comments I think it's fair to say that end user demand has been very strong so very.

Strong and the first half of the year very strong and the second half of last year and that's from all of this work from home School from home and then some of this return to office trends within that and there is a little bit of mix shift as you go through time.

When I look at the market I would say that we performed very well.

Within this market backdrop, we.

Continue to gain revenue share and what that means is we're focusing on the most strict strategic segments of the PC market as we go forward.

I do agree that end user demand is strong and I.

Also believe that if you look.

Look at the second half of this year for the PC market, you'll hear about sort of pockets of component shortages are matched assets and things like that so we're taking that into accounts as we think about the second half of the year.

From our perspective, we're planning the PC the RPC business to be about flattish first.

Since the second half and again, we think that that's very well supported by all of the ordering patterns and all of our sort of look at what the PC Oems are doing from an inventory standpoint, we do not believe there is significant inventory.

Do track it very closely.

And of.

First half of AMD product any ways, we look at it at the retailers as well as that with our OEM. So I think we have this.

Barry we're watching it very closely and recognize that the PC market may may.

And they do May go up or down and we're expecting it to be like I said for our business roughly flattish first half and the second half and and.

That being the case, we continue to believe that there is strong and user demand and theres, just some supply matching that needs to happen in the are in the marketplace.

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

Yes, good afternoon and Lisa.

The financial segment.

Yes, we we outgrew the segment and the second quarter.

Perfect and then my second question is just more of a strategic question around pricing clearly.

Last week on their conference call until talked about perhaps being a little bit more price aggressive, especially and datacenter to protect share.

Relative to the split to get kind of your thoughts on pricing I mean and <unk>.

My mind that market is much more about a total cost of ownership that and entry point and given your price performance and I'm just kind of curious as to how concerned you are about the pricing environment and how concerned do you think we should be over time.

Yeah. Thanks for.

John look I think the market has always been competitive I don't see that it has become more competitive where that's changed.

And you said pricing is not the first order variable.

And you're buying a server CPU. It really is about total cost of ownership I think the performance leadership.

And I have.

Is.

It is clearly there and I think customers see that so we will we will.

Always fight for every socket that we are very.

And we're very competitive in that fashion, but we think that the way to do that is with the strength of the roadmap and the strength of the deep partnerships and.

Price.

That we have sort of a second order lever.

And this market.

Thank you.

Thank you and next question today is coming from Harlan sur from Jpmorgan. Your line, there's not a lot.

Good afternoon, and great job on the quarterly execution now with from Milan on Us.

<unk> trajectory.

Good to see the momentum in enterprise.

And you guys continue to drive into new markets, just wanted to get and upgraded on the pool and the total service provider market right. It's a it's a relatively big market with about $67 billion market.

<unk> supports much more networking functionality versus prior generations.

Long run operators continue to virtualize, the core of the on networks and with 5 G.

And what's going to virtualize their radio access networks and so just wanted to see if the team has been on the momentum with Milan with total equipment Oems.

And with some of the large cloud service providers.

Yes, sure Harlan and thanks for the question.

Yeah look we we believe the telco segment is a very good segment.

And <unk> for AMD, and and as and Xilinx comes into our store as we combined the xilinx business with ours I think there are there relationships as well in the communications and telecom market.

It will be helpful and just bringing the overall solution set together. So yes, we think it's a good.

Good market for us, but I would say where we.

We're still very early on that particular cycle.

Great. Thank you and then on.

On the strong early momentum and enterprise as you move into the second half and.

And you probably have some visibility into next year, because the enterprise close cycles are probably a bit longer.

Streeteasy and some of your cloud customers can you just talk about the breadth of your engagements and enterprise across large corporations and small to medium size businesses.

Ah, yes, Harlan so we have seen a very strong pipeline and that started with <unk>.

Started with Rome.

We see that expanding with Milan I think if you look at the breadth of platform offerings from all the largest Oems.

From Milan.

Just a broader and.

And then our past generation and I think people are also starting to come up with more appliances, and we've done quite a bit more ISP optimization.

And so our visibility is very.

Very good.

Into the second half of the year and it's also very good into 2020.2 I think the I think the good piece about this as you said it is longer design cycles, but with large companies and certainly with some of the tier.

And as well our cloud guys. We've seen good strong visibility for multiple quarters, and then as we think about.

The small medium business and you know more of the channel business I think all of that is a strong opportunity for us.

Thank you and next question is coming from Joe Moore from Morgan Stanley.

You're too and there's not a lot.

Yeah.

Great. Thank you I Wonder if you could.

Talk about the seasonality of the console business and the back out for the year.

Is there any seasonality or does that continue to be kind of more of a supply constraint.

Sure Joe So I'm you know the the console business.

We're quite early.

And your muscle cycle, and I think you've seen that there's very strong demand.

For those products and so I think the seasonality is.

Not typical so typically we see the second half.

Stronger than the first half and that that is sort of more muted. This year. So there is.

Some growth into the second half of.

And the content is not nearly what it is and a typical console seasonality.

Great. Thank you.

Yeah.

Thank you. Our next question is coming from Steve. He read has gone from Bernstein Research. Your line is now live.

Hi, guys. Thanks for taking my questions on recent around the PC.

The year, but and so you you sound a bit more sanguine about it versus your competitor, who does seem to be calling for growth next year and and maybe that's a function.

Some of the opportunity the other opportunities that you have I'm just curious.

Given your other outlook for kind of continued strong growth do you think that strong growth is dependent.

Environment at all on the state of the PC market and that's just so for example, like a P. C. If they were down 10% next year do you still think you could still grow strongly year over year and 2022 off.

The restaurant volume yeah.

Yeah sure Stacy So look no I think.

And there are lots of different signals and the PC market for 2020.2.

And then I think.

What we're doing is taking let's call it and we're planning for various different scenarios.

But I would say that from our point of view.

And the overall answer to your question is yes, I mean, we believe that there is a we have strong growth momentum across the portfolio and we.

So we will.

We can grow and the PC business as well.

And if the market is.

Let's call it not as robust as some might forecast.

Our view is that we're still underrepresented across the board in and the markets that we play and whether you're talking about data center or Pcs.

Believe that Inc.

And on the PC side in particular, we're making very good progress in sort of commercial.

Premium gaming notebooks premium consumer we have more platforms coming with our ryzen 5000, and our next generation. So I think our sort of outlook is.

Your game less dependent on what exactly happens and the market.

But obviously, we watch the market very closely and we work with our OEM partners very closely to to stay in tune with what Theyre seeing.

Got it. Thank you that's helpful on.

From my follow up I wanted to ask.

The Opex question, a little more explicitly so you you didn't take it.

And for the year on year, 25%, but if I'm doing my math right. The Q4, Opex percentage was closer to 28 and and and.

And I and I get why I understand but I.

I think the analyst day model you'd given Oh, 16 months ago have sort of and Opex to revenue mid point somewhere in the mid 2000 and sixes shall we thank him on Opex I guess trending down from that exit.

Right to.

And we got more kind of like model level or are you still going to be taking this opportunity at least for the next several quarters, maybe maybe doing basket and it had a bit of a higher level is that exit rate of opex to revenue more representative of what we might see in the near to medium term.

Yes, I think Stacy first of all you hit and drive the priority for this as an investment.

And on the business for growth, we are growing significantly and just took up the guidance. So obviously, there's a lot of areas to investing.

To support that growth, whether it's R&D and go to market or even hiring a second of the year. You also have salary increases kick in total employees and obviously that does drive the opex higher.

And given the guide we gave for.

For Q3, which is higher than Q2.

And 2 from an overall opex standpoint, and it's 1 of the numbers are concerned and I know, you're probably running your model there, but those numbers on approximate.

And really if you ask me from an overall standpoint, I would expect that for the year, we come and a little under 25%.

We gave them.

Proximity and guidance of 25%, but I think it will come in.

On the 25% for the year nothing extraordinary day is just making sure we plan the business to support the growth and make sure that into 2022 as we have new product introductions that Lisa just talked about we continue to support that because they are not.

New products coming into 2020.2 so really that's what it is.

Got it thank you very much.

Thank you Stacy operator, 2 more questions. Please.

Certainly our next question is coming from Blayne Curtis from Barclays. Your line is and alive.

Thanks for letting me ask a question I just want to ask on on the graphics strength I think you said it doubled.

Just curious.

Is there a way to parse out how much is coming from crypto and then I think what I heard you say is and the back half. It's a driver for September just.

Driver and in December with Pcs flat again.

Just maybe you could describe how much of the strength and graphics as kind of a more client graphics versus the data center.

Yeah sure Blayne so.

To your question about the quarter and second quarter.

And we do not believe there was a significant crypto component and in our graphics revenue I mean, the graphics revenue as we see it is really rdna 2 ramping.

And we.

Business, you know that the driver really is around data center and data center.

Across Cpus as well as some of the early ramp of the Gpus.

But we do expect you know there continues to be strong demand for gaming graphics, and we know there are a lot of gamers out there who are still looking to get some of.

And of Orbitz and so we will we will support that.

And that that demand but.

And I don't think crypto was a big piece of it and we will continue to focus our efforts on getting our gaming graphics over into our into the gamers hands.

Thanks, and then maybe just a follow.

And their card data center GPU opportunity, you've mentioned you have from new wins with HBC and a couple of Mercury really chunky and just kind of curious when you think about that impact on the model is that a next year story or is it a bit further on.

Yeah. So I mean, we will see some some growth and the second half of the year off of a small base.

We're excited about the product Blayne I think its.

Very exciting.

Product with our next generation.

Follow up on <unk>, 2 I think we have won some early wins with HBC, we're continuing to work with some cloud customers.

And machine learning and AI aspects of it, but it's really a multi year journey and the larger driver.

Of our data center business is the <unk>.

Server CPU side.

Thank you.

<unk> seen our final question today is coming from Mark replaces from Jefferies. Your line is not a lot.

Hi, Thanks for taking my questions.

And at least on how the question about your announcement with Google for their their Tau and sensors.

And I thought it was fascinating because it looks like they're just they blame and 1 of the threads and.

And Ronnie.

2 on and a single threaded mode, which.

It seems to me like a flow back to 20 years ago. So.

And I had a couple of questions on this already.

And I haven't seen Intel Xeon processors, and this mode and if there's something about the AMD architecture, the Milan architecture beyond higher court and all.

It just makes it more sense to use AMD processors, and this mode versus Intel processors.

You're seeing a lot of demand outside of Google for this kind of a single threaded implementation and and if you are what it would it make sense to make a like a separate line of sea Peters that streamlines the logic for only.

And that 1 property and Fred and then you could say.

Potentially you spent a lot more cores on the CPU and cut the power dissipation and it seems like it would be the next logical step.

Would that even be feasible or is that something you consider youre getting demand for thank you.

Sure. So so mark and the way I would say is this and.

And again I want to be a little bit sort of broad and how I answered. The question I think what you see and the and the server land is that there are lots of different use cases.

For the processors and you know you have some that are looking for.

The bleeding edge of performance and there the.

On the multi threading is very very useful and you get better performance per watt performance per dollar.

And just overall socket level performance I think what we've seen is that as you look across use cases, there are some use cases, where youre more focused on performance per dollar.

And overall performance.

And you might choose to optimize sort of what you do you know sort of how you configure the processor differently I think what youll see from US Mark is we're spending a lot of time with our with our Hyperscale.

Gale partners and what we want to do is offer them the type of instance.

And then on need and that their customers needs and so you'll see us do more customization.

Across the board with the idea of we want to satisfy that range of performance.

That across.

Ross you know sort of the entire range of use cases, so I.

And I think we'll talk more about how we think about.

And that they go up as we go forward, but I will say that we're being very thoughtful in ensuring that we have the right product for the right workload and that it's optimized for poor performance and power and cost and and all those are all of those areas.

Great. Thank you very helpful. I appreciate it.

Thanks Mark.

On the road with you we reset of our question and answer session and I'd like to turn the floor back over for any further and closing comments.

Thank you everyone. We appreciate your time today and put it in and your interest and A&D and as always we appreciate your support and we look forward to seeing you in and our bank here in Q3.

Have a great day.

Thank you and it does conclude today's teleconference and webcast.

Thanks Connector line at this time and have a wonderful day, we thank you for your participation today.

Q2 2021 Advanced Micro Devices Inc Earnings Call

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