Q3 2021 Advanced Micro Devices Inc Earnings Call

October 26, 2021

Hello, and welcome to the AMD third quarter 2021 earnings call and webcast at this time, all participants already a listen only mode.

Question and answer session will follow the formal presentation.

If anyone should require operator assistance. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.

It's now my pleasure to turn the call over to Laura Graves Corporate Vice President Investor Relations. Please go ahead Laura.

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

Now you should have had the opportunity to review a copy of our earnings press release and accompanying slide where.

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

Participants on today's conference call are Dr. Lisa Su, our President and Chief Executive Officer, and da Vinci Kumar, Our executive Vice President Chief Financial Officer, and Treasurer. This is a live call and will be replayed via webcast on our website.

Before we begin I would like to note that we will host our accelerated datacenter premier virtually on November 8th with feature presentations by Dr. Lisa Su and datacenter executives forests neurons and Dan Mcnamara. This event will also be available on <unk> Dot com Dr.

Dr. Sue will also have 10 credit suisse's, 25th annual Technology Conference on Tuesday November 30th.

Ruth Cotter senior Vice President worldwide marketing human resources, and Investor Relations will attend the Barclays Global Technology Media and Telecom conference on Tuesday December 7th and our fourth quarter 2021 quiet time is expected to begin at the close of business on Friday December 10th.

Today's discussion contains forward looking statements based on current beliefs assumptions and expectations 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.

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 in the slides posted on our website.

Now with that I'll turn the call over to Lisa Lisa.

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

Our business performed extremely well in the third quarter as our leadership product portfolio and strong execution drove record quarterly revenue operating income net income and earnings per share.

We delivered our fifth straight quarter of greater than 50% year over year revenue growth with each of our business is growing significantly year over year and data center sales more than doubling.

Third quarter revenue grew 54% to $4 3 billion gross margin expanded by more than four percentage points and operating income doubled year over year.

Turning to our computing and graphics segment third quarter revenue increased 44% year over year to $2 4 billion driven by our latest generation Ryzen Radeon and AMD instinct processors.

In client computing sales grew by a strong double digit percentage year over year and declined slightly sequentially.

Ryzen 5000 processor shipments increased by a double digit percentage sequentially, resulting in a richer product mix as we believe we gained revenue share for the sixth straight quarter.

And desktops, we launched our ryzen 5000 processors with integrated Radeon graphics for the channel to strong demand as third party reviews highlighted the leadership computing and graphics capabilities and energy efficiency of these processors.

And notebooks Acer.

HP and Lenovo all expanded their mobile offerings powered by rising 5000 mobile processors as we continue gaining momentum in the premium consumer gaming and commercial markets.

[laughter] commercial quiet growth year over year was based on new deployment across public sector, and Fortune 1000 technology energy and automotive customers as the number of AMD based commercial notebook designs available from the largest Oems increased significantly year over year.

We're also seeing strong growth in the workstation market. According to IDC drug or for pro processors now powered the best selling workstations in their category in both North America and EMEA as we continue winning high volume deployment across key verticals, including media and Entertainment engineering.

<unk> architecture and automotive.

Yes.

In graphics revenue more than doubled year over year and grew by a strong double digit percentage sequentially driven by shipments of our next generation M. D. C DNA to datacenter Gpus and demand for Radeon 6000, Gpus in the channel.

A M D rdna, two gpus sales grew significantly in the quarter as we ramped production and expanded our top to bottom portfolio with the launch of the midrange Radeon Rx 6600 X T cards that deliver leadership 10, ADP gaming performance at their price points.

Data center graphics revenue more than doubled year over year and quarter over quarter led by shipments of our new AMD C D and E. Two gpus for their frontier extra scale supercomputer at Oak Ridge National Laboratory.

Frontier was architected, specifically to deliver breakthrough H P C and AI compute performance and provide a blueprint for how supercomputing enterprise and cloud customers can enable extra scale level performance over the coming years by combining AMD Cpus Gpus and software.

We are very pleased with the performance of our a M. D C DNA to Gpus and look forward to providing more details on their leadership performance next month.

Turning to our enterprise embedded and semi custom segment revenue increased 69% year over year to $1 9 billion driven by strong growth in epic processor and semi custom sales.

Semi custom revenue grew sequentially and year over year as demand for the latest Microsoft and Sony consoles remains very strong.

We expect semi custom revenue to increase sequentially in the fourth quarter as we further ramp supply to address the ongoing game console demand.

Turning to server.

We delivered our sixth straight quarter of record server processor revenue as sales more than doubled year over year and grew by a significant double digit percentage sequentially.

Third Gen epic processors continue ramping faster than the prior generation and contributed the majority of our server CPU revenue in the quarter.

In cloud multiple hyperscale or has expanded their third gen epic processor deployments to power their internal workloads and both Microsoft Azure and Google announced multiple new AMD powered instances.

Cloud for Vimeo, and Netflix also all recently announced new deployments powered by epic processors with Netflix highlighting how they doubled their streaming throughput per server, while also reducing their T. C L.

Yeah.

Enterprise growth was particularly strong in the quarter as the more than 103rd Gen epic processor platforms from Dell HPE, Lenovo Supermicro, Cisco and others ramp into broader end customer deployments.

We expanded our wins in the quarter with Fortune 1000 financial services automotive and aerospace companies and see significant ongoing growth opportunities as our enterprise server pipeline has more than doubled year over year.

In Supercomputing, we won multiple installations in the quarter highlighted by Argonne National Laboratory selecting third Gen epic processors to power the new Polaris supercomputer that will be used to test and optimize software in preparation for future extra scale class systems.

Overall, we are very pleased with the momentum we have built in our data center business as server CPU and GPU revenue grew to a mid twenty's percent of overall revenue in the quarter.

Turning towards Xilinx acquisition, we are making good progress towards securing the required regulatory approvals and remain on track to close by the end of the year.

The Xilinx acquisition provides significant benefits to AMD, including expanding our product portfolio with leadership adaptive computing and AI solutions and further diversifying our customer base into complementary markets, including wired and wireless communications industrial and automotive.

In closing our record third quarter results and the significant acceleration of our business in 2021 demonstrate that we have the right products and strategies to drive best in class growth and significant shareholder returns.

We continue growing faster than the market driven by our consistent execution and the investments we have made to build leadership products.

Our supply chain team has executed extremely well in a challenging environment delivering incremental supply throughout the year supporting our strong revenue growth.

We are also investing significantly to secure additional capacity to support our long term growth.

Our product portfolio and Roadmaps have never been stronger and I look forward to sharing more details about our next generation server Cpus and Gpus at our accelerated datacenter Premier on November 8th.

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

Thank you Lisa and good afternoon, everyone.

AMD had another excellent quarter, our leadership products and growing data center momentum are driving record revenue record profitability and significant cash flow generation.

Third quarter revenue was $4 3 billion up 54% from a year ago, driven by strong revenue increases across all businesses and up 12% from the prior quarter.

Gross margin was 48% up 440 basis points from a year ago, driven by strong revenue mix and competitive products operating expenses were $1 4 billion compared to $706 million a year ago as we continue to invest in our long.

Term product roadmaps and scaling our business.

Operating income more than doubled to one point or $6 billion up $530 million from a year ago, driven primarily by revenue growth.

Operating margin was 24% up from 19% a year ago.

Net income grew to $893 million up $392 million from a year ago.

Diluted earnings per share was <unk> 73 cents compared to <unk> 41 per share a year ago. This includes a 15% effective tax rate compared to 3% a year ago.

Now turning to the business segment results computing and graphics segment revenue was $2 4 billion up 44% year over year, driven by significantly higher client and graphics processor revenue.

Computing and graphics segment operating income was $513 million or 21% of revenue compared to $384 million or 23% a year ago. The increase in operating income was primarily driven by higher revenue, which more than offset higher operating.

Expenses operating margin was slightly lower year over year, primarily due to investments in R&D and go to market.

Enterprise embedded and semi custom segment revenue was $1 9 billion up 69% from $1 1 billion. The prior year. The strong revenue increase was primarily driven by significantly higher epic processor and semi custom sales.

<unk> operating income was up significantly at $542 million or 28% of revenue compared to $141 million or 12% a year ago operating income growth was primarily driven by higher revenue and richer product mix, partially offset.

By higher R&D and go to market expenses.

Turning to the balance sheet cash cash equivalents and short term investments were $3 6 billion.

Utilized $750 million to repurchase more than 7 million shares of common stock in the third quarter of 2021 as part of our ongoing stock repurchase program pre cash flow was $764 million compared to $265 million in the same quarter.

Last year and $888 million in the prior quarter on a quarter over quarter basis free cash flow was lower as we made strategic investments in long term supply chain capacity to support future revenue growth.

Inventory was $1 9 billion up $137 million from the prior quarter in support of continued revenue growth.

Let me now turn to the fourth 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 5 billion plus or minus $100 million an increase.

Approximately 39% year over year and approximately 4% sequentially.

The year over year increase is expected to be driven by growth across all businesses are quarter over quarter increase is expected to be driven by higher silver and semi custom sales.

In addition for Q4 2021, we expect non-GAAP gross margin to be approximately 49, 5% non-GAAP operating expenses to be approximately 1.15 billion non-GAAP interest expense taxes and other to be approximately 170.

And the diluted share count to be approximately one to 2 million shares.

For the full year 2021, we now expect revenue to increase approximately 65% over 2020, driven by growth across all businesses up from the prior guidance of 60%.

<unk>, we continue to expect gross margin to be approximately 48% for the full year.

In closing, we delivered another outstanding quarter with very strong year over year revenue growth significant financial momentum and record profitability, our leadership products position us well to drive future growth significant cash generation and strong shareholder returns.

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

Thank you to vendor operator, we're ready for our first question.

We will now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to get to your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing star one one.

Please while we poll for questions. Our first question today is coming from Blayne Curtis from Barclays. Your line is now live.

Hey, good afternoon, great results. Thanks for taking my question just kind of curious overall outlook for Q4.

Compute and graphics being down I was just curious if that was more the supply you're still growing sequentially and obviously a risk.

C B prioritize servers, just kind of curious.

What youre seeing in the NDP graphics market.

Is it anything related to supply constraint for you that it would be down sequentially or maybe downstream constraints.

Sure.

Still growing gross margin.

The customer service and offset each other just kind of walk us through.

The nice increase in gross margin for Q4.

Yeah sure Blayne. Thanks for the question so as it relates to the fourth quarter here and where we are look we're overall very pleased with our performance in terms of the second half of the year, it's playing out about what we expect it to be in the PC market. So as you were asking about computing and graphics, we had.

Seen that the PC market end user demand is strong.

Overall, but there are some match set constraints in the PC market and so for that reason we call. It. The PC market you know really flattish I would not have sat down I would have called it.

Flattish as we look into.

The fourth quarter. However, as we look overall at the business I think the data center business has performed very well and we see strong demand there and we're continuing.

To see that and as well the console business. Overall gaming is also quite strong and so we see growth in servers and.

In semi custom as we go into.

Into the fourth quarter and then on the margin dynamics, Stephen do you want to cover that for Q4. So Q4 I know it is up slightly but its normal guidance one point from Q3.

That's really product mix higher margin from silver.

Offset by the semi custom revenue also being higher going from Q3 to Q4, so very pleased with the progress of the gross margin as you look at the Q3 results.

<unk> hundred 40 basis points from last year of 80 purchases based on last quarter and the progression into Q, Paul obviously, driven by the silver revenue growing I'm very pleased with that also.

Okay.

Thanks Helane.

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

Hi, Thanks for taking my question and congratulations on the strong results from the consistent execution.

Lisa how are you feeling about the spending environment in the data center.

We look over the next several quarters and especially your server roadmap versus the competition because they are planning to launch a suburb.

New and important products.

The next year. So I was just wondering how you were thinking about the competitive landscape and the spending landscape over the next year.

Sure. So thanks for the question I think overall, we're <unk>.

Feeling very very good about the server business or the data center market I think from a market standpoint.

We've seen a strong market here in 2021 in both cloud and enterprise and.

And we see that continuing into 2022, I think from a competitive position standpoint I think.

Milan is extremely well positioned so.

Very pleased with sort of the adoption rate of Milan, we said that we expected it to grow.

Faster than Rome, and it has and so the crossover with Milan and Rome in the third quarter is an important metric for that going into the fourth quarter. We continue to see a strong environment and then as a <unk>.

Imperative environment goes into 2022.

We always expect the competition to be strong, but our focus has been consistent execution of our roadmap and.

We feel very good about Zen four in Genoa in.

In 2022, I think we feel very good about the competitive positioning there and we continue to believe that data center is the most strategic part of our business and we're making good progress with our customers and partners.

Got it and for my follow up Lisa AMD has done very well in terms of gaining share at the hyperscale.

Where are you in that journey is there still a lot of share gains to be had at hyperscale nerves and importantly can you repeat that in the enterprise or do you think your competitors incumbency limits the share gain opportunity in the enterprise. Thank you.

Yeah, So vivek, what I would say there is our business has been more cloud weighted with the Hyperscale and enterprise that.

That continued here in the third quarter.

I do believe that there is.

<unk> additional opportunity for us in the cloud so.

We work with these partners. It is it is about sort of expansion of workloads.

Really theres more tailoring of workloads as well as we go forward.

And then there's also just more and more customers and broader penetration in both tier one and tier two.

Guys. So I think that's a good market for us on the enterprise side I would say we saw a very very strong enterprise quarter here in the third quarter I think the strength of Milan with our Oems in terms of the breadth of the platforms.

Is is very good and we're seeing a good traction with our fortune 1000 companies. So I would say overall I think we see a growth trajectory for both our cloud and enterprise business I think in the enterprise.

The key thing has been to get more familiarity with epic and we've made very good progress there and so I feel very good about where that's going.

Okay. Thank you.

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

Thank you very much good afternoon, everyone.

Obviously, we saw some really strong progress with datacenter crossing I guess a quarter of the business here with the results.

I did want to ask a question specifically on your server business in China.

Your competitor <unk>.

Called out.

China and some of the turmoil that has gone over there.

As a a reason why some of their cloud business had some headwinds in the third quarter and maybe you could comment on how you see spending over the last quarter and then in the next couple of quarters, specifically in that end market in China, and then I have follow up thanks.

Format. So.

Again, what I would say is our data center business.

It performed very well in the third quarter that was across both cloud and enterprise and in cloud that was across geographies. So we haven't seen it.

Anything particular as it relates to China or.

They're what I would say is we continue to work with a breadth of customers and.

We're in the process of really rolling out sort of broader adoption.

Across the customer set so I think we saw a pretty normal environment for demand.

Thanks for clearing that up as my follow up kind of unrelated.

As mentioned in the comments.

Still plans to get the Xilinx deal closed by the end of the year and I think that's important as then there's a lot of things that you can talk about more maybe more openly about the the heterogeneous compute strategy for the business over the long term.

Lisa maybe you could walk us through to the extent that you can talk about it obviously there are some things that you can't talk about but the extent you can what milestones you've achieved behind the scenes that make you feel confident in what hurdles are still there to have the confidence I mean, it gets we got six weeks.

Until we get into the month of December and things kind of slow down a little bit regulatory wise. So I just wonder what gives the confidence that we can get there and what we should expect thank you.

Sure, Matt So look we've been working diligently.

Diligently on the.

Closure of the Xilinx acquisition I would say we're through the the vast majority of what we need to do in the regulatory front.

We're finishing up here and there is a very good progress on.

On the integration side. So we've done a lot on the integration I think we're we're excited with the plans that we have and then on the regulatory front again as I said in the prepared remarks, we've made good progress and we believe we're on track to close.

At the end of the year.

Thanks for taking my question.

Go ahead.

Certainly our next question is coming from <unk> Hari from Goldman Sachs. Your line is now live.

Hi, good afternoon. Thank you so much for taking my question and congrats on the strong results.

I had two questions as well.

First on your outlook for 2022 I realize.

It's early and I certainly don't expect you guys to.

Provide a point estimate, but I think people are kind of concerned.

That you've been sort of over growing if you will relative to your long term growth rate you grew 45% last year, you're on track to grow 65%. This year given your long term through cycle growth target of 20% again, there was concern that you could decelerate going into next year, given PC dynamics and competitive dynamics.

<unk> and so on and so forth. So again I don't expect you to give any.

Quantification of next year, but if you could describe the year qualitatively what are the potential pluses and minuses at this point that would be Super helpful. And then I've got a quick follow up.

Sure. So look as you said, it's a little bit earlier early to talk about 2022 quantitatively I'll.

I will say qualitatively what we see is look we see a positive demand environment and that's a market statement, but that's that's also an AMD statement right I think the strength of our product portfolio.

It has multiple growth vectors datacenter.

Data center continues to be a very important one for us I think where we continue to make progress in the graphics market and we think graphics is a good growth vector.

Our console business, we would expect.

Would be met.

<unk> mentioned earlier that it would be up in the fourth quarter and we would expect it to be up in 2022, just given the strength of the demand.

Environment, there and so on the PC side the comments I'll make on the PC side are the end user demand.

Appears to be strong so there's there's a good amount of refresh going on whether you're talking about on consumer.

High end consumer or commercial or gaming.

There are some supply constraints around match sets that we believe will continue.

Into the first half of the year.

That being the case what were using from a planning assumption standpoint is that the PC market may be flattish as we go from 2021 into 2022.

But even within that environment. We think there are opportunities for us to continue to grow so overall I think.

We're very focused on execution very focused on working with our customers to make sure that we're aligned with what they need and.

Overall feel very very good about our product portfolio going into 2022.

Got it that's super helpful. Thank you and then as my quick follow up.

Question on gross margins I'm not sure. If this is for leap forward to vendor.

You're guiding Q4 to 49, 5%.

Which is obviously significant progress from from a year ago.

Given some of the dynamics you've talked about.

There it would be the growth potential in server CPU.

The mix within server CPU and I'm sure the mix dynamics on the client side.

Most of US do expect a pretty nice.

Positive trajectory into 2022 potentially with a five handle in terms of again gross margins, but any any risks or any headwinds that we should be aware of.

Your foundry partners raising pricing.

There is cost inflation generally across the board, but in your risk items that.

We should think about at this point thank you.

I wanted to retire some but I think it's about managing the situation as Lisa said, you know what the growth vectors that we have or we expect to continue making progress from where we are currently and especially predicated on the competitive leadership products we have.

Very pleased with the progress we've made over the last few years, but without getting into specifics I think you can assume that we continue to make progress with the mix of revenue mix of products and the competitive products that were introducing also into 2022.

Thank you.

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

Hi, guys. Thanks for taking my questions. My first one I wanted to ask about data Center GPU I know you said it more than doubled but can you give us an approximate feeling for how big that is it are we still talking like tens of millions of dollars or is it larger than that and what are your expectations for how that is going to ramp as frontier and some of the other supercomputers that a lot of that stuff is going into a ramping over.

Next Mike a couple of years.

Sure so yes.

Stacy on the datacenter GPU side, the third quarter was.

A larger quarter for the datacenter GPU. This is where we shipped the frontier shipments.

That are now in the build cycle. It is still a relatively small business.

Compared to the to the CPU side, so our expectation is that going into the fourth quarter, It's a lumpy business for us so.

Q3 was a strong quarter given the shipments of for frontier.

Would expect as we go into the fourth quarter that it.

It'll be down sequentially.

Quarter on quarter, but still it's a strong growth year overall.

Business that we think is a significant strategic growth driver for us over the next few years.

Got it. Thank you for my follow up I just wanted to ask you about Q4, so obviously.

You would sort of give an implied guidance for Q4 last quarter. The guidance now is obviously decently higher can you just talk a little about what is driving that upside relative to where your expectations were last quarter.

Kevin do you want to talk about that are on the revenue I think go ahead, sorry were you asking about revenue our margin today.

Stacy well, both if youre willing to answer both Paul.

Alright, let me start and then let.

I wanted to make sure. We're answering your question is that.

Good luck.

The revenue side, when we look at the sequential growth we have been able to look the supply chain. This is about really supply chain optimization.

And we have been able to secure some additional supply given some of the work that we've been doing and we see strong demand across the board, but sequentially. What we're guiding to is stronger server.

Demand as well as gaming and gaming includes semi custom game consoles as well as our graphics business is doing quite well as well and then in terms of the sequential margin.

It's similar I mean, we're having server some improved mix in graphics, driving upside and thats, partially offset by the consoles, which are below corporate average, but net net I think it's a positive sequential both on revenue and margin.

I guess, what I'm asking is for example are your expectations for servers into Q4 now higher than they were three months ago. When you gave implied guidance for Q4.

Yes.

Yes, it is got it.

Okay. Thank you very much.

Sure. Thank.

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

Thank you I'm wondering if you could talk about graphics, a little bit it seems like thats the business Thats, probably struggled the most to get silicon and yet you've you've shown some pretty nice growth there.

Whats the prognosis for for that business going forward and in the past you've said you're comfortable that there's relatively low crypto currency exposure. There is that still the case.

Yes, sure Joe look the graphics business did have a strong third quarter I think.

That is true for graphics gaming as well as data Center GPU.

The portfolio that we have there with rdna two it has turned out really well. So we're pleased with how it's positioned competitively in the marketplace and overall gaming.

It has been a secular trend that has continued with very strong demand in terms of crypto.

Our view is that it's really negligible revenue for us in the third quarter, it's not a segment that we have.

<unk> been servicing we've tried very much to try to keep our.

Our gaming graphics focused on gamers, and we were able to increase.

Some of the supply for graphics and Thats one of the reasons that we saw the sequential growth that we saw in <unk> and going into the fourth quarter next year again, I think we see gaming overall as a strong segment for us and the product set is very good. So we feel good about it.

Great. Thank you very much.

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

Yes. Thanks for taking the question I have two quick questions. If I can as well just kind of sticking on the expectations into next year.

Appreciating that you're not going to give a full guide I'm just curious how we should think about the semi custom business given how sizeable that's been to the overall growth.

In 2021.

Framing of how you expect 2022 to shape up at this point.

Sure Aaron So again, if you look at the overall.

Growth that we had in 2021 I would say was actually quite balanced across all of our businesses.

The semi custom business was in the second year of ramp and demand has exceeded supply.

Been able to ramp that as we've gone through the year.

As we look into 2022, the historical view of game consoles has been year for.

Is the peak at least that's what it was in the last generation.

What we expect in this generation is again very strong demand going into 2022. So we would expect it to grow into 2022, which would be the third year of the cycle and then we'll see what happens after that but.

<unk> I think our view is we have a very balanced business with multiple growth drivers across data Center Pcs.

Graphics as well as consoles.

Okay. That's very helpful. And then the follow up question is on your own supply chain side I know in the prepared comments you said working on securing adequate supply given your growth trajectory.

Are you currently able to meet all of them. So all.

All of the demand that you currently see and could you give any color of what how we should think about.

My situation on your own.

Yeah. So I mean, we've been working on ramping the supply chain really for more than a year.

Year, if you'd think about.

Dynamics here.

I'd like to say is overall the demand has been very very high. So the fact that we can grow.

Revenue this year, 65% year on year I think.

Testament to the supply chain work.

Thank you.

If we had more supply we could certainly ship more.

That being the case I think we're prioritizing.

In.

The most strategic segments and.

We have invested significantly in capacity.

For additional capabilities and we will see some of that come on line as we go through 2022.

We're going to continue to be aggressive to secure.

Additional capacity, because we believe our product portfolio will enable.

Nick will that growth.

Thank you.

Thanks. Thank.

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

Good afternoon, guys. Congratulations Lisa Lisa My first question was back on the supply side of things.

I'm just wondering if you could help me better understand was it more of an issue in your PC business.

Or your server business and I guess.

Specially as we look into next year.

<unk> begin to loosen up this year, given how tight the overall ecosystem was.

Peter on price didn't make a lot of sense.

<unk> begins to accelerate across the ecosystem. How are you thinking about pricing, especially in lieu of your large competitor kind of resetting their gross margins for next year in your view does that give them more wiggle room or do you think that that theyre being pretty benign on there on the pricing side of things on that gross margin reset.

Yeah.

Yeah, So maybe let me, but theres a lot of various aspects to that John So let me let me try to.

So take it in pieces as it relates to current supply.

Want to make sure that we're clear I mean, we have brought on a tremendous amount of additional supply and thats part of the reason that we overachieve. The Q3 results and then we guided higher in Q4. So I do think that we have done a lot of work on our supply chain.

In the PC market in particular, I think the market is not necessarily.

Constrained on Cpus, but more constrained unmatched sets and so we're trying to ensure that we're not building inventory in the channel and Thats part of the optimization that we do is to ensure that as we ship selling processors that we we see match sets to sell through and so from that.

Standpoint, we think the inventory is very healthy.

At at the Oems and that's a important factor as we go into 2022.

As it relates to.

What happens with the pricing environment.

As supply eases up I think right now what we see is a.

Again, it's an environment, where most people are prioritizing supply.

As we go into 2022, though I think this is all about the product and what we view is.

Our our focus in sort of.

Product line has been moving up the stack, ensuring that we're providing significant value.

To our customers in terms of total cost of ownership.

The server side.

Innovative features and capabilities on the PC side, and the graphics side and we're going to continue to do that I mean, we're excited about our product portfolio into 2022.

To continue to be very aggressive on the overall roadmap and with that I think our game plan is exactly what it was what it always has been which is lean into the product cycle.

In the deep customer relationships and continue to build that out over time.

That's helpful and then as my follow up to vendor you did a good job kind of explain the year over year changes in operating margins in the compute and graphics business I'm wondering if you could talk a little bit about sequentially. What happened revenue was up in op margins were down a little bit is that just the influence of the very strong growth in gpus.

Going into the data center, because it sounds like in the core compute business mix, probably got better sequentially for you. So I'm just trying to make sure I understand all the dynamics at play.

So if you're talking about the <unk> segment as investments some investments into R&D and go to market and also we have a lot of new products coming into 2022 and those expenditure involved. We're ahead of the curve before you introduce the products in the next year and Thats really what happened in the transition quarter over quarter.

Perfect. Thank you.

Yeah.

Thank you. Our next question today is coming from Chris Caso from Raymond James Your line is now live.

Yes. Thank you. Good evening first question is about the.

The supply constraints and how that affects seasonality as we go into the beginning of next year and you're obviously, you're making efforts to bring on more supply you spoke about in PC.

Constraints with regard to match sets.

I'm sure at this point you don't want to provide guidance for Q1, but but how should we be thinking about seasonality for Q1 as we contemplate these supply constraints.

Yeah, Chris I think it's a little bit early to talk about Q1, I mean, I think let's.

Let's see what would we say about seasonality.

I don't have a lot to say other than typically Q1 is down from Q4.

That's typically what the pattern is given the consumer related businesses.

Might be a little bit sub seasonal as we as we go into this.

First quarter, just given the demand environment, but we will have to see how things play out over the next couple of months.

Okay.

Alright, thank you.

A little bit of a bigger picture question for my second question and we've heard and seen from some of the Hyperscale is a trend of in some cases doing some custom design is doing on their own often with arm based designs.

Do you consider that an opportunity or a threat for AMD.

And to what extent are you engaged with some of those hyperscale or on some of these custom designs because you do have a IP portfolio yourself.

Yeah, Chris on that.

We definitely view it as a as an opportunity right. So I think what's happening in the data center market is that as the need for compute gets larger.

This tailoring of compute for the various workloads is.

An important trend.

Our IP portfolio today is a very strong.

It will even be stronger given some of the things that we have and plan to to allow more tailoring.

And we are working very closely with a number of hyper scaler on sort of the division of compute over the next few years and how we might put together some different solutions between our CPU GPU.

Interconnect capability and then with the.

With the addition of xilinx as well coming into our portfolio. So lots of opportunity there for customization I think that's a key trend that we are certainly going to lean into.

Thank you.

Thank you Chris operator, two more questions. Please certainly our next question is coming from Ross Seymore from Deutsche Bank. Your line is now live.

Thanks, a lot me ask a question.

Grants of other people on the strong results. Besides just wanted to ask about the comparison on your <unk> side between the C and the <unk> and specifically on the client graphics side of things clearly this year has been a really strong year for AMD.

Can you just talk about the go forward on the client side and that I think we're all pretty well aware of what's going to happen on the datacenter GPU side, but how do we reconcile your commentary on where you think the PC market would be in the flattish area versus the strength you've had in Gpus. This year in a strong GPU market do you think that continues next year how much of it is AMD specific.

Or if the PC market is weaker or is that something that's a little bit of a headwind for AMD.

Yeah. So you know again, what I would.

What we have seen here in the third quarter and then into the second half of the year is.

Our graphics business has performed quite well.

<unk>.

It is channel driven in the sense that.

There's still strong demand amongst gamers for for Gpus as we go into 2022, though.

Don't view sort of the PC market as a headwind for the company.

I think as we look at all of these markets of course, we do a bunch of scenario planning of the market is up or if it's down I think there are many.

Many who think that the market may be up there are some who think that market may be down and.

And that's why we're choosing to model sort of the base cases flattish, but even within that market, whether you are talking about client Cpus or client Gpus.

We think we have opportunities to gain share in growing that business just given the strength of our product portfolio and the fact that we are sort of underrepresented.

We think the.

Sort of what we can what we can expect given those products.

Thanks for that and I guess as my follow up just one for da vendor on the Opex side and I'll give the same disclaimer that I know youre not going to give any specifics about next year, but you guys have done a great job of lowering your opex intensity throughout this year, I think youre going to be closer to 24% versus 26 to 27 entering the year and <unk> 25 as of last quarter or so.

Expansion, there in margins and better leverage.

We look forward, though I think the third quarter was the first time, where you guys spent enough that it actually impacted a segment, where the operating margin fell a little bit and I think we all understand why youre doing that and it feeds great growth. So it's not a negative but do they look into 'twenty. Two do you think next year can be another year, where your operating leverage is positive.

Or do you expect to be able to spend closer to your former targets and kind of the 25% to 27% of sales range.

I think I think fundamentally what you observe is right now very disciplined from an opex standpoint, and investing in the growth is important.

Many of the things that Lisa talked about earlier is all about growth and many different vectors and obviously that requires funding from an opex standpoint, whether it's R&D go to market hiring.

Which we are doing.

Promo viewpoint of adults in the company and I think from a modeling standpoint, our guidance standpoint, you can assume that the growth in opex, but below and revenue margin continue to expand opex flat or even down I mean, you can modulate, but very disciplined on that standpoint, and making sure that we're investing for the growth is a top priority.

Photos.

Thank you.

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

Thank you for fitting me in I had two I guess first Lisa no one's asked about software yet I was wondering if you can update us on your software.

And maybe as you get close to closing Xilinx, how much that's what it changes things for you on the software side and maybe how your search for software talent is better and then I had a follow up.

Sure Tim So, yes, we continue to invest heavily in software, particularly on the datacenter GPU side.

With our.

Our next generation GPU architecture.

200.

Which we'll be talking a little bit about.

In next few weeks.

We have made significant investments and progress our focus has been on using sort of the frontier beachhead with.

High performance computing, and expanding that into AI and working with our partners on that.

That software development. So overall continued to make good progress there I think the xilinx acquisition and bringing in sort of that software talent also provides opportunities.

To optimize across the overall portfolio in terms of just the software infrastructure.

That people want in an overall ecosystem so.

Very strategic area that we're making good progression.

Thanks, a lot and then I guess just last question from me So server share.

If I look at your guidance for Q4, it looks like Youre going to be in the 12 and a half with 13% share if I use the entire Tam and that's up like 500 basis points versus last year Q4. So I guess I guess the question is like is that a reasonable should jeffery into next year as we're sitting here 12 months from now would you be surprised if you can.

Ah another 500 basis points next year and sort of where do you think about where that could go.

Yeah. So.

I think overall.

Our server trajectory has been very strong I mean, I think we're very pleased with the trajectory here in 2021, I think having a number of quarters, where we're doubling the revenue year on year kind of speaks to the progress there.

As we go into 2022, we still believe we are a share gainer.

In that environment, just given the strength of our portfolio and that's.

That's called platforms that are still yet to launch.

Across our customer set so we're continuing to two.

To play out the strategy of datacenter being a place where our technology is very differentiated and we think that is true in the third generation with epic and we certainly are very focused on ensuring that.

The next generation with Zen four in Genoa are similarly, well positioned in the marketplace.

Thanks, a lot.

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

Good. Thank you very much operator, and thank you to everyone for joining US today. We appreciate your time and participation and your support of AMD have a good afternoon.

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

[music].

Hello, and welcome to the A&D third quarter 2021 earnings call and webcast at this time, all participants already a listen only mode.

A question and answer session will follow the formal presentation. If anyone should require operator assistance. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.

It's now my pleasure to turn the call over to Laura Graves Corporate Vice President Investor Relations. Please go ahead Laura.

Thank you and welcome to Amd's third 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 slide where.

If you have not reviewed these documents yet they can be found on the investor relations page of AMD Dot com.

Participants on today's conference call are Dr. Lisa Su, our president and Chief Executive Officer, and vendor Kumar, Our executive Vice President Chief Financial Officer, and Treasurer. This is a live call and will be replayed via webcast on our website.

Before we begin I would like to note that we will host our accelerated datacenter premier virtually on November 8th with feature presentations by Dr. Lisa Su and datacenter executive Sports Norwood and Dan Mcnamara. This event will also be available on <unk> Dot com Dr.

Dr. Sue will also have 10 credit suisse's, 25th annual Technology Conference on Tuesday November 30th.

Please refer to the cautionary statement in our 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 in the slides posted on our website.

Now with that I'll turn the call over to Lisa Lisa.

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

Our business performed extremely well in the third quarter as our leadership product portfolio and strong execution drove record quarterly revenue operating income net income and earnings per share.

We delivered our fifth straight quarter of greater than 50% year over year revenue growth with each of our business is growing significantly year over year and data center sales more than doubling.

Third quarter revenue grew 54% to $4 3 billion gross margin expanded by more than four percentage points and operating income doubled year over year.

Turning to our computing and graphics segment third quarter revenue increased 44% year over year to $2 4 billion driven by our latest generation Ryzen Radeon and AMD instinct processors.

Yes.

In client computing sales grew by a strong double digit percentage year over year and declined slightly sequentially.

Ryzen 5000 processor shipments increased by a double digit percentage sequentially, resulting in a richer product mix as we believe we gained revenue share for the sixth straight quarter.

And notebooks Acer Acer.

HP and Lenovo all expanded their mobile offerings powered by rising 5000 mobile processors as we continue gaining momentum in the premium consumer gaming and commercial markets.

Commercial client growth year over year was based on new deployment across public sector, and Fortune 1000 technology energy and automotive customers as the number of AMD based commercial notebook designs available from the largest Oems increased significantly year over year.

We're also seeing strong growth in the workstation market. According to IDC driver for pro processors now powered the best selling workstations in their category in both North America and EMEA as we continue winning high volume deployment across key verticals, including media and Entertainment engineering.

Architecture and automotive.

Yes.

In graphics revenue more than doubled year over year and grew by a strong double digit percentage sequentially driven by shipments of our next generation AMD cdna to datacenter Gpus and demand for Radeon 6000 Gpus in the channel.

AMD rdna, two Gpus sales grew significantly in the quarter as we ramped production and expanded our top to bottom portfolio with the launch of the midrange Radeon Rx 6600, XT cards that deliver leadership 10, ADP gaming performance at their price points.

Data center graphics revenue more than doubled year over year and quarter over quarter led by shipments of our new AMD cdna to Gpus for their frontier extra scale supercomputer at Oak Ridge National Laboratory.

Frontier was architected, specifically to deliver breakthrough HBC and AI compute performance and provide a blueprint for how supercomputing enterprise and cloud customers can enable extra scale level performance over the coming years by combining AMD Cpus Gpus and software.

We are very pleased with the performance of our AMD cdna to Gpus and look forward to providing more details on their leadership performance next month.

Turning to our enterprise embedded and semi custom segment revenue increased 69% year over year to $1 9 billion driven by strong growth in epic processor and semi custom sales.

Semi custom revenue grew sequentially and year over year as demand for the latest Microsoft and Sony consoles remains very strong.

We expect semi custom revenue to increase sequentially in the fourth quarter as we further ramp supply to address the ongoing game console demand.

Turning to server.

We delivered our sixth straight quarter of record server processor revenue as sales more than doubled year over year and grew by a significant double digit percentage sequentially.

Third Gen epic processors continue ramping faster than the prior generation and contributed the majority of our server CPU revenue in the quarter.

And cloud multiple hyperscale or has expanded their third gen epic processor deployments to power their internal workloads and both Microsoft Azure and Google announced multiple new AMD powered instances.

Yeah.

Overall, we are very pleased with the momentum we have built in our data center business as server CPU and GPU revenue grew to a mid twenty's percent of overall revenue in the quarter.

Turning to our Xilinx acquisition, we are making good progress towards securing the required regulatory approvals and remain on track to close by the end of the year.

This is xilinx acquisition will provide significant benefits to AMD, including expanding our product portfolio with leadership adaptive computing and AI solutions and further diversifying our customer base into complementary markets, including wired and wireless communications industrial and automotive.

In closing our record third quarter results and a significant acceleration of our business in 2021 demonstrate that we have the right products and strategies to drive best in class growth and significant shareholder returns.

We continue growing faster than the market driven by our consistent execution and the investments we have made to build leadership products.

Our supply chain team has executed extremely well in a challenging environment delivering incremental supply throughout the year supporting our strong revenue growth.

We are also investing significantly to secure additional capacity to support our long term growth.

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

Thank you Lisa and good afternoon, everyone.

AMD had another excellent quarter, our leadership products and growing data center momentum are driving record revenue record profitability and significant cash flow generation.

Third quarter revenue was $4 3 billion up 54% from a year ago, driven by strong revenue increases across all businesses and up 12% from the prior quarter.

Term product roadmaps and scaling our business.

Operating income more than doubled to $1 or $6 billion up $530 million from a year ago, driven primarily by revenue growth.

Operating margin was 24% up from 19% a year ago.

Net income grew to $893 million up $392 million from a year ago.

Diluted earnings per share was 73 cents compared to <unk> 41 per share a year ago. This includes a 15% effective tax rate compared to 3% a year ago.

Now turning to the business segment results computing and graphics segment revenue was $2 4 billion up 44% year over year, driven by a significantly higher client and graphics processor revenue.

Expenses operating margin was slightly lower year over year, primarily due to investments in R&D and go to market.

By higher R&D and go to market expenses.

Turning to the balance sheet cash cash equivalents and short term investments were $3 6 billion.

Inventory was $1 9 billion up $137 million from the prior quarter in support of continued revenue growth.

Let me now turn to the fourth 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 5 billion, plus or minus $100 million, an increase of approximately 39% year over year and approximately 4% sequentially.

The year over year increase is expected to be driven by growth across all businesses are quarter over quarter increase is expected to be driven by higher silver and semi custom sales.

And the diluted share count to be approximately one 2 million shares.

For the full year 2021, we now expect revenue to increase approximately 65% over 2020, driven by growth across all businesses up from the prior guidance of 60%.

<unk>, we continue to expect gross margin to be approximately 48% for the full year.

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

Thank you to vendor operator, we're ready for our first question.

I will now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to get to your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing star one one.

Woman. Please while we poll for questions. Our first question today is coming from Blayne Curtis from Barclays. Your line is now live.

Hey, good afternoon, and a great result, thanks for taking my question just kind of curious the overall outlook for Q4.

Some computer graphics being down I was just curious if that was more the supply you're still growing sequentially and obviously.

<unk> prioritized servers, just kind of curious what youre seeing in the NXP graphics market.

Anything related to supply constraint for you that it would be down sequentially or maybe downstream constraints and that may be.

Sure.

With growing gross margin I'm, assuming that the semi custom service can offset each other just kind of walk us through.

The nice increase in gross margin for Q4.

Yes sure Blayne. Thanks for the question so as it relates to the fourth quarter here and where we are look we're overall very pleased with our performance in terms of the second half of the year, it's playing out.

What we expect it to be in the PC market. So as you were asking about computing and graphics, we had.

Seeing that the PC market end user demand is strong.

Overall, but there are some match set constraints in the PC market and so for that reason we call. It the PC market really flattish I would not have said down I would have called it.

Flattish as we look into.

The fourth quarter however.

However, as we look overall at the business I think the data center business has performed very well and we see strong demand there and we're continuing.

To see that and as well the console business. Overall gaming is also quite strong and so we see growth in servers and.

Semi custom as we go into.

Into the fourth quarter and then on the margin dynamics, Stephen do you want to cover that for Q4. So Q4 I know it is up slightly but it's one of our guidance one point from Q3.

And that's really product mix higher margin from silver.

Offset by the semi custom revenue also being higher going from Q3 to Q4, so very pleased with the progress on gross margin as you look at the Q3 results 440 basis points from last year of 80 plus basis.

Based upon the last quarter and the progression into Q4, obviously driven by the silver <unk>.

Growing I'm very pleased with that also.

Thanks.

Thanks Helane thank.

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

Thanks for taking my question and congratulations on the strong results and the consistent execution.

Lisa how are you feeling about the spending environment in the data center.

As we look over the next several quarters and especially your server roadmap versus the competition because they are planning to launch something.

New and important products already next year. So I was just wondering how you were thinking about the competitive landscape and the spending landscape over the next year.

Sure. So thanks for the question I think overall we're.

Feeling very very good about the server business or the data center market I think from a market standpoint.

We've seen a strong market year in 2021 in both cloud and enterprise and we see that continuing into 2022.

I think from a competitive position standpoint I think.

One is extremely well positioned so we were very pleased with sort of the adoption rate of Milan, we said that.

We expected it to grow.

Competitive environment goes into 2022.

We always expect the competition to be strong, but our focus has been consistent execution of our roadmap and.

We feel very good about Zen four in Genworth and.

Got it and for my follow up.

He said AMD has done very well in terms of gaining share of the hyperscale.

Are you in that journey is there still a lot of share gains to be had at hyperscale nerves and importantly can you repeat that in the enterprise or do you think your competitors incumbency limits the share gain opportunity in the enterprise. Thank you.

Yeah, So vivek, what I would say there is our business has been more cloud weighted with the Hyperscale and enterprise that.

That continued here in the third quarter.

I do believe that there is.

Significant additional opportunity for us in the cloud so.

As we work with these partners. It is it is about sort of expansion of workloads.

Really theres more tailoring of workloads as well as we go forward.

Then there's also just more and more customers and broader penetration in both tier one and tier two cloud guys. So I think thats a good market for us on the enterprise side I would say we saw a very very strong enterprise quarter here in the third quarter.

The strength of Milan with our Oems in terms of the breadth of the platforms.

<unk>.

<unk> is very good and we're seeing a good traction with our fortune 1000.

So I would say overall I think we see a growth trajectory for both our cloud and enterprise business I think in the enterprise.

The key thing has been to get more familiarity with epic and we've made very good progress there and so I feel very good about where that's going.

Okay. Thank you.

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

Thank you very much and good afternoon, everyone.

Obviously, we saw some really strong progress with datacenter crossing I guess a quarter of the business here with the results.

I did want to ask a question specifically on your server business in China your competitor called out.

And some of the turmoil that has gone over there.

A reason why some of their cloud business had some headwinds in the third quarter and maybe you could comment on how you see spending over the last quarter and then in the next couple of quarters, specifically in that end market in China, and then I have a follow up thanks.

Format. So.

What I would say is our data center business.

Performed very well in the third quarter that was it.

Ross, both cloud and enterprise and in cloud that was across geographies. So we haven't seen.

Anything particular as it relates to China or.

They're what I would say is we continue to work with a breadth of customers and.

We're in the process of really rolling out sort of broader adoption.

Across the customer set so I think we saw a pretty normal environment for demand.

Yeah, no. Thanks for clearing that up as my follow up kind of unrelated.

As mentioned in the comments.

Still plans to get the Xilinx deal closed by the end of the year and I think that's important as then Theres a lot of things that you can talk about more maybe more openly about the the heterogeneous compute strategy for the business over the long term.

Lisa maybe you can walk us through to the extent that you can talk about it obviously there are some things that you can't talk about but the extent you can what milestones you've you've achieved behind the scenes that make you feel confident in what hurdles are still there to have the confidence I mean, I guess, we got six weeks.

Sure, Matt So look we've been working diligently.

Diligently on the closure of the Xilinx acquisition.

I'd say were through the the vast majority of what we need to do in the regulatory front.

We're finishing up here and there is a very good progress on.

At the end of the year.

Thank you Andrew for your question.

Go ahead Eric.

Certainly our next question is coming from <unk> Hari from Goldman Sachs. Your line is now live.

Hi, good afternoon. Thank you so much for taking my question and congrats on the strong results.

So I had two questions as well.

First on your outlook for 2022 I realize.

It's early and I certainly don't expect you guys to.

Provide a point estimate, but I think people are kind of concerned.

That you've been sort of over growing if you will relative to your long term growth rate you grew 45% last year, you're on track to grow 65%. This year given your long term through cycle growth target of 20% again. There is concern that you could decelerate going into next year, given PC dynamics and competitive dynamics.

<unk> and so on and so forth. So again I don't expect you to give any.

Quantification of next year, but if you could describe the year qualitatively what are the potential pluses and minuses at this point that would be Super helpful. And then I've got a quick follow up.

Sure. So look as you said, it's a little bit earlier early to talk about 2022 quantitatively I'll.

I will say qualitatively what we see is look we see a positive demand environment and that's a market statement, but that's also an AMD statement right I think the strength of our product portfolio.

It has multiple growth vectors datacenter.

Data center continues to be a very important one for us I think where we continue to make progress in the graphics market and we think graphics is a good growth vector.

Our console business, we would expect.

It would be.

And earlier that it would be up in the fourth quarter and we would expect it to be up in 2022, just given the strength of the demand environment.

Environment, there and so on the PC side the comments I'll make on the PC side are the end user demand.

Appears to be strong so there's a there's a a.

A good amount of refresh going on whether youre talking about on consumer and your high end consumer or commercial or gaming.

Yes, there are some supply constraints around match sets that we believe will continue.

Into the first half of the year.

That being the case what were using from a planning assumption standpoint is that the PC market may be flattish as we go from 2021 into 2022.

But even within that environment. We think there are opportunities for us to continue to grow so overall I think.

We're very focused on execution very focused on working with our customers to make sure that we're aligned with what they need and.

Overall feel very very good about our product portfolio going into 2022.

Got it that's super helpful. Thank you and then as my quick follow up.

Question on gross margins I'm not sure. If this is for Lisa to vendor.

You're guiding Q4 to 49, 5%.

Which is obviously significant progress from from a year ago.

Given some of the dynamics you've talked about.

There it would be the growth potential in server CPU.

The mix within server CPU and I'm sure the mix dynamics on the client side.

Most of US do expect a pretty nice.

Positive trajectory into 2022 potentially with a five handle in terms of again gross margins, but any any risks or any headwinds that we should be aware of.

Your foundry partners raising pricing.

There is cost inflation generally across the board but in.

Your risk items that.

We should think about at this point thank you.

I wouldn't say so had some but I think it's about managing the situation as Lisa said the growth vectors that we have or we expect to continue making progress from where we are currently and especially predicated on the competitive leadership products we have.

Thank you.

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

Next Mike a couple of years.

Sure so.

Stacy on the data center GPU side third quarter was.

A larger quarter for the datacenter GPU. This is where we shipped the frontier shipments.

That are now in the build cycle. It is still a relatively small business.

Impaired to the to the CPU side, so our expectation is that going into the fourth quarter, It's a lumpy business for us So Q.

Q3 was a strong quarter given the shipments of for frontier.

We'd expect as we go into the fourth quarter that it'll.

It'll be down sequentially.

Quarter on quarter, but still it's a strong growth year overall for business that we think is a significant strategic growth driver for us over the next few years.

Got it. Thank you for my follow up I just wanted to ask you about Q4, so obviously.

It would sort of give an implied guidance for Q4 last quarter.

Guidance now is obviously decently higher can you just talk a little bit about what is driving that upside relative to where your expectations were last quarter.

Stephen do you want to talk about that are on the revenue I think go ahead, sorry were you asking about revenue or margin.

Stacy well, both if youre willing to answer both Paul.

Alright, let me start and then let.

To make sure we're answering your question How's that.

Good luck.

On the revenue side.

We look at the sequential growth, we have been able to look the supply chain. This is about really supply chain optimization.

And we have.

<unk> been able to secure some additional supply given some of the work that we've been doing and we see strong demand across the board, but sequentially. What we're guiding to is stronger server.

Demand as well as gaming and gaming includes semi custom game consoles as well as our graphics business is doing quite well as well and then in terms of the sequential margin.

Similar I mean, we're having server some improved mix in graphics, driving upside and thats, partially offset by the consoles, which are below corporate average, but net net I think it's a positive sequential both on revenue and margin.

I guess, what I'm asking is for example are your expectations for servers into Q4 now higher than they were three months ago. When you gave implied guidance for Q4.

Yes.

Yes, it is got it.

Okay. Thank you very much.

Sure.

Our next question today is coming from Joe Moore from Morgan Stanley. Your line is now live.

Whats the prognosis for for that business going forward and in the past you've said you're comfortable that there's relatively low crypto currency.

Exposure there is that still the case.

Yes, sure Joe Wolk, the graphics business did have a strong third quarter I think.

That is true for graphics gaming as well as data Center GPU.

The portfolio that we have there with rdna two it has turned out really well. So we're pleased with how it's positioned competitively in the marketplace and overall gaming.

It has been a secular trend that has continued with very strong demand in terms of crypto.

Our view is that it's really negligible revenue for us in the third quarter, it's not a segment that we have.

<unk> been servicing we've tried very much to try to keep.

Keep our.

Our gaming graphics focused on gamers, and we were able to increase.

Great. Thank you very much.

Thanks. Thank you. Our next question is coming from Aaron Rakers from Wells Fargo. Your line is in our lives.

Yes. Thanks for taking the question I have two quick questions. If I can as well just kind of sticking on the expectations into next year.

Appreciating that you're not going to give a full guide I'm just curious how we should think about the semi custom business given how sizeable that's been to the overall growth in 2021.

Any framing of how you expect 2022 to shape up at this point.

Sure and so again, if you look at the overall.

Both that we had in 2021 I would say it was actually quite balanced across all of our businesses.

Semi custom business was in the second year of ramp and demand has exceeded supply we've been able to ramp that as we've gone through the year.

As we look into 2022, the historical view of game consoles has been a year for.

Is the peak at least that's what it was in the last generation.

What we expect in this generation is again very strong demand going into 2022. So we would expect it to grow into 2022, which would be the third year of the cycle and then we will see what happens after that but overall I think our view is we have a very balanced business with multiple growth drivers across data.

Center Pcs.

Graphics as well as consoles.

Okay. That's very helpful. And then the follow up question is on your own supply chain side I know in the prepared comments you said working on securing adequate supply given your growth trajectory.

Are you currently able to meet all of them. So all of the demand that you currently see and could you give any color on what how we should think about the supply situation on your own.

Yeah. So I mean, we've been working on ramping the supply chain really for more than a year.

Year, if you think about sort of.

While dynamics here.

I'd like to say is overall the demand has been very very high. So the fact that we can grow.

Revenue this year, 65% year on year I think.

Testament to the supply chain work.

Think if if we had more supply we could certainly ship more.

That being the case I think we're prioritizing.

In the.

The most strategic segments and.

We have invested significantly in capacity.

For additional capabilities and we will see some of that come on line as we go through 2022.

And we're going to continue to be aggressive to secure.

Additional capacity, because we believe our product portfolio will enable.

Nick will that growth.

Thank you.

Thanks, Thank you.

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

Yeah. Good afternoon, guys. Congratulations Lisa Lisa My first question is back on the supply side of things I'm. Just wondering if you could help me better understand was it more of an issue in your PC business.

Or your server business and I guess.

As we look into next year.

<unk> begin to loosen up this year, given how tight the overall ecosystem was competing on price didn't make a lot of sense as supply begins to accelerate across the ecosystem. How are you thinking about pricing, especially in lieu of your large competitor kind of resetting their gross margins for next year in your view.

Does that give them more wiggle room or do you think that that theyre being pretty benign on there on the pricing side of things on that gross margin reset.

Yeah, So maybe let me, but theres a lot of various aspects to that John So let me try to.

So taken.

Take it in pieces.

As it relates to current supply.

The PC market in particular, I think the market is not necessarily.

Constrained on Cpus, but more constrained on match that and so we're trying to ensure that we're not building inventory in the channel and that's.

Of the optimization that we do is to ensure that as we ship.

Selling processors that we see match sets to sell through and so from that standpoint.

We think the inventory is very healthy.

At at the Oems and that's a important factor as we go into 2022.

As it relates to.

What happens with the pricing environment as supply eases up I think right now what we see is a again, it's an environment, where most people are prioritizing supply.

As we go into 2022, though.

This is all about the product and what we view is.

Our our focus in sort of.

Product line has been moving up the stack, ensuring that we're providing significant value.

To our customers in terms of total cost of ownership on the server side.

Innovative features and capabilities on the PC side, and the graphics side and we're going to continue to do that I mean, we're excited about our product portfolio into 2022.

To continue to be very aggressive on the overall roadmap and with that I think our game plan is exactly what it was what it always has been which is lean into the product cycle.

And the deep customer relationships and continue to build that out overtime.

That's helpful and then as my follow up to vendor you did a good job kind of explaining the year over year changes in operating margins in the compute and graphics business. So I'm wondering if you could talk a little bit about sequentially. What happened revenue was up in op margins were down a little bit is that just the influence of the very strong growth in gpus.

Going into the data center, because it sounds like in the core compute business mix, probably got better sequentially for you. So I'm just trying to make sure I understand all the dynamics at play.

So if you're talking about the <unk> segment as investments some investments into R&D and go to market and also we have a lot of new products coming into 2022, and there's expenditure involved. We're ahead of the curve before you introduce the products in the next year and Thats really what happened in the transition quarter over quarter.

Perfect. Thank you.

Thank you. Our next question today is coming from Chris Caso from Raymond James Your line is now live.

Yes. Thank you. Good evening first question is about.

The supply constraints and how that affects seasonality as we go into the beginning of next year and you're obviously, you're making efforts to bring on more supply you spoke about in PC.

These constraints with regard to match sets.

I'm sure at this point you don't want to provide guidance for Q1, but but how should we be thinking about seasonality for Q1 as we contemplate these supply constraints.

Yeah, Chris I think it's a little bit early to talk about Q1, I mean I think.

Let's see what would we say about seasonality.

I don't have a lot to say other than typically Q1 is down from Q4.

That's typically what the pattern is given the consumer related businesses.

Might be a little bit sub seasonal as we as we go into this.

First quarter, just given the demand environment, but we'll have to see how things play out over the next couple of months.

Okay.

Alright, thank you.

A little bit of a bigger picture question for my second question and we've heard and seen from some of the Hyperscale is a trend of in some cases doing some custom designs do when they go on their own often with arm based designs.

Do you consider that an opportunity or a threat for AMD.

And to what extent are you engaged with some of those hyperscale or on some of these custom designs because you do have a IP portfolio yourself.

Yeah, Chris on that.

We definitely view it as a as an opportunity right. So I think what's happening in the data center market is that as the need for compute gets larger sort of this this tailoring of compute for the various workloads is.

An important trend.

Our IP portfolio today is very strong.

It will even be stronger given some of the things that we have in plan to to allow more tailoring.

We are working very closely with a number of hyperscale is on sort of the.

The vision of compute over the next few years and how we might put together some different solutions between our CPU GPU.

Interconnect capability and then with the with the addition of Xilinx as well coming into our portfolio. So lots of opportunity there for customization I think that's a key trend that we are we're certainly going to lean into.

Thank you.

Thank you Chris operator, two more questions. Please certainly our next question is coming from Ross Seymore from Deutsche Bank. Your line is now live.

Thanks for letting me ask a question echo the congrats of other people on the strong results Lisa I just wanted to ask about the comparison on your <unk> side between the C and the <unk> and specifically on the client graphics side of things clearly this year has been a really strong year for AMD.

Or if the PC market is weaker or is that something thats, a little bit of a headwind for AMD.

Yeah. So you know again, what I would.

Say is our market share is still I would say underrepresented, whether youre talking about the client server CPU or apu side or the GPU side.

What we have seen here in the <unk>.

Third quarter, and then into the second half of the year is.

Our graphics business has performed quite well.

<unk>.

It is channel driven in the sense that.

Yes, there is still strong demand amongst gamers for for Gpus.

As we go into 2022, though.

Don't view sort of the PC market as a headwind for the company.

I think as we look at all of these markets of course, we do a bunch of scenario planning of the market is up or if it's down.

There are many.

Many who think that the market may be up there are some who think that market may be down.

That's why we're choosing to model sort of the base cases, flattish, but even within that market, whether youre talking about client Cpus or client Gpus.

I think we have opportunities to gain share and grow in that business just given the strength of our product portfolio and the fact that we are sort of underrepresented.

We think the.

Sort of what we can what we can expect given those products.

Thanks for that and I guess as my follow up just one for da vendor on the Opex side and I'll give the same disclaimer that I know youre not going to give any specifics about next year, but you guys have done a great job of lowering your opex intensity throughout this year, I think youre going to be closer to 24% versus <unk> 26 to 27 entering the year in 'twenty five as of last quarter. So great.

The expansion there in margins and better leverage as we look forward, though I think the third quarter was the first time, where you guys spent enough that it actually impacted a segment, where the operating margin fell a little bit and I think we all understand why youre doing that and it feeds great growth. So it's not a negative but do they look into 'twenty. Two do you think next year can be another.

Their year, where your operating leverage is positive or do you expect to be able to spend closer to your former targets and kind of the 25% to 27% of sales range.

I think I think fundamentally and what you're observing is right now very disciplined from an opex standpoint investing in the growth is important.

Many of the things that Lisa talked about earlier is all about growth and many different vectors and obviously that requires funding from an opex standpoint, whether it's R&D go to market hiring.

Which we are doing.

So promo viewpoint of the growth in the company and I think from a modeling standpoint, our guidance standpoint, you can assume that the growth in opex, but below and revenue margin continued to expand opex flat Asia or even down I mean, you can modulate, but very disciplined on that standpoint, and making sure that we are investing for the growth is a top priority.

Photos.

Thank you.

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

Thank you for fitting me in I had two I guess first Lisa no one's asked about software. Yes. I was wondering if you can update us on your software efforts and maybe as you get close to closing xilinx, how much that sort of changes things for you on the software side and maybe how your search for software talent is better and then I had a follow up.

Sure Tim So, yes, we continue to invest heavily in software, particularly on the datacenter GPU side.

With our next generation.

Generation GPU architecture.

200.

Which we'll be talking a little bit about.

Our next few weeks.

We have made significant investments and progress our focus has been on using sort of the frontier beachhead with.

High performance computing, and expanding that into AI and working with our partners on that.

That software development. So overall continued to make good progress there I think the xilinx acquisition and bringing in sort of that software talent also provides opportunities.

To optimize across the overall portfolio in terms of just the software infrastructure.

That people want in an overall ecosystem so.

Very strategic area that we're making good progression.

Thanks, a lot and then I guess just last question from me So server share.

If I look at your guidance for Q4, it looks like Youre going to be in the 12 months and a half a 13% share if I use the entire Tam and that's up like 500 basis points versus last year Q4. So I guess I guess the question is like is that a reasonable.

<unk> into next year as we're sitting here 12 months from now would you be surprised if you gain.

Another 500 basis points next year and sort of where do you think about where that share can go. Thanks.

Yeah. So.

I think overall.

In that environment, just given the strength of our portfolio and that's.

That's called platforms that are still yet to launch.

Across our customer set so we're continuing to two.

To play out the strategy of datacenter being a place where our technology is a very differentiated and we think that is true in the third generation with epic and we certainly are very focused on ensuring that.

The next generation with Zen four in Genoa are similarly, well positioned in the marketplace.

Thanks, a lot.

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

Good. Thank you very much operator, and thank you to everyone for joining US today. We appreciate your time and participation and your support of AMD have a good afternoon.

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

Q3 2021 Advanced Micro Devices Inc Earnings Call

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