Q2 2022 Advanced Micro Devices Inc Earnings Call
Hello, and welcome to the a M D second quarter 2022 earnings conference call. At this time, all participants are in 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 is now.
My pleasure to turn the call over to Laura Graves corporate Vice President of Investor Relations. Please go ahead Laura.
And welcome to Amd's second quarter 2022 financial results Conference call by now you should have had the opportunity to review a copy of our earnings press release and accompanying slides. If you have not reviewed these documents. They can be found on the investor relations page of AMD Dot com.
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.
In addition, todays financial results reflect our new segment reporting, which aligns with how we now manage our business in strategic end markets.
Participants on today's conference call are Dr. Lisa Su, our chair and Chief Executive Officer, and defender 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 Dr. Lisa Su will attend the Goldman Sachs Communica, OPO and Technology Conference on Thursday September 15th.
Victor Peng President of our adaptive and embedded computing group will attend the Rosenblatt second annual technology summit, the HMA ice scaling on Tuesday August 23rd.
Ruth Cotter senior Vice President of marketing human resources, and Investor Relations will attend the Jefferies semiconductor hardware and communications infrastructure summit on Tuesday August 30th and Amd's third quarter 2022 quiet time is expected to begin at the close of business on Friday September 16th.
Today's discussion contains forward looking statements based on our 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 results to differ with that I will hand, the call over to Lisa Lisa.
Thank you Laura and good afternoon to all those listening in today.
This was an excellent quarter for our business as we delivered record revenue and profitability based on our strong execution leadership product portfolio and diversified business model.
Each of our segments grew significantly year over year led by higher datacenter and embedded sales as we continue expanding our presence across a broader set of markets and customers.
Revenue grew 70% year over year to a record $6 6 billion.
We also expanded gross margin six percentage points year over year to 54% and set records for operating and net income both of which more than doubled from the prior year.
Turning to the business results starting in the second quarter, we updated our financial segment reporting to align with our four strategic end markets datacenter client gaming and embedded.
Let me start with our data center segment revenue increased.
Creased, 83% year over year, and 15% sequentially to one and a half billion led by record server processor sales.
Epic processor demand was strong in the quarter with significant year over year growth across both cloud and enterprise customers.
In cloud more than 60, new instances powered by third Gen Epic processors launched in the quarter from AWS, Baidu, Google, Microsoft Azure and Oracle, including the industry's first cloud based software as a service solution for chip design for Microsoft Azure and Synopsys powered by our Milan X.
Processors with three destock triplets.
In enterprise OEM adoption accelerated in the quarter as Dell HPE, Lenovo Supermicro, Cisco and others brought tailored solutions to market that deliver leadership performance and TCE O across many enterprise workloads.
Recent examples include Lenovo is AMD powered thinks system setting a price performance World Records for transaction processing and AMD based HPE <unk> servers, delivering record setting virtualization performance.
We made progress further establishing our datacenter GPU footprint in the quarter highlighted by the AMD powered frontier supercomputer the viewing and the number one spot on both the top 500 list of the world's fastest supercomputers and the Green 500 list of the most energy efficient supercomputers I.
I am extremely proud of our work with HPE and Oak Ridge National Laboratory to build the world's first extra scale supercomputer.
Breaking the extra slot barrier is a significant computing milestone and the fact that it was made possible by epic processors and instinct accelerators highlights amd's unique ability to push the envelope in computing further and faster than anyone else.
Yeah.
Looking at our broader data center opportunities, we saw strong growth year over year for our industry, leading FPGA and networking products with cloud and financial customers. We closed our acquisition of <unk> in the quarter further expanding our datacenter solutions capabilities with the addition of a world class team and an industry, leading GPU and <unk>.
For stock that complement our existing products.
With the additions of Xilinx and Penn Sandow AMD now provides the industry's broadest set of leadership compute engines and accelerators to enable the best performance security flexibility and Tcl for leading edge data centers.
Yeah.
Looking ahead customer pull for our next generation five nanometer Genoa server CPU is very strong.
We are on track to launch and ramp production of Genoa as the industry's highest performance general purpose server CPU later this year positioning our data center business for continued growth and share gains.
Turning to our client segment revenue grew 25% year over year to $2 2 billion based on record mobile processor sales.
We believe we gained client processor revenue share for the ninth straight quarter led by strong adoption of our latest generation ryzen mobile processors.
Sure Ashish Dell HP, Lenovo and others are on track to significantly expand their portfolio of AMD based notebooks as they bring almost 300 new designs to market. This year powered by ryzen processors.
We also saw strong demand in the quarter for our latest generation Ryzen pro processors that deliver leadership performance and battery life for professional notebooks.
Commercial client processor revenue grew significantly year over year as HP, Lenovo and others launched more than 50, AMD based commercial notebooks, and Dell announced its first AMD based precision workstation.
Looking ahead, we are on track to launch our all new five nanometer ryzen 7000 desktop processors and <unk> platforms. Later this quarter with leadership performance in gaming and content creation.
Taking a step back while there has been additional softness in the PC market in recent months. We believe we are very well positioned to navigate through the current environment based on the strength of our existing product portfolio and upcoming product launches.
Now turning to our gaming segment revenue increased 32% year over year to $1 7 billion as semi custom growth more than offset a decline in gaming graphics sales.
Semi custom Soc sales continue outpacing the prior generation and we remain on track for record semi custom annual revenue in 2022.
Gaming graphics declined in the quarter as macro conditions impacted discretionary spending.
New AMD advantage gaming notebooks that combined ryzen and Radeon processors to enable outstanding gaming experiences launched recently to strong reviews highlighted by the Alienware <unk> receiving multiple editors choice awards from leading industry publications.
While we expect the gaming graphics market to be down in the third quarter, we remain focused on executing our GPU roadmap, including launching our high end rdna three Gpus later this year.
Our next generation Rdna architecture is another major step forward for graphics roadmap delivering more than a 50% generational improvement in performance per watt by combining our most advanced gaming architecture with five nanometer triplet manufacturing.
Looking at our embedded segment revenue grew significantly year over year to $1 3 billion led by robust demand across all markets and nodes for FPGA and adaptive computing products.
<unk> products are deployed in virtually every market powering mission critical applications for thousands of customers.
We accelerated xilinx products sales in the second quarter with the benefit of the additional manufacturing scale and resources of AMD.
We delivered record core markets revenue led by Aerospace and defense Industrial vision health and test and measurement.
Communications growth was led by higher demand in wired from multiple tier one system vendors, while wireless demand was driven by multiple ramping O ran deployments in North America.
And then the CPU revenue also grew significantly in the quarter based on higher automotive sales and the ramp of new networking and storage design wins.
As we highlighted our at our financial Analyst day in June we have identified greater than $10 billion in long term revenue synergy opportunities as we bring the AMD xilinx assets together.
Our largest opportunity is in AI and we've already started executing new hardware and software roadmaps to capture the significant opportunity, we see to drive pervasive AI across cloud edge and endpoint.
In summary, our work over the last several years has placed AMD on a significant growth trajectory.
<unk> has never been stronger and the markets for our products have never been as large or diverse.
As a result, we have now delivered eight straight quarters of record revenue as our strong execution and leadership products have driven increased adoption across an expanded set of markets and customers.
Despite the current macroeconomic environment, we see continued growth in the back half of the year highlighted by our next generation five nanometer product shipments and supported by our diversified business model.
We remain laser focused on executing our product and technology Roadmaps further deepening our customer relationships and investing strategically across the company to drive our next phase of growth across the 300 billion high performance and adaptive computing market.
Now I'd like to turn the call over to da vendor to provide some additional color on our second quarter financial performance the vendor.
Thank you Lisa and good afternoon, everyone AMG reported excellent second quarter results strong demand for our leadership products drove record quarterly revenue and continued gross margin expansion in the second quarter includes the first full quarter of Xilinx financial results and we are pleased to have.
Close the acquisition of <unk> in the quarter.
Second quarter revenue was $6 6 billion up 70%.
Percent from a year ago, driven by higher revenue across all segments and the inclusion of Xilinx revenue gross margin was 54% up 640 basis points from a year ago, driven primarily by higher data center and embedded revenue.
Operating expenses were $1 6 billion compared to $909 million a year ago as we continued to scale the company.
Operating income more than doubled from a year ago to a record $2 2 billion driven by significant revenue growth and higher gross margin.
Operating margin was 30% up from 24% a year ago.
Net income was a record $1 7 billion up nine.
$129 million from a year ago.
Earnings per share was $1 <unk> per share compared to 63.
Per share a year ago.
Now turning to our reportable segments as previously communicated we modified our segment reporting to align with our strategic end markets and the way we now manage the business. The data Center segment includes some Cpus datacenter Gpus, and Sango and Xilinx data.
Enter products.
The client segment includes desktop and notebook PC processors and chipsets, while the gaming segment includes discrete graphic processors and semi custom game console products. The embedded segment includes both AMD and xilinx embedded products.
Starting with the data Center segment revenue was $1 5 billion up 83% year over year, driven by strong growth in third generation epic server processor revenue.
Data Center operating income was 472 million or 32% of revenue compared to $204 million or 25% a year ago higher operating income was driven primarily by stronger revenue, partially offset by higher operating expenses.
Client segment revenue was $2 2 billion up 25% year over year, driven by a richer mix of ryzen mobile processor sales.
<unk> operating income was 676 million or 32% of revenue compared to $538 million or 31% a year ago.
Operating income improvement was driven primarily by higher revenue, partially offset by higher operating expenses.
Gaming segment revenue was $1 7 billion up 32% year over year, driven by higher semi custom product sales.
Gaming operating income was $187 million or 11% of revenue compared to $175 million or 14% a year ago.
Higher operating income was driven primarily by higher semi custom revenue, which was partially offset by higher operating expenses operating margin was lower primarily due to lower graphics revenue and higher operating expenses.
The embedded segment revenue was $1 3 billion up $1 2 billion from a year ago, driven primarily by the inclusion of xilinx embedded revenue.
Embedded operating income was 641 million or 51% of revenue compared to $6 million or 11% a year ago driven by higher revenue.
Turning to the balance sheet cash cash equivalents and short term investments was $6 billion at the end of the second quarter during the quarter, we deployed $920 million to repurchase common stock and have seven 4 billion in remaining authorization.
Cash from operations was a record 1 billion quarterly free cash flow was $906 million compared to $888 million in the same quarter last year.
Inventory was $2 6 billion up approximately $220 million from the prior quarter in support of second half revenue and the inclusion of <unk> Santo.
During the quarter, we establish AMD in the investment grade debt market by issuing debt of $1 billion.
Turning to our financial outlook today's outlook is based on current expectations and contemplates the current macro economic environment and customer demand signals.
For the third quarter of 2022, we expect revenue to be approximately $6 7 billion, plus or minus $200 million, an increase of approximately 55% year over year, primarily led by growth in the datacenter and embedded segments.
In addition for Q2 Q3 2022, we expect non-GAAP gross margin to be approximately 54% non-GAAP operating expenses to be approximately $1 6 billion or 24, 5% of revenue non-GAAP interest expense taxes and other to be.
Approximately $270 million based on the 13% effective tax rate.
And the diluted share count to be approximately $1 63 billion shares.
For the full year, we continue to expect revenue of approximately $26 3 billion plus or minus $300 million, an increase of approximately 60% at the midpoint led by growth in data center and embedded segments. We continue to expect non-GAAP gross margin to be approximately.
Currently 54%.
In closing, we had an excellent second quarter with year over year revenue growth across all segments margin expansion and record profitability. Looking ahead, we remain focused on executing our product and financial objectives, while continuing to monitor market signals.
And work closely with our customers to navigate the dynamic market conditions. We are confident that we are well positioned for long term growth driven by our revenue diversification financial model and earnings power.
Before we transition to the Q&A, we'd like to take this opportunity to thank Laura graves for all her service to AMD and wish her every success on her retirement later this month. Thank you Laura.
With that let us begin the Q&A portion of our call.
Thank you. Thank you.
Kevin go ahead and begin the Q&A. Please.
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, one moment, please where we pull for questions. Our first question is coming from <unk> from Goldman Sachs. Your line is now live.
Great. Thank you so much for taking the question and congrats to Laura on your on your upcoming retirement.
I have two questions.
The first one I wanted to better understand what's contemplated in your guidance your Q3 guidance as well as your implied Q4 guidance.
Both in terms of revenue and gross margins. If you can kind of speak to the pluses and minuses on a sequential basis that would be super helpful.
Follow up.
Sure. Thanks, Tokyo for the question so.
In terms of the Q3 and the Q4 guidance. So if we start first with Q3 I think the Q3 guidance implies that first of all the revenue growth is led by the data center as well as some increase in our semi customer game console business, which historically peaks.
In the third quarter, we have taken a more conservative outlook on the PC business. So a quarter ago, we would have thought that the PC business would be down let's call. It high single digits and our current view of the PC business is that it will be down let's call it mid teens and that's <unk>.
Intermodal <unk> into our third quarter guidance and then as we go into the fourth quarter on what we see is.
Again, the sequential growth there will be led by the data center as well as our embedded business.
With the.
The same view of the PC business, but what we also have there is a set of new product ramps that we're very excited about so we have a number of five nanometer products that will be ramping in the fourth quarter, including our.
Client products as well as our server or general.
Products as well as our graphics products. So that's sort of the view of Q3 and Q4 from a revenue standpoint, and then from a margin standpoint again, we're guiding full year margin at 54%, which is what we.
Is the same and again, it's a mix of business in each of the businesses that that is.
Resulting in that.
Got it thank you for the color.
Particularly around the PC assumptions.
Follow up I was hoping you can you can speak to what Youre seeing in your data center business.
Given the macro backdrop, we got a bunch of questions from investors about the forward in certain concerns.
Weighted to both enterprise and spending in the cloud.
What are your customers telling you at this point, what kind of visibility do you have.
And at what point do you become more dependent on the overall market and I asked the question because if we take the most recent quarter.
You'll probably about a third of your nearest competitor in terms of in terms of revenue scale.
We're about $1 seven a year ago. So it's obviously a significantly larger I'm curious at one point.
More correlated with the with the broader market. Thank you.
Yes. Thanks.
The question on the data centers. So look the data center business has grown very nicely for US. We're pleased with the segment growth both on a year over year as well as a sequential basis in terms of what we're seeing underneath that in the second quarter. For example, we did see.
The cloud business continue to be very strong so from what we from our customers, we're continuing to ramp new cloud instances and workloads with Milan, and we see that continuing into the second half of the year for the enterprise business. We actually did make also a good progress on the OEM side.
There as well what I would say, it's the trends there are a bit more mixed and perhaps more correlated to some of the macro.
Drop so we do see a significant pipeline, although some of the deals are taking a little bit longer to close and I would say that there are some matched set of things that the Oems are working through but all in all I think we continue to see <unk>.
Significant growth opportunities as we go into the second half of the year and into 2023, just given our strong product positioning and as I said in this part.
Part of the cycle, we see Milan continuing to ramp.
The second half of the year and then we see general coming in towards the end of the year into 2023. So I do think to your overall question do we become more correlated to the market I mean, I think we are we certainly gained a lot of share so where a larger piece of the market, but we're still underrepresented and the visibility.
<unk> with our customers, especially our large cloud customers second.
Second half of this year into next year is is very good and we're planning really for the next four to six quarters in and that gives us good visibility.
Very helpful. Thank you so much.
Sure.
Thank you. Our next question is coming from those I, calling from Bank of America Securities. Your line is now live.
Thanks for taking my question Lisa I, just wanted to revisit the second half outlook because your large competitor recently presented a very bleak picture of BCE and enterprise and data center.
Thinking about excess inventory et cetera, but you are leaving your expectations relatively unchanged I'm curious how do you see your inventory levels and do you think <unk> could be impacted by any excess PC or server or graphics inventory from your main competitors. Just this is your second half you think adequately derisked.
The way you see it today.
Yeah sure Vivek. So look if you look at our second half guide.
<unk>, maybe let's let's talk about the full year guidance.
We have.
There are some puts and takes in how we're seeing the business today, so whenever we guide.
Recognize that there are multiple dynamics that we're looking at in the current guidance for the full year in the second half what we're saying is that we continue to see.
Strong demand in the data center in our embedded business as well as in the console business and we are being more conservative in our PC outlook RPC outlook now at mid teens would kind of put the market at somewhere around let's call. It $290 to 300 million units. So I.
Do think we've appropriately derisk the PC business.
As it relates to inventory.
As we look at the current situation given some of the.
Covid Lockdowns and things in the second quarter I think there was a bit of buildup in PC inventory and we've taken that into account in the second half. We think the AMD portion of that is modest and as a result.
It will rebalance itself in the second half of the year. So overall I think we feel very good about the second half and again with the portfolio that we have.
One of the things that has been important is we were still supply constrained in.
In several.
Some of the areas certainly on the embedded side, we were a supply supply constrained in the second quarter and even on the server side, we were tight in the second quarter, we have additional supply that's coming online, especially as we get towards the end of the year that will help us really meet more of the demand from customers. So we feel pretty.
Good about all of those puts and takes.
Got it and for my.
Follow up lease out one more on the data center.
So cloud spending seems very strong right now but.
We see all these media reports about the cloud players wanting to control their spending levels et cetera. When do you think that shows up in their spending outlook or do you think you have enough of a ship.
Gain story with general coming out later this year to offset any slowdown from a just a broader spending environment perspective, and just how are you feeling about that next gen kind of general versus a SIFI.
What's the competitive outlook.
Yes.
So I mean, we spend a lot of time with our customers.
Looking about what they're seeing in their businesses and what they're seeing in their markets, particularly the large cloud customers.
I would say is every customer is different so they each have their own dynamics of what they're trying to optimize.
We have seen a bit of a slowdown in China and you might have expected that but certainly with the North America cloud or they've been very strong this year and the forecasts are.
Our robust for next year.
Relative to your overall question I think we do feel like we're in a share gain position.
Zinc.
Product positioning is such that Milan is very very strong.
Right now and we think that Genoa as well is very well positioned into into next year. So we'll always spend time with the customer set and see what they what they're seeing but from our current view I think we have a strong opportunity to continue to grow the.
The data center business.
Into into 2023, and our view is we have an expanding portfolio as well. In addition to Genoa, we have our Bergamo, which is a cloud optimized.
Capability as well that's coming online early next year. So there's a lot of a lot of new products that are supporting our growth ambitions.
Thank you.
Thank you. Your next question is coming from Stacy rather gone from Bernstein Research. Your line is now live.
Hi, guys. Thanks for taking my questions.
My first question you know your larger competitor now has a very sort of publicly admitted push out on their own server product.
Does that make you feel better or what you see for your Juno will ramp, especially as we get into 2023 stronger than you may have seen it previously and I guess, if that's the case.
It sounded like you were still a little bit supply cogent in server in general in Q2 do you have the supply as we go into next year the upside on that number if the orders actually do get stronger in the wake of the Sapphire Rapids delay.
Firstly, thanks for the question so.
We're very focused on our own product ramp and certainly.
The key for US was to continue to work very closely with our customers to get them to ramp as fast as possible I think general looks very good we have gotten a very strong feedback from the customer set the performance looks very good others, a lot of interest to ramp quickly on both the cloud as well as.
Some of the high end enterprise stuff. So we feel very good about it and to your question about supply we have spent.
Basically the last 12 months.
Building, our capacity across the world to support the type of growth that we think the product can can handle so there is a large step up in supply that we expect to see over the next four.
Five quarters and.
We will continue to work on that.
Got it thank you.
For my follow up I wanted to dig a little bit more into the implied Q4 outlook again I know you answered some questions on some of the drivers into Q4, but if I if I look at it it's taken at that midpoint, it's something like a 7% sequential increase from Q3 Q4 with gross margins going up about 100 bps to 55%.
Of that increase is it fair to say that the bulk of it continues to be data center and may be embedded.
The gross margin to me would suggest that that's probably the case any more further color you can give us on the magnitude of what's driving that increase.
Helpful.
Yes, I think Stacy the bulk of the increase is.
Certainly led by the datacenter and embedded segments actually are embedded segment has performed really well.
Very pleased with the growth that we're seeing there and then in terms of the margin. It very much is a mix within the business as well so the pluses and minuses are yes.
Yes, datacenter and embedded are up but the mix of data centers, a little bit more to cloud and enterprise and.
And embedded a bit more from some communications and some of the other markets, but overall.
The 7% increase I think is very guarded given all of the new product ramps that we have going on in.
In addition to some additional supply that's coming in.
As we get into the fourth quarter and just as a reminder, it's also a 14 week quarter for us in Q4, and so all those things give us.
Sort of the implied guide.
Got it I forgot about that 14th week got it. Thanks. Thank you so much that's helpful.
Thank you next question is coming from Ross Seymore from Deutsche Bank. Your line is now live.
Hi, Thanks for letting me ask a question congrats on the solid results, especially in this environment and Laura Congratulations on your retirement.
So I wanted to dig a little bit into the gaming business. You. Obviously have the two parts of that the client Gpus in the game console side of things it seems like they're very different dynamics happening. There. So when you talked about the I believe you said the client GPU side would be down year over year in the third quarter can you just talk a little bit about what's happening there is that just a reflection of the PC mall.
Or is there any sort of share gains product issues going on and then the semi custom color you sounded like it's going to remain strong for the rest of the year. So is there is that just the fourth year of the ramp or the third year I guess it would be or is there some sort of seasonal effect, we should appreciate as well.
Yeah sure Ross Thanks for the question so.
Our gaming business is the two halves of the sort of the discrete graphics or the consumer graphics and then.
Our game console business, so I would say that on the semi custom side, let's take that first the console business has been.
<unk>.
Very strong so I would say, it's a strong cycle overall, we were more supply constrained in.
Sort of last year into the first half of this year, we've been able to get additional supply for that I think there is continued belief that its a strong cycle for the consoles, we expect consoles to peak in the third quarter.
And and then the normal seasonality would see it.
Decline in the fourth quarter as it relates to the consumer graphics, I would say that as.
We entered this year, we were coming off of a very strong 2021 for consumer graphics, where gaming demand was very high.
We have seen a slowdown here in the second quarter and we expect.
That is somewhat due to.
Sort of demand now.
Sort of the supply now.
More supply versus demand as well as some of the macro.
Issues as it relates to consumer spending.
We do expect as we go into the fourth quarter, though that we'll see some sequential increase in that business. Because we will have new products that are launching in that timeframe. So those are the puts and takes I think overall as a segment we continue to believe gaming.
He is a long term secular driver there are some.
Sort of short term dynamics here in the PC market that we're dealing with but I think the fact that the game consoles have performed so well.
The positive for the segment.
Thanks for all the color I guess for my follow up switching over to the gross margin side of things you guys have done an amazing job on that and violence, obviously helps raise the bar as well as we look forward I know you have a long term target of 57% can you just talk about is supply becomes looser and I know you have areas that are loosening in areas that are.
Tight simultaneously, but can you talk about the cost inflation, you're feeling do you think that will lessen at all next year and kind of how do we think about the March from the 55 year seem to be exiting this year at 257, what's the sort of timetable and the drivers of that increase.
Well I think Ross what I would say is the business is certainly getting to scale across the board. So the.
The increase in margins as we go forward in the long term model really is as a result of mix. So what we've said is that we believe the datacenter and embedded businesses can get to over 50% of the company.
We're right now sitting probably in the low <unk> and we expect data center in particular to grow faster than the rest of the company and that will drive sort of margin expansion.
It is.
We're all working on costs and trying to ensure there are some inflationary kind of costs that are out there.
All working on trying to keep those to a minimum and.
And frankly going back to the work of working on cost reductions as as we do in semiconductors overtime, so, but the primary margin expansion for us is in.
Data center as well as embedded growing.
Sort of faster than the other businesses.
Thank you.
Sure.
Thank you. Our next question is coming from Matt Ramsay from Cowen. Your line is now live.
Thank you very much good afternoon, and thanks, Laura for the partnership down years.
Lisa I wanted to ask a question about the server business obviously.
Growth is.
Very strong right now.
But a lot of that business continues to be driven by by then.
<unk> that you've had and continue to build out with cloud.
As we look forward over the next I mean, you had talked in some of your script about how you guys were preparing for continued growth in the server business over the next 468 quarters and the Roadmaps going to diversify some next year with with Bergamo in Siena in general acts seeming to launch them on top of the of the general platform and I Wonder if you could give some color.
Of how the relationships and engagements are going in enterprise and in the telco wireless space as well I'm just trying to get a gauge of how quickly the server business can grow through diversification not just continued share gains with cloud. Thanks.
Sure, Matt So definitely I think our focus we love the progress that we're making cloud and we're going to continue to earn every every amount of share that we can there on the enterprise side as we've always said it it takes a bit longer because the sales cycles are a bit longer.
Made very nice progress with all of the top Oems I think the portfolios are continuing to expand.
We're excited about not.
Not just the current portfolio as you said with Genoa, but as we expand to general X at the very high end of the performance as well as CNS.
That is a.
That just broadens our portfolio for telco.
Our expectation is that we continue to steadily grow share in the enterprise as well as we go through 2023 and beyond and I think there is a.
<unk> opportunity to sell the broader AMD portfolio.
As we have.
Not just the.
The CPU, but I think the addition of the xilinx assets and <unk> assets as well as our GPU portfolio I think.
Lead to the overall growth in the in the data center business for Us.
Okay. Thanks for that Lisa as my follow up is it.
Question I wouldn't normally ask defender, but ive gotten a few emails on it in the last hour.
So I figured I'd go ahead and ask it.
The revenue obviously.
<unk> Xilinx up.
70% or so year on year.
A few people pointed out to me that the cash flow or the free cash flow was only up a tiny bit or very very modestly and I wonder if you could walk us through that a little bit were there one time items with inventory step ups with acquisitions, where the and maybe more investments and supply I'm just wondering what the variables are there on on expanding the free cash flow.
Leverage as we go forward. Thank you.
So I can do that I think it will long as for the revenue grows a lot those investment needed in working capital neutral working capital numbers from an inventory standpoint, they are up significantly year on year. We also have as we said previously 3% tax rate going up to about 10% and the cash taxes get paid.
But the timing of the cash taxes, sometimes as Q2 and Q2, we did have some.
Some significant cash tax payment payments.
Payments standpoint, given the timing of payments with the federal government and then do you have timing of shipments that does affect the free cash flow and the last thing I'll mentioned given the discussion some of the questions that leasehold is asked about supply for silver in supply overall over the shag into the growth of the business, we are making investments in.
Capacity.
From a prepayment standpoint, it does obviously require funding of the suppliers and that also has an impact on the free cash flow because that flows through the free cash flow accretion. So this is really if you look at it inventory and capacity investing for growth and investing for the future.
And that's one of the growth got it thanks very much guys I appreciate it.
Thank you next question is coming from Aaron Rakers from Wells Fargo. Your line is now live.
Yes, thanks for taking the question and Laura Congratulations I wish you the best.
I guess for my first question I wanted to maybe try and unpack the data center business, a little bit more apologize to kind of continue to go there but.
As I look at the trends over the last couple of quarters, and especially given that the unit decline that we saw at your largest competitor in this last quarter I am curious if you can help us appreciate the trajectory of what Youre seeing from a blended overall pricing perspective within your server CPU business.
Just trying to appreciate as we get into Genoa Bergamo as we move into 2023, how should we think about the ASP trend on a blended basis within the server Cpus.
Okay. So erinn I guess, what I would say there is a general has.
Much more content than Milan, right. If you think of Milan is Ah.
Rome, and Milan or 64 core <unk>.
Processors, and as you get into Genoa in Bergamo, you get.
296 to 128 quarters. So you would expect and in a per unit basis that.
Asps.
Would go up.
That being the case I think we would expect that Milan is going to coexist with with.
With general in Bergamo for quite some time, just given sort of the different infrastructure and so on and so forth. So hopefully that gives you a little bit of color.
And then just as a quick follow up I'm curious on the datacenter GPU business.
You talked about frontier I'm curious about.
Where do you guys expect that business to kind of shape out for the year have you started to see further traction in the ability to sell your CPU plus GPU strategy more broadly thank you.
Yeah. So we continue to make good progress in the datacenter GPU.
The key there for us is to work with.
Some of the large hyperscale or who have been very closely partnering with us on our 200 product I think from an overall revenue standpoint, it's not a big contributor this year.
But certainly we would expect it to be a larger contributor in 2023 as.
Some of those.
Initial engagements turn into more production engagements.
Thank you. Our next question is coming from Joe Moore from Morgan Stanley . Your line is now live.
Great. Thank you.
I Wonder if you could talk a little bit too situation of xilinx.
Is that business.
We'll supply constrained.
Or are you in terms of leaving those constraints and obviously, it's growing nicely. What's your what's your visibility there and kind of into the first part of next year.
Yes, sure Joe So actually I would say that the xilinx business has performed extremely well.
Demand.
Across all segments has been strong and what we were able to do.
So as we brought xilinx into the portfolio is really make some significant improvements in the in the supply chain and so we have seen a nice step up if you were to look on a pro forma basis.
Xilinx portfolio grew about 20% sequentially, which is a very nice growth.
As we look into the second half of the year, we are still a bit constrained.
In certain areas certain parts of the xilinx portfolio, although we continue to make good progress and I expect.
Additional supply to come on especially towards the latter part of the year and into 2023.
<unk> of the business again I think the.
Quality of the design wins the quality of the overall.
When you look the diverse.
The diverse markets is very strong and so I think as we are able as we are able to continue to relieve some of those supply constraints into the second half of the year I think we see a good growth trajectory for the business.
Great. Thank you.
Follow up on this one.
How do you think about competition and microprocessors in the context of you know for the last four years, either you or Intel has generally been constrained as Intel for a couple of years the new for the last couple of years as those constraints ease and obviously Intel utilization probably falls a little bit here.
Could you talk about what you anticipate pricing wise, you think anything changes or to just continue to be kind of a value priced market.
Well I think it is I mean, we always assume that it's going to be a very competitive market I think it depends a little bit on where your where youre talking about within the market, but on the datacenter side. What we have found is.
Pricing is not sort of the first <unk>.
Factors that the customers are paying attention to its really total cost of ownership. So the performance in the sort of the performance per dollar equation is is is very important there and sort of the power efficiency as we go into the PC market, we've deliberately focused.
<unk> focused our PC market on let's call it the more premium segments. So.
Gaming as well as high end sort of the ultra premium as.
As well as the commercial segments and again I think those are much more about the product. Yes. There are some parts of the PC market that are very price sensitive like the low end and like I said, we've tried to reduce our exposure there.
Going forward. So I think I don't think the dynamics change a lot I think it's always a very competitive market and the key thing there is to have.
Very very strong roadmap.
Great. Thank you.
Sure.
The next question is coming from Mark <unk> from Jefferies. Your line is now live.
Hi, Thanks for taking my question.
I wanted to come back to the data center business.
If I look at the spreadsheet that.
Suresh sent around with the restated data center numbers in it and it looks like your data center business kind of <unk>.
All lines apples to apples to Intel's pretty closely it looks like you guys gained 6.6% share from Intel and if I, if I kind of take a guess about the pro forma contribution of xilinx, what it would've been in Q1, it's about 6% share gain.
That would be I think that would be the highest share gain in that data center business that you guys ever reported even going back to 2005.
Admittedly two thirds of that is from Intel declining.
I guess since that would put you against until I guess in the like kind of the mid twenties.
I am curious if you think that math sounds about right to you and I'm, hoping that you could.
Because we're grouping things more things together, if you could just share with US was there was there any outsized contribution from from Xilinx or <unk>.
Or something like that and that that that would make that look.
Yes.
Might change the interpretation.
From what it looks like on the surface because that's a that's a pretty big jump in share.
So that's the first part of the question I had a follow up too.
Sure Mark so.
I mean this is sort of the reason that we went to the new segments. So that there was better visibility I know you guys have been asking.
About that for a while so I think.
Your math is in the ZIP code from our point of view.
And.
We're pleased that we're gaining share I think that was our expectation was that.
As the product portfolio expands.
As we increase.
Supply as we ramp more instances across.
<unk>.
The customer set that that we would see.
Share gains and we will continue to focus on that going forward to your <unk>.
Question, There was no outsized contribution the other pieces of it that are in the segment are relatively small and it was primarily driven by epic.
As you state.
Okay, Great and then the follow up if I may I, just wanted to come back to the visibility on this business.
And I'm wondering about the kind of like the variance that you get from your cloud customers. So.
I guess the scenario that I'm curious about is I imagine the cloud a lot of the cloud companies do a lot of planning on their data center since it is central to their business and.
They sign a data center lease that's going to get built in six months.
Do they after they do that do they come to you guys and say Hey, this is coming online we need to get these chips from U and.
In six months and.
How how kind of.
How consistent and how tight is the variance spend around them.
The visibility that they give you guys and Thats all I had thank you.
Yeah, Mark actually it has been very helpful. I mean, I think the planning that were doing jointly with our customers has been very helpful. Much of our conversation right. Now frankly is about 2023 and ensuring that we have enough capacity for some of the build outs that are out there.
So I would say the visibility is very good.
And obviously things can change plus or minus here and there, but overall I think the zip codes.
How much growth how much more content.
The customers need are very active conversations and frankly, they've been active conversations for the past few months I think the one positive of sort of the supply chain stuff that we've all gone through is that Theres, a new recognition of the need for long term planning so that they can get their match sets and they can get their factory capacity and we can get our factory.
<unk>.
In line as well so overall, a very very good visibility.
Thank you Mark Kevin we have time for two more questions. Please.
Certainly our next question is coming from Harlan sur from Jpmorgan. Your line is now live.
Good afternoon, and congratulations on the solid results and execution on the ramp up to know our back half of this year early next year.
I believe the team has a total of around 20, plus skus across their cloud enterprise and embedded customers.
Cloud customers, obviously are anxiously awaiting these platforms would you be rolling out your high volume cloud Skews first then what's the qualification look like on these high volume Skus, just asking because obviously your competitors are struggling with SKU with leases and I just wanted to make sure that the A&D team is executing and released.
It's high volume Skus to your cloud customers.
Sure Harlan So we certainly go through.
Our full.
Again interlock with our customers our focus is on the high volume cloud Skus as well as.
Sort of the high volume enterprise Skus, because there is a fairly.
Sort of lengthy qualification cycle.
Actually in both the cloud and the enterprise.
From what we see today again, there is strong customer pull.
Genoa and so we're working very closely with our customers and we expect to ramp production.
In the fourth quarter, and then into the first half of next year and it'll be different by different customers and different different platforms, and so on and so forth, but what we're seeing is a lot of strong engagement.
With with our with our customers.
Perfect. Thank you Lisa.
Thanks Harlan.
Thank you. Our final question today is coming from Timothy Arcuri from UBS. Your line is now live.
Thanks, a lot.
I just wanted to sort of double click on you're keeping the full year guidance in light of the weaker PC Tam.
It seems like maybe if you take the last units and you multiply by NSP it.
It seems like it cost you maybe $750 million, but you kept the full year.
Data center seem pretty in line. So is the is really the offset that youre getting better supplier Xilinx is that is that really the story and then I had a follow up thanks.
Yeah, no I wouldn't say that.
Tim what I would say is that again whenever we put together full year guidance, especially from the beginning of the year.
We understand that not everything is going to be exactly so so as we look now into.
The second half of the year, what we're seeing is again data center are strong again, we expect data center to grow second half to first half nicely.
<unk> will also grow to some extent second half to first half and the consoles will also grow as well and so I think as we look at those components offsetting what is perhaps a more conservative.
PC outlook.
We believe that that offsets nicely and again just as a reminder, we do have a number of product ramps in the fourth quarter that are coming that are coming out in five nanometer and we think that will drive sort of the sequential growth in the fourth quarter. So I think those are some of the puts and takes in the full year guidance.
Awesome. Thank you and then I guess last thing can you talk about purchase commitments. There was a question on free cash flow and I'm wondering if maybe theres, a pretty big increase in purchase commitments. So.
I Wonder if you could talk about that thanks.
I think in 2021 as I said on the financials, Dave you had about $1 billion.
Committed paid and this year it does step up a little bit, especially given all the supply that we need to get ready for 2023 and does that does flow through the free cash flow in the first half it wasn't significant but it does step up in the second half so it'll impact.
From the standpoint.
Thank you we've reached end of our question and answer session I would like to turn the floor back over for any further or closing comments.
Thank you everyone for your participation in today's earnings call as always we appreciate your support of our company everybody have a good afternoon. Thank you.
Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.
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