Q1 2023 Advanced Micro Devices Inc Earnings Call

Speaker 1: And.

Speaker 1: Time.

Speaker 1: So every time different time and.

Speaker 2: my operator assistance please press star zero under telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's not my pleasure to turn the call over to Ruth Cotter. Please go ahead, Ruth. Thank you and welcome to AMD's first quarter, 2023 financial results conference.

Speaker 3: during this call. The full non-gap to gap reconciliations are available in today's press release and slides posted on our website.

Speaker 3: Participants on today's conference call are Dr. Lisa Sue, our Chair and Chief Executive Officer, and Jean, who are Executive Vice President, Chief Financial Officer and Treasurer. This is a live call and will be replayed via WebCAST on our website.

Speaker 3: Before we begin today's call, we would like to note that Gene Hoo will attend the JP Manual Technology Media and Communications Conference on Tuesday, May 23rd. Dan McNamara, Senior Vice President and General Manager, Server Business Unit will attend the Bank of America Global Technology Conference on Tuesday, June 6th. And our second quarter, 2020-23, quiet time, is expected to begin at the Coase of Business.

Speaker 3: on Friday, June 16th.

Speaker 3: Today's discussion contains four 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 and our press release for more information on factors.

Speaker 3: that could cause actual results to differ materially. Now with that, I'll hand the call over to Lisa. Lisa? Thank you, Ruth, and good afternoon to all those listening in today. We executed very well in the first quarter as we delivered better than expected revenue and earnings in a mixed demand environment, launched multiple leadership products across our businesses.

Speaker 3: and made significant progress accelerating our AI roadmap and customer engagement across our portfolio.

Speaker 4: First quarter revenue was $5.4 billion, a decrease of 9% year over year.

Speaker 4: Sales of our data center and embedded products contributed more than 50% of overall revenue in the quarter as cloud and embedded revenue grew significantly year over year. Looking at the first quarter business results, data center segment revenue of 1.3 billion was flat year over year with higher cloud sales offset by lower enterprise sales.

Speaker 4: In cloud, the quarter played out largely as we expected.

Speaker 4: Epic CPU sales grew by a strong double digit percentage year over year, but declined sequentially as elevated inventory levels with some MDC customers resulted in a lower sell-in TAM for the quarter. Against this backdrop, we were pleased that the largest cloud providers further expanded their AMD deployments in the quarter to power a larger portion of their internal workloads and public Liclick Seas connections.

Speaker 4: We continued growing our enterprise pipeline and closed multiple wins with Fortune 500 automotive technology and financial companies in the quarter. We made strong progress in the quarter ramping our Zen4 Epic CPU portfolio. All of our large cloud customers have general running in their data centers and are on track to begin broad deployments to power their internal workloads and public instances in the second quarter. For the enterprise Dell HPE Lenovo Supermicro and other leading providers entered production on new Genoa server platforms.

Speaker 4: that complement their existing third-gen EPIC platforms. We are on track to launch Bergamo, our first cloud native server CPU, and Genoa X, our fourth-gen EPIC processor with 3D chiplets for leadership in technical computing workloads later this quarter.

Speaker 4: based on the strong customer response to the performance and TCO advantages of Genoa, Bergamo, and Genoa X.

Speaker 4: Now looking at our broader data center business, in networking, Microsoft Azure launched their first instance powered by our Pensando DPU and software stack that can significantly increase application performance for networking intensive workloads by enabling 10X more connections per second compared to non-accelerated instances. We expanded our data center product portfolio with the launch of our first ASIC-based Alvio Data Center Media Accelerator that supports four times the number of simultaneous video streams compared to our prior generation.

Speaker 4: In supercomputing, the Max Planck Society announced plans to build the first supercomputer in the EU, powered by fourth-gen EPIC CPUs and Instinct MI300 accelerators, that is expected to deliver a three times increase in application performance and significant TCO improvements compared to their current system.

Speaker 4: Our AI activities increase significantly in the first quarter, driven by expanded engagements with a broad set of data center and embedded customers.

Speaker 4: We expanded the software ecosystem support for our Instinct GPUs in the first quarter, highlighted by the launch of the widely used PyTorch 2.0 framework, which now offers native support for our ROCM software.

Speaker 4: In early April , researchers announced they used the Loomy Supercomputer powered by third-gen Epic CPUs and Instinct MI250 Accelerators to train the largest Finnish language model today.

Speaker 4: Customer interest has increased significantly for our next generation Instinct MI300 GPUs for both AI training and inference of large language models.

Speaker 4: We made excellent progress, achieving key MI300 silicon and software readiness milestones in the quarter. And we're on track to launch MI300 later this year to support the El Capitan Exascale Supercomputer at Lawrence Livermore National Laboratory and large cloud AI customers.

Speaker 4: To execute our broad AI strategy and significantly accelerate this key part of our business, we brought together multiple AI teams from across the company into a single organization under Victor Peng.

Speaker 4: The new AI group has responsibility for owning our end-to-end AI hardware strategy and driving development of a complete software ecosystem including optimized libraries, models, and frameworks spanning our full product portfolio.

Speaker 4: Now turning to our client segment, revenue declined 65% year over year to $739 million as we shift significantly below consumption to reduce downstream inventory.

Speaker 4: As we stated on our last earnings call, we believe the first quarter was the bottom four client processor business.

Speaker 4: In mobile, the first notebooks powered by our Dragon range CPUs launched a strong demand, with multiple third-party reviews highlighting how our 16-core Ryzen 9 7945HX CPU is now the fastest mobile processor available. We also ramped production of our Zen 4-based Phoenix Ryzen 7040 series CPUs in the first quarter for ultra-thin and gaming notebooks to support the more than 250 ultra-thin gaming and commercial notebook design wins on track to launch this year from Acer, Asus, Dell, HP, and Lenovo.

Speaker 4: Looking at the year, we continue to expect the PC-TEM to be down approximately 10% for 2023 to approximately 260 million units.

Speaker 4: Based on the strength of our product portfolio, we expect our client CPU sales to grow in the second quarter and in the seasonally stronger second half of the year.

Speaker 4: Now turning to our gaming segment, Revue declined 6% year over year to 1.8 billion, as higher semi-custom revenue was offset by lower gaming graphics sales.

Speaker 4: We also released new Vitus AI software libraries to enable advanced visualization and AI capabilities for our medical customers and launched our next generation CREA platform that provides a turn-key solution to deploy our leadership adaptive computing capabilities for smart camera, industrial, and machine vision applications. In communications, we saw strength with wired customers as new infrastructure design wins ramped into production. We also launched zinc RF SoC products to accelerate 4G and 5G radio deployments in cost-sensitive markets.

Speaker 4: and formed our first telco solutions lab to validate end-to-end solutions based on AMD CPUs, adaptive SOCs, FPGA's, DPUs, and software.

Speaker 4: In automotive, deployments of our adaptive silicon solutions for high-end ADAS and AI features grew in the quarter, highlighted by Subaru rolling out its AMD-based I-Site 4 platform across their full range of vehicles.

Speaker 4: In addition, we expanded our embedded processor portfolio with the launches of Ryzen 5000 and Epic 9000 embedded series processors with leadership performance and efficiency as we focus on growing share in the security, storage, edge server and networking markets.

Speaker 4: In summary, I'm pleased with our operational and financial performance in the first quarter. In the near term, we continue to see a mixed demand environment based on the uncertainties in the macro environment. Based on customer demand signals, we expect second quarter revenue will be flattish sequentially with growth in our client and data center segments offset by modest declines in our gaming and embedded segments. We remain confident in our ability to grow in the second half of the year driven by adoption of our Zen4 product portfolio, improving demand trends in our client business, and the early ramp of our Instinct MI300 accelerators for HPC and AI.

Speaker 4: Looking longer term, we have significant growth opportunities ahead based on successfully delivering our roadmaps and executing our strategic data center and embedded priorities led by accelerating adoption of our AI products.

Speaker 4: We are in the very early stages of the AI computing era, and the rate of adoption and growth is faster than any other technology in recent history.

Speaker 4: And as the recent interest in generative AI highlights, bringing the benefits of large language models and other AI capabilities to cloud, edge, and endpoints requires significant increases in compute performance.

Speaker 4: AMD is very well positioned to capitalize on this increased demand for compute based on our broad portfolio of high performance and adaptive compute engines, the deep relationships we have established with customers across a diverse set of large markets, and our expanding software capabilities.

Speaker 4: We are very excited about our opportunity in AI. This is our number one strategic priority, and we are engaging deeply across our customer set to bring joint solutions to the market, led by our upcoming Instinct MI300 GPUs, Ryzen 7040 series CPUs with Ryzen AI.

Speaker 4: Zinc Ultra Scale Plus MPSOCs, LVOV70 Data Center Infraint's Accelerators, and Versal AI Adaptive Data Center and Edge SOCs. I look forward to sharing more about our AI progress over the coming quarters as we broaden our portfolio and grow this strategic part of our business.

Speaker 5: Revenue in the first quarter was 5.4 billion, a decrease of 9% year-for-year, as embedded the segment's strengths was offset by lower Clion segment revenue. Gold margin was 50% down 2.7% to point from a year ago, primarily impacted by Clion segment performance. Operating expenses were 1.6 billion, increasing 18% year-for-year, primarily due to inclusion of a full quarter of expenses from a Ziving and the Pancendo acquisition.

Speaker 5: All-preity income was 1.1 billion, down 739 million, year-for-year, and the all-preity margin was 21%. Intrace expense, taxes, and other was 128 million.

Speaker 5: Now turn into our repotal segment for the first quarter.

Speaker 5: Starting with the data center segment, Revenue was 1.3 billion, flat year over year, driven primarily by higher sales of the at-pick processors to cloud customers, offset by lower enterprise server processor sales. Data center segment operating income was 148 million.

Speaker 5: All 11% of driving yield compared to 427 million all 33% a year ago.

Speaker 5: Lower operating income was primarily due to product mix and increased the R&D investment to address larger opportunities for high-level funds.

Speaker 5: client segment revenue was $739 million, down 65% year-over-year, as we shipped significantly below consumption to reduce downstream inventory. We expect improvement in second-quarter client segment revenue.

Speaker 5: and the seasonal may stronger second half. Client segment operating loss was 172 million compared to operating income of 600 and 92 million a year ago, primarily due to lower revenue.

Speaker 5: Gaming segment revenue was 1.8 billion, down 6% year-over-year.

Speaker 5: Semi-customer revenue grew double digit percentage year-for-year, which was more than offset by lower gaming graphics revenue. Gaming segment operating income was $314 million, or 18% of revenue, compared to $358 million, or 19% a year ago.

Speaker 5: The decrease was primed due to lower gaming graphics revenue.

Speaker 5: In better segment revenue was 1.6 billion, up 967 million year over year, primarily due to full quarter of Zilink revenue and strong performance across multiple end markets.

Speaker 5: In bed segment operating income was $798 million, or 51% of revenue, compared to $277 million, or 46% a year ago, primarily driven by the inclusion of a full quarter of Z-Link.

Speaker 5: Turning to the balance sheet and the cash flow.

Speaker 5: During the quarter, we generated $486 million in cash from operations, reflecting our strong financial model despite the mixed demand environment.

Speaker 5: Three cash flow was 300 and 28 million. In the first quarter, we increased the inventory by 464 million, primarily in anticipation of the ramp of new data center and the Client product in advance to process notes.

Speaker 5: At the end of the quarter, cash, cash equivalents and short-term investment were 5.9 billion.

Speaker 5: and then we returned 241 million to share holders through share purchases.

Speaker 5: We have a 6.3 billion in remaining authorization for shared purchases. In summary, in an uncertain microeconomic environment, the AMD team execute very well, delivering side-to-the-nx-backed top-line revenue and earnings.

Speaker 5: Now turning to our second quarter, 2023 outlook. We expect revenue to be approximately 5.3 billion plus or minus 300 million.

Speaker 5: a decrease of approximately 19 percent year-over-year, and approximately flat sequentially.

Speaker 5: Year for year, we expect the client, gaming, and the data center segments to decline, partially offset by embedded segment growth.

Speaker 5: sequentially we expect client and data center segment growth to be offset by modest gaming and the embedded segment decline.

Speaker 5: In addition, we expect non-GAAP growth margin to be approximately 50%. We expect operating expenses to be approximately 1.6 billion.

Speaker 5: effective tax rate to be 13%, and the diluted share count is expected to be approximately 1.62 billion shares.

Speaker 5: In closing, I am pleased to be with our strong top-line and bottom-line execution. We have a very strong financial model and will continue to invest in our long-term strategic priorities, including accelerating our AI offerings to drive sustainable value creation over the long term. D

Speaker 5: With that, I'll turn it back to rules for Q&A session.

Speaker 3: Thank you, Jean. And Kevin, we're happy to poll the audience for questions.

Speaker 2: If you'd like to be placed into question Q, please press star 1 at this time. A confirmation tone will indicate why it is in the question Q.

Speaker 2: You may press star two if you'd like to remove your question from the queue. One moment please while we poll for questions. Our first question today is coming from the Zecharia from Bank of America. Your line is now live.

Speaker 6: Thanks for the question. For my first one, Lisa, when I look at your full year data center outlook for some growth, that implicitly suggests data center could be up 30% in the second half versus the first half, right? And I'm curious, what is your confidence and visibility and some of the assumptions that you heard over the last day was getting out on the day by bird Perform-in- SopA, and

Speaker 6: that go into that view, is it, you know, you think there is a much bigger ramp in the new products, is it enterprise, the company is it pricing, so just give us a sense for how we should think about the confidence and visibility of this strong ramp that is implied in your second house, a data center outlook.

Speaker 4: Alright, so in fact thanks for the question. Maybe let me give you some context on what's going on in the data center right now. First of all, we have said that it's a mixed environment in the data center, so the first half of the year there are some of the larger cloud customers that are working through some inventory and optimization as well as a weaker enterprise. Thank you for watching!

Speaker 4: As we go into the second half of the year, we see a couple things. First, our roadmap is very strong. So the feedback that we're getting, working with our customers on Genoa, it's ramping well. It is very differentiated in terms of TCO and overall performance. So we think it's very well positioned. Much of the work that we've done in the first half of the year, in the first quarter and here in the second quarter is to.

Speaker 4: bit on the macro situation. And then as we go into the second half of the year, in addition to Genoa, we're also ramping Bergamo. So that's on track to launch here in the second quarter and we'll ramp in the second half of the year. And then as we get towards the end of the year, we also have our GPU ramp of MI300. So with that, we start the...

Speaker 7: oras ?

Speaker 6: For my follow-up, Lisa, how do you see the market share evolve in the data center in the second half? Do you think that the competitive gap between your and your competitors' products has that narrowed or you still think that in the second half, you're still thinking about

Speaker 4: progression. It's actually been pretty steady. As we go into the second half of this year, I think we continue to believe that we have a very strong competitive position. So we do think that positions as well to gain share, you know, in the conversations that we're having with customers, I think they're enthusiastic about Zen4 and what it can bring into, you know, cloud workloads as well as enterprise workloads.

Speaker 4: I think actually Genoa is extremely well positioned for enterprise where we have been underrepresented. So we feel good about the roadmap. I mean obviously it's competitive, but we feel very good about our ability to continue to gain share.

Speaker 2: Thank you, Lisa. Thank you. Next question is coming from Toshiyahari from Goldman Sachsville. Is that live?

Speaker 8: Hi, good afternoon. Thank you so much for taking the question. Lisa, I wanted to ask about the embedded business. It's been a really strong business for you since the acquisition of Zylinx. You're guiding the business down sequentially in Q2. Is this sort of the macro slash cycle kicking in or is it something supply related if you can kind of expand on the Q2 Outlook Fair and your expectations of the second half?

Speaker 4: doing very well. Our thought process for sort of modest decline into Q2 is that we did have a bunch of backlog that we're in the process of clearing and that backlog will clear in Q2 and then we expect that the growth will moderate a bit. We still very much like the positioning of sort of our aerospace and defense or industrial artists.

Speaker 8: margin, you know, side of things. In your slide deck, I think you're guiding gross margins up half over half in the second half. Can you maybe speak to the puts and takes and, you know, the drivers, as you think about gross margins over the next six and nine months? Thank you.

Speaker 5: Yes, thank you for the question. Our growth margin is primarily driven by mix. If you look at the first half, first quarter performance and second quarter guide, we are very pleased with the strong growth margin performance in both the data center and the embedded segment. We have been seeing headwinds from a client segment impacting our growth margin.

Speaker 5: is also going to improve, but overall it's going to be below carbon average. So the pace of improvement of growth margins could be dependent on the pace of the client business recovery in second half.

Speaker 5: But in the longer term, when we look at our business opportunities, the largest incremental revenue opportunities are going to come from a data center and the embedded segment. So we are building very good about longer term growth margin going up continuously.

Speaker 2: Very helpful. Thank you. Thank you. Next question is coming from Aaron Reakers from Wells Fargo. Your line is now live. Yeah, thanks for taking the question. I've got two as well. I guess the first question going back on just like the cadence of the server CPU cycle with Genoa and Bergamo. And I think it's great to hear that you guys are on track to launch Bergamo here. But there's been some discussion here throughout this last quarter around some DDR5 challenges. I think there's PMEC issues. I'm just curious if those issues have presented themselves or how you would characterize the cadence of...

Speaker 4: of the ramp cycle of Genoa at this point. Yeah, sure Aaron. So yeah, look, I think Genoa, you know, we always said as we launched it that it would be a little bit more of a longer transition compared to Milan because it is a new platform. So it is the new DDR5, it's PCI Gen 5, and for many of our top customers are also doing other things.

Speaker 4: great about the set of workloads and you know we see expansion in the workloads going forward. So you know overall you know our expectation is particularly as we go into the second half, we'll see Genoa ramp more broadly but Genoa and Milan are going to coexist throughout the year just given sort of the breadth of platforms that we have. And anything specific on the DDR5 questions that come up and I'm curious that my second question is.

that we're seeing. Now as it relates to your question about MI300, look, we're really excited about the AI opportunity. I think that is success for us, is having a significant part of the AI overall opportunity. You know, AI for us is broader than cloud. I mean, it also includes what we're doing in client and embedded.

for MI300 has expanded considerably here over the last few months and we're excited about that. We're putting a lot more resources. I mentioned on the prepared remarks the work that we're doing sort of taking our zilings and sort of the overall AMD AI efforts and collapsing them into one

Oh yes, thank you. Good afternoon everybody.

Lisa, my first question, I think just the way the business has trended with enterprise and with China in the data center market being a bit softer recently and it seems like that's kind of continuing into the second quarter. It occurs to me that a big percentage of your data center business, particularly in the server in the second half of the year is going to be driven by.

If you could be a little bit more precise there, I understand there's market dynamics, but it's a bit of a vague comment. Folks have just pushed me to ask about quantifying the growth for the year. Thanks.

Sure, Matt, thanks for the question. So look, I think as we work with our largest cloud customers in the data center segments, particularly with our Epic CPUs, we have very good conversations in terms of what their ramp plans are, what their qualification plans are, which workloads, which instances.

And certainly we would like to ramp Genoa and Bergamo as a large piece given the strength of those products. We'd like to see them grow share here over the next couple of quarters. Thank you for that, Lisa. That's helpful. For my follow-up question, I think in the prepared scripts, we're obviously under shipping sell-through to clear the channel in the client business in the first half of the year. And I think the language that was used was...

Yeah, so we've been under shipping sort of consumption in the client business for about three quarters now. Certainly our goal has been to normalize the inventory in the supply chain so that shipments would be closer to consumption. We expect that that will happen in the second half of the year and that's what the comment meant that we believe that there will be improvements in the overall inventory positioning. And then we also believe that the client market is stabilizing. So Q1 was the bottom for our business as well as for the overall market. From what we see, although it will be a gradual set of improvements, we do see that the overall market should be better in the second half of the year.

We like our product portfolio a lot. I'm excited about having AI enabled on our Ryzen 7000 series. We have leadership notebook platforms with Dragon Range. Our desktop roadmap is also quite strong with our new launch of the Ryzen 7000 X3D products.

And so I think here in the second quarter, we'll still under ship consumption a bit, and by the second half of the year, we should be more normalized between shipments and consumption, and we expect some seasonal improvement into the second half.

Thanks Lisa. Thank you. Next question is coming from Joe Moore from Morgan Stanley . Your line is now live. Thank you. Yeah, I guess same question in terms of the cloud business. You mentioned cloud microservices or cloud service or cloud intelligence that you mentioned.

some combination of kind of digestion of spending and inventory reduction. Can you give us a sense of how much inventory was there in hyperscale? How much has it come down? And how much of, how much are you sort of maybe undershipping demand in that segment?

Yeah, I think, Joe, this is a bit harder because every customer is different. What we're seeing is different customers are at a different place in their overall cycle. But let me say it this way, though. I think we have good visibility with all of our large customers in terms of what they're trying to do.

for the quarter, for the year. Obviously, some of that will depend on how the macro plays out. But from our viewpoint, I think we're also going through a product transition between Milan and Genoa in some of these workloads.

If you put all those things into the conversation, that's why our comment was that we do believe that the second quarter will grow modestly and then there'll be more growth in the second half of the year as it relates to the data center business. So there's lots of puts and takes, every customer's in a bit of a different cycle, but overall the number of workloads that they're gonna be using AMD on, we do.

in that market.

Yeah, I would say, Joe, we've been at this for quite some time, so AI has been very much a strategic priority for AMD for quite some time. With MI 250, we've actually made strong progress. We mentioned the prepared remarks, some of the work that was done on the Lumi supercomputer with generative AI models. We've continued to do.

quite a bit of library optimization with MI 250 and software optimization to really ensure that we could increase the overall performance and capabilities. MI 300 looks really good. I think from everything that we see, the workloads have also changed a bit.

I think from a MI300 standpoint, we do believe that we will start ramping revenue in the fourth quarter with cloud AI customers and then it will be more meaningful in 2024.

We do believe that we will start wrapping revenue in the fourth quarter with Cloud AI customers. And then it will be more meaningful in 2024. Thank you.

Thank you. Next question is coming from Harlan, sir from JP Morgan. Your line is now live.

Hi, good afternoon. Thanks for taking my question. Good to see the strong dynamics and embedded, very diverse in markets. Given their strong market share position here, the Xilinx team is in a really good position to catalyze Epic Attach or Ryzen Attach to their FPGA and adaptive compute solutions. I think embedded x86 is a good solution.

we continue to get more content attached to the FPGAs and the adaptive SOCs. We have seen the beginnings of good traction with the cross-selling and that is an opportunity to take both Ryzen and Epic CPUs.

into the broader embedded market. I think the customers are very open to that. I think we have a sales force and a go-to-market capability across this customer set that is very helpful for that. So I do believe that this is a long-term opportunity for us to continue to grow our embedded business and we've already seen.

There appears to be this trend towards more of your cloud and harvest-gill customers, upking to do their own silicon solutions around accelerated compute or AI offload engines. Right? And if I look at it, right, there are less than a handful of the world, some even other companies that have the compute graphics connectivity, I p-portful a little bit.

you guys have as well as the capabilities to design these very complex offload SOCs, right? Does the team have a strategy to try and go after some of these semi-custom or full-blown ASIC-based hyperscale programs? We do, Harlan, and I would put it more broadly. The broader point is I think we have a very complete IP portfolio across CP...

opportunities available. So I think that combination of IP is very helpful. I think it's a long-term opportunity for us and it's one of the areas where we think we can add value to our largest customers.

Thank you, Lisa. Thanks. Thank you. Next question is coming from Ross Seymour from Deutsche Bank. Will howours be Lines of Life?

Hi, thanks Phil, let me ask a question. At least I just want to talk about the pricing environment in a general sense. You guys have done a great job of increasing the benefits to your customers and being able to raise prices, pass along, cost increases, those sorts of things. But the competitive intensity and the weakness in the market, at least currently,

seems that it could work against that. So, in the near term and then perhaps exiting this year into the next couple of years, can you just talk about where you think pricing is going to go across both your data center market, most importantly, but then also in your client market? Yeah, I think, Ross, what I would say is a couple things. You know, I think in the data center market, you know, the pricing is relatively stable.

And what that comes from is, our goal is to add more capability, right? So it's a TCO equation where as we're going from Milan to Genoa, we are adding more cores, more performance, and the performance per dollar that we offer to our customers is one where it's advantageous.

You know, we're all, from my standpoint, we're focused on normalizing the inventory levels and with that normalization, the most important thing is to ensure that we get the shipments more in line with consumption because I think that's a healthier business environment overall. And then again, it's back to product values, right? So we have to ensure that our products continue to offer.

You know, superior performance per dollar, performance per watt, you know, capabilities in the market. Thanks for that. And pivoting from my follow-up on to the AI side and the MI300, I just wanted to know what you would describe as your competitive advantages. Everybody knows that the market that's exploding right now, there's tons of...

market successfully. Yeah there's a couple of aspects Ross and since we haven't yet announced MI 300 all of the specifications you know will some of those will come over the coming quarters. You know MI 300 is the first

solution that has both the CPU and GPU together and that has been very positive for the supercomputing market. I think as it relates to generative AI and we think we have a very strong value proposition from both hardware and again it's a performance per dollar.

conversation. I think there's a lot of demand in the market and there's also I think given our deep customer relationships on the EPIC side there's actually a lot of synergy between the customer set between the EPIC CPUs and the MI you know sort of 300 GPU customers. So I think when we look at all these together our view is that

Thank you. Next question is coming from Timothy Arcuri from UBS. Your line is now live.

Thanks a lot. Lisa, there was a lot more talk on this call about AI. Obviously, PyTorch 2.0 now supporting ROCM is a great step forward, but how much would you say software is going to dictate how successful you can be for these workloads?

You had mentioned that you're forming this new group, this new AI group. Do you have the internal software capabilities to be successful in AI? Tim, I think the answer is yes. I think we have made significant progress even over the last year in terms of our software capabilities and the way you should think about our AI portfolio is it's really a broad AI portfolio across.

client, you know, sort of edge as well as cloud. And with that I think the Xilinx team brings a lot of, you know, background and capability especially in inference. We've added significant talent in our AI software as well. And, you know, the beauty of

particularly the cloud opportunity, is it's not that many customers and it's not that many workloads. So when you have very clear customer targets, we're working very, very closely with our customers on optimizing for a handful of workloads that generate significant volume. That gives us a very clear...

target for what winning is in the market. So we feel good about our opportunities in AI and I'd like to say that it's a multi-year journey. So this is the beginning of what we think is a very significant market opportunity for us over the next three to five years.

Thanks a lot. And I guess as my follow up, so can I, can you just give us a sense of sort of the overall, you know, profile that you see for revenue to the back half? I know you said that data center and embedded will be up this year. It sounds like data center, you know, probably up double digits, but I also wanted to confirm that you think that total revenue is also will be up this year.

the macro plays out across PCs and enterprise. But yes, we feel good about growth in embedded, growth in data center, on the data center side, double digit growth, sort of year over year. And then we'll see how the rest of the segments play out.

out across PCs and enterprise. But yes, we feel good about growth in embedded, growth in data center, on the data center side double digit growth year over year. And then we'll see how the rest of the segments play out. Thank you. Thanks.

Thank you. Next question is coming from Omnorshivrstava from BMO Capital Market, where Lyon is now live. I thank you very much, Nicsop. I actually wanted to come back to the first quarter for Data Center. That's a pretty big gap between on a Q or a Q basis.

on your business versus Intel and I think almost 2x. There's the first time you would have lost share on a QOQ basis in a long time. Could you please address that and I acknowledge that quadricecond be pretty volatile, but seems to be pretty large gap. And then follow up, just a reminder for the

for the full year growth for data center, kind of what's embedded in the assumptions for cloud as well as enterprise, thank you. Yeah, let me make sure I get your question, Ambersh. So you're asking about Q1 data center and whether we think we've lost share on a sequential basis? Right, if I look at just your report versus what Intel report.

totally Q&A basis. Yeah, and maybe I'll give you a little bit of color. Definitely in Q1 the other networking business including GPU have been done. That definitely is the case. But from a share perspective when we look at overall Q1 reported the revenue from both sides.

and analyze the data, we don't believe we lost a share. Yeah, that's right, Emmert. So I think you just have to go through each of the pieces, but I think from an Epic or a server standpoint, we don't believe we lost share. If anything, we might have gained a little bit.

But I think overall, I wouldn't look at it so closely on a quarter by quarter basis because there are puts and takes. From what we see overall, we believe that we have a good overall share of progression as we go through the year. And then the underlying assumptions for full year for days and?

Underlying assumptions for the full year. I think the key pieces that I talked about are Q2, let's call it modest growth, still expect some cloud optimization to be happening as we go into the second half of the year we'll see a stronger ramp of Genoa and the beginnings of the ramp of Bergamo. We think enterprise is still more

Sure. Thank you. Next question is coming from Stacey Roscoe from Burnsy Research. Your line is now live. Okay. Okay.

Hi guys, thanks for taking my questions. For my first one, Lisa, can you just like clarify this explicitly for me? So you said double-digit data center. Was that a full year statement or was that a second half year of your statement or was that a half over half statement for data center?

Yeah, let me be clear. That was a year-over-year statement. So double-digit data center growth for the full year of 2023 versus 2022. Got it. Which, just given what you did in Q1 and sort of are implying for Q2, you need something like 50% year-over-year growth in the second half to get there. So you're endorsing that now?

I am. Yeah, you're my face right. Yeah, I'll say so. Okay. Thank you. For my second question, Jean, you made a common on gross margins where you said that the increase of gross margins in the second half was dependent on gross margins in client getting better. I just want to miss you. Did I hear that right?

And why should I expect clients margins would get better, especially given what Intel has been doing in that space to protect everything? Why is that something that's going to happen?

Yes, Stacy, that's a good question. The way to think about it is if you look at our Q1 gross margin and the Q2 guide around 50%, and as you know both our data center and embedded have a very strong gross margin performance. And so what's the headwind that impacts our gross margin is really PC client on the side.

which as we talk about, we are shipping significantly under the consumption and also to digest inventory in the downstream supply chain. As you know, typically that's the time you get significant pressure on the ASP side.

and on the funding side. That's why our gross margin in the client segment has been challenged. In the second half, we know it's going to be normalized. That's a very important fact, when you normalize the demand and the supply.

We continue to plan a very competitive environment, so don't get us wrong on that front. But it will be better because you are not digesting the inventory, the channel funding, everything. Those kind of price reduction will be much less. So we do think the second half flying outside the gross margin will be better than first half. Got it. Thank you. And I apologize, I misspoke as well. I'm 50% half over half in data center, not year over year. So we are all doing it. Thank you very much.

Appreciate it. Operator, we'll take two more questions, please. Certainly. Our next question is coming from Blaine Curtis from Barc Leisure Line is now live. Hey, thanks for taking my question. I had to maybe just start with following up on Stacy's prior question. Could you just comment on what client ASPs did in the March quarter? I mean, I assume they're down a decent amount. Your competitor was down, but any color you could provide on what the environment was in March? Yeah, sure, Blaine. So, the ASPs were down.

quite a bit on a year-over-year basis if you're talking about the overall client business. And what that is is that's also the client ASPs were higher in the first half of 22 if you just think about what the supply environment was or the demand environment was in that. And given that we're under shipping in the first quarter, the ASPs are lower. Gotcha. And then I just wanted to ask you on the data center business, the operating profit is down a ton sequentially.

is that we have increased the investment significantly, especially in networking and AI. As you may recall, we closed the Panzanto last May or June , so this is the full quarter of Panzanto expenses versus the last year.

plus we also increased GPU investment and AI investment. That's all under the data center bucket. Secondly, I mentioned about product mix. Lisa said year-over-year cloud sales have grown double-digit significantly.

and enterprise actually declined. So in Q1, our revenue in data center is heavily indexed to the cloud market versus last year in Q1. Typically, cloud growth margin is lower than enterprise. We do expect even in Q2, it will be balanced, more balanced, and going forward, we do think the enterprise side will come back.

Thanks, but I guess the big decline was sequential. So I'm assuming cloud was down sequentially. Sequential, it's revenue. If you look at the revenue, it was down very significantly, right? And the mix also is a little bit more index to cloud sequentially too. Yeah, it's the same factor split.

both the mix to cloud as well as the R&D expense has increased just given the large opportunities that we have across the data center and especially AI.

Okay, thank you. Thank you. Our final question today is coming from Harsh Kumar from Piper Sandler. Your line is now live.

Hey guys, thank you for squeezing me in. Lisa, I had a question. I wanted to ask you about your views on the inferencing market for generative AI 3+. Specifically I wanted to ask, because I think there's some cross-currents going on. We're hearing that CPUs are the best way to do inferencing, but then we're hearing the timeliness of CPUs is...

right now is for generative AI and large language models, inferencing, you need GPUs to have the horsepower to train the most sophisticated models. I think those are the two, as you say, cross-currents. I think inference becomes a much more important workload.

just given the adoption rate of AI across the board. And I think we'll see that for smaller tasks on CPUs, but for the larger tasks on GPUs. Okay, so it still defers back to GPUs for those. And then similar question on the MI-300 series. I know that you talked a lot about success in the HPC side.

AI and large language models. The example that is public is what we've done with Lumi and the training of some of the Finnish models. We're doing quite a bit of work with large customers on MI 300.

And what we're seeing is very positive results. So we think MI300 is very competitive for generative AI. And we'll be talking more about sort of that customer and revenue evolution as we go over the next couple of quarters. Thank you, Nisha.

Great. Operator, that concludes today's call. Thank you to everyone for joining us. Thank you. You may now disconnect and have a wonderful day.

I have.