Q3 2023 Advanced Micro Devices Inc Earnings Call

Greetings and welcome to the a M D third quarter 2023 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.

And it's now my pleasure to introduce to you Mitch Haws, Vice President Investor Relations.

Thank you Mitch you may begin.

Thank you John and welcome to Amd's third quarter 2023 financial results Conference call by now you should have had the opportunity to review a copy of our earnings press release and the accompanying slides. If you have not had the chance to review. These materials. They can be found on the Investor Relations page of AMD Dot com.

We will refer primarily to non-GAAP financial measures during today's call and a full non-GAAP to GAAP reconciliations are available in today's press release and slides posted on our website.

Participants on today's conference call are Dr. Lisa Su, our chair and Chief Executive Officer, and Jean Hu, Our executive Vice President Chief Financial Officer and Treasurer.

This is a live call and will be replayed via webcast on our website.

Before we begin I would like to note that force know Rod Executive Vice President and General manager Datacenter business solutions unit well attend the UBS Technology Conference on Tuesday November 28.

AMD will host its advancing AI event on December 6th when a M. D N S key ecosystem partners and customers well showcase the AMD products and partnerships that will shape the advancement of AI.

That will be live streamed on our website.

Jean Hu Executive Vice President Chief Financial Officer, and Treasurer.

And the Barclays Global Technology Conference on Thursday December 7th and our fourth quarter 2023 quiet time is expected to begin at the close of business on Friday December 15th.

Today's discussion contains forward looking statements based on current beliefs assumptions and expectations speak only as of today and as such involve risks and uncertainties that could cause actual results to differ materially from our current expectations.

Please refer to the cautionary statement in our press release for more information on factors that could cause actual results to differ materially.

With that I'll hand, the call over to Lisa.

Lisa.

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

We executed well in the third quarter, delivering strong topline and bottomline growth achieving multiple milestones on our AI hardware and software roadmaps and significantly accelerating our momentum with customers for AI solutions.

In <unk> there are now more than 50 notebook designs powered by ryzen AI in market and we are working closely with Microsoft on the next generation of Windows that will take advantage of our on chip AI engine to enable the biggest advances in the windows user experience and more than 20 years.

The data center multiple large hyperscale customers committed to deploy instinct M 300 accelerators supported by our latest Broadcom software suite and the growing adoption of an open hardware agnostic software ecosystem.

Looking at the third quarter financial results revenue grew 4% year over year, and 8% sequentially to $5 8 billion driven by record server CPU revenue and strong ryzen processor sales.

Turning to the segment results datacenter segment revenue of $1 6 billion was flat year over year and up 21% sequentially as solid demand for both third and fourth Gen. Epic processor families resulted in record quarterly server processor revenue.

We gained server CPU revenue share in the quarter as fourth Gen epic CPU revenue grew more than 50% sequentially crossing over to represent a majority of our server processor revenue and unit shipments.

In cloud, while the demand environment remains mixed in the quarter epic CPU revenue grew by a strong double digit percentage sequentially as hyper scalar has expanded deployments of epic processors to power their internal workloads in public instances, while optimizing their infrastructure spend.

Nearly 100, new AMD powered cloud instances launched in the quarter from Amazon, Google, Microsoft Oracle, Tencent and others, including multiple general instances that deliver leadership performance for general purpose, HBC bare metal and memory optimize workloads.

In enterprise, while overall demand remains soft we are seeing strong indications that the significant performance and <unk> advantages of Genoa and our expanded go to market investments are paying off as enterprise revenue grew by a double digit percentage sequentially.

Operator: greetings, and welcome to the AMD 3rd quarter 2023 earnings conference call. At this time, all participants aren't a listen only mode. A brief question and answer session will follow the formal presentation.

We closed multiple new wins with leading automotive aerospace financial services pharmaceutical and technology customers and the number of enterprise customers actively testing epic platforms on prem increased significantly quarter on quarter.

Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Mitch Haws: And it is now my pleasure to introduce to you, Mitch Haws, Vice President and Vester Relations. Thank you, Mitch. You may begin.

We also expanded our fourth Gen epic processor portfolio with the launch of our Sienna processors that delivered leadership energy efficiency and performance for intelligent edge and telco applications.

Mitch Haws: Thank you, John, and welcome to AMD's 3rd quarter 2023 financial results conference call. By now, you should have had the opportunity to review a copy of our earnings press release and the company slides. If you had not had the chance to review these materials, they can be found on the investor relations page of AMD.com. We will refer primarily to non-gap financial measures during today's call and the full non-gap to gap reconciliation are available in today's press release and slides posted on our website.

Dell Lenovo supermicro, and others launch new platforms that expand our epic CPU Tam to address telco retail and manufacturing applications.

With the launch of Sienna, we now offer the industry's most performance and most energy efficient portfolio of server processors across cloud enterprise technical HBC and edge computing.

Mitch Haws: 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 Tourizer. This is a live call and will be replayed the webcast on our website. Before we begin, I would like to note that Boris Norrod, Executive Vice President and General Manager Data Center Business Solutions Unit, will attend the UBS Technology Conference on Tuesday, November 28.

I am very pleased with the momentum we have built for our epic CPU portfolio. We are building on this momentum with our next Gen turn server processors based on our news and five core that delivers significant performance and efficiency gains turn is in the labs of our top customers and partners now and customer feedback has been very strong and we're on.

Track for launch in 2024.

Looking at our broader datacenter portfolio, we made significant progress in our datacenter GPU business in the third quarter as the multiyear investments we have made in our hardware and software Roadmaps resulted in significant customer traction for our next generation instinct M 300, accelerators, and particularly our instinct <unk> 300 ex Jeep.

Mitch Haws: AMD will host its advancing AI event on December 6th, when AMD and its key ecosystem partners and customers will showcase the AMD products and partnerships that will shape the advancement of AI. The event will be live streamed on our website. Jean, who, Executive Vice President, Chief Financial Officer, and Trasurer, will attend the Barclays Global Technology Conference on Thursday, December 7.

<unk> that delivers leadership inferencing and trading performance.

Mitch Haws: And our fourth quarter of 2023 quiet time is expected to begin at the close of business on Friday, December 15. Today's discussion can be for looking statements based on current beliefs, assumptions and expectations, speak only as of today, and as such involve risks and uncertainty that could cause extra results to differ materially from our current expectations. Please refer to the cautionary statement and our press release for more information on factors that could cause extra results to differ materially.

On the hardware side bring up and validation of our <unk> 300, <unk> 300, ex accelerators continued progressing to plan with performance now meeting or exceeding our expectations.

The production shipments of instinct M 300, AAP you started earlier this month to support the <unk> extra scale supercomputer and were on track to begin production shipments of instinct, <unk> 300, ex GPU accelerators to lead cloud and OEM customers in the coming weeks.

Lisa Su: With that, I will hand the call over to Lisa. Lisa? Thank you, Mitch, and good afternoon to all those listening in today. We executed well in the third quarter, delivering strong top line and bottom line growth, achieving multiple milestones on our AI hardware and software road maps, and significantly accelerating our momentum with customers for AI solutions. In PCs, there are now more than 50 notebook designs powered by Ryzen AI in market, and we are working closely with Microsoft on the next generation of Windows that will take advantage of our on-chip AI engine to enable the biggest advances in the Windows user experience in more than 20 years.

On the software side, we further expanded our AI software ecosystem and made great progress enhancing the performance and features of our <unk> software in the quarter.

In addition to rock on being fully integrated into the mainline pipe torch and Tensorflow ecosystems hugging faced models are now regularly updated and validated to run on instinct accelerators and other supported AMD AI hardware.

AI startup Lemon I announced they achieved software parity with cuda for Llm's running on instinct mid $2 50, Gpus, enabling enterprise customers to easily deploy production ready L. L. Evans fine tuned for their specific data on instinct to 50 Gpus with minimal code changes.

Lisa Su: In the data center, multiple large hyper scale customers committed to deploy instinct MI 300 accelerators, supported by our latest Rockham software suite and the growing adoption of an open hardware agnostic software ecosystem. Looking at the third quarter financial results, revenue grew 4% year over year and 8% sequentially to 5.8 billion driven by record server CPU revenue and strong Ryzen processor sales. Curtis. Turning to the segment results, data center segment revenue of 1.6 billion was flat year-over-year and up 21% sequentially, as solid demand for both third and fourth-gen EPIC processor families resulted in record quarterly server processor revenue.

We also strengthened our AI software capabilities with the strategic acquisitions of mythology, and nod that AI.

<unk> has a long standing partner with proven expertise delivering AI software and solutions running on top of our adaptive <unk> for data center edge and embedded markets.

Not that AI adds a highly experienced team with a track record of substantial contributions to open source AI compilers and industry, leading software already used by many of the largest cloud enterprise and AI companies.

<unk> compiler based automation automation software it can significantly accelerate the deployment of highly performing AI models optimized for our instinct ryzen epic Versal and Radeon processors.

Lisa Su: We gained server CPU revenue share in the quarter, as fourth-gen EPIC CPU revenue grew more than 50% sequentially, crossing over to represent a majority of our server processor revenue and unit shipments. In cloud, while the demand environment remained mixed in the quarter, EPIC CPU revenue grew by a strong double-digit percentage sequentially, as hyperscalers expanded deployments of EPIC processors to power their internal workloads and public instances while optimizing their infrastructure spend. Nearly 100 new AMD powered cloud instances launched in the quarter from Amazon, Google, Microsoft, Oracle, Tencent, and others, including multiple general instances that deliver leadership performance for general purpose, HPC, their metal, and memory optimized workloads.

Yeah.

Based on the rapid progress, we're making with our AI roadmap execution and purchase commitments from cloud customers. We now expect datacenter GPU revenue to be approximately $400 million in the fourth quarter and exceed $2 billion in 2024 as revenue ramps throughout the year.

This growth would make M 300, the fastest product ramp to $1 billion in sales in AMD history, I look forward to sharing more details on our progress at our December AI event.

Turning to our client segment revenue increased 42% year over year, and 46% sequentially to $1 5 billion.

Sales of our Ryzen 7000 processors, featuring our industry, leading ryzen AI on chip accelerator grew significantly in the quarter as inventory levels in the PC market normalized and demand began returning to seasonal patterns.

Lisa Su: In enterprise, while overall demand remained soft, we are seeing strong indications that the significant performance and TCO advantages of Genoa and our expanded go-to-market investments are paying off as enterprise revenue grew by a double-digit percentage sequentially. We closed multiple new wins with leading automotive, aerospace financial services, pharmaceutical, and technology customers, and the number of enterprise customers actively testing EPIC platforms on-prem increased significantly quarter on quarter. We also expanded our fourth-gen EPIC processor portfolio with the launch of our Sienna processors that deliver leadership energy efficiency and performance for intelligent edge and teleco applications.

Revenue for our latest generation client Cpus powered by our Zen four core more than doubled sequentially as we saw strong demand for our ryzen 7000 series notebook and desktop processors that deliver both leadership energy efficiency and performance across a wide range of workloads.

In commercial we launched our first thread where per pro workstation Cpus based on our Zen four core that deliver unmatched performance for multi threaded professional design rendering and simulation applications.

Lisa Su: Dell, Lenovo, Super Micro, and others launched new platforms that expand our EPIC CPU-TAM to address telco, retail, and manufacturing applications. With the launch of Sienna, we now offer the industry's most performant and most energy-efficient portfolio of server processors across cloud, enterprise, technical, HPC, and edge computing. I am very pleased with the momentum we have built for our EPIC CPU portfolio. We are building on this momentum with our next gen turn server processors based on our news and five core that delivers significant performance and efficiency gains.

Dell HPE and Lenovo announced an expanded set of workstations powered by new threadbare per pro processors as we focus on growing this margin accretive portion of our client business.

Looking forward, we are executing our multi year ryzen AI roadmap to deliver leadership compute capabilities built on top of Microsoft Windows software ecosystem to enable the new generation of AI Pcs that will fundamentally redefine the computer experience over the coming years.

Yeah.

Now turning to our gaming segment revenue declined 8% year over year, and 5% sequentially to $1 5 billion as lower semi custom revenue was partially offset by increased sales of Radeon Gpus.

Lisa Su: Turn is in the labs of our top customers and partners now, and customer feedback has been very strong and we're on track to launch 2024. Looking at our broader data center portfolio, we made significant progress in our data center GPU business in the third quarter. As the multi-year investments we have made in our hardware and software roadmaps resulted in significant customer traction for our next generation instinct MI-300 accelerators. In particularly our instinct MI-300X GPU that delivers leadership inferencing and training performance.

Although semi custom Soc sales declined in line with our projections for this point in the console cycle overall revenue for this console generation continues tracking significantly higher than the prior generation based on strong demand for Microsoft and Sony consoles.

In gaming graphics revenue grew both year over year and sequentially driven by increased demand in the channel.

We expanded our Radeon 7000 series with the launch of New Rx 7000 series enthusiast desktop Gpus that offer leadership price performance for $2014 40 P gamers.

Lisa Su: On the hardware side, bring up invalidation of our MI-300A and MI-300X accelerators continued progressing to plan, with performance now meeting or exceeding our expectations. For production shipments of instinct MI-300A APUs started earlier this month to support the El Capitan Exascale Supercomputer, and we are on track to begin production shipments of instinct MI-300X GPU accelerators to lead cloud and OEM customers in the coming weeks. Groups. On the software side, we further expanded our AI software ecosystem and made great progress enhancing the performance and features of our ROCM software in the quarter.

Turning to our embedded segment as we expected revenue decreased 5% year over year to $1 2 billion.

Sequentially revenue declined 15% as lead times normalized and customers focused on reducing inventory levels.

We expanded our leadership vessel Soc portfolio in the quarter with the launches of our first adaptive soc's with unshaped HBM memory that deliver significant performance and efficiency for memory bound datacenter network test and aerospace applications.

Lisa Su: In addition to ROCM being fully integrated into the mainline pie torch and tensor flow ecosystems, Hugginspace models are now regularly updated and validated to run on instinct accelerators and other supported AMD AI hardware. AI startup Lemon Eye announced they achieved software parity with CUDA for LLMs running on instinct MI250 GPUs, enabling enterprise customers to easily deploy production-ready LLMs, fine-tuned for their specific data on instinct MI250 GPUs with minimal code changes. We also strengthened our AI software capabilities with the strategic acquisitions of Anthology and NAAD.AI.

We also announced our next generation space grade Versal <unk> Soc that integrates and enhanced AI engine is the industry's only solution that supports unlimited reprogramming during development and after deployment.

For the Fintech market, we launched our latest LVL accelerator card that delivers a seven X improvement in latency compared to our prior generation and has already been deployed by multiple trading firms and their ultra low latency training platforms.

Since closing our acquisition of Xilinx, a little over a year and a half ago, our embedded business has grown significantly driven by our leadership products.

Looking ahead based on our current visibility, we expect embedded segment revenue to decline sequentially as customers continue working through elevated inventory levels through the first half of 2024.

Lisa Su: Anthology is a longstanding partner with proven expertise delivering AI software solutions running on top of our adaptive SOCs for data center edge and embedded markets. NAAD.AI adds a highly experienced team with a track record of substantial contributions to open-source AI compilers and industry-leading software already used by many of the largest cloud enterprise in AI companies. NAAD's compiler based automation software can significantly accelerate the deployment of highly-performance AI models optimized for our instinct, rise in epic, versatile, and radion processors.

Over the medium term, we see strong growth opportunities for our embedded business based on our significant design win traction and our broad and differentiated portfolio of embedded FPGA is Cpus Gpus and adaptive sse's that can address a larger portion of our customers' compute needs.

In summary, I'm pleased with our third quarter financial results driven by the significant acceleration of Zen four server and client processor sales.

Lisa Su: Based on the rapid progress we are making with our AI roadmap execution and purchase commitments from cloud customers, we now expect data center GPU revenue to be approximately 400 million in the fourth quarter and exceed 2 billion in 2024 as revenue ramps throughout the year. This growth would make MI300 the fastest product to ramp to a billion dollars in sales in AMD history.

Looking at the next couple of quarters, we expect strong growth in our datacenter business driven by both epic and instinct processors.

This growth will be partially offset by softening demand in our embedded business and lower semi custom revenue given where we are in the console cycle.

As the PC market returns to seasonal patterns. We believe we are well positioned to gain profitable share in the premium in commercial portions of the market based on the strength of our product offerings.

Lisa Su: I look forward to sharing more details on our progress at our December AI event.

Lisa Su: Turning to our client segment, revenue increased 42 percent year-over-year and 46 percent sequentially to 1.5 billion. Sales of our rise in 7,000 processors featuring our industry-leading rise in AI on-ship accelerator grew significantly in the quarter as inventory levels in the PC market normalized and demand began returning to seasonal patterns. Revenue for our latest generation client CPUs powered by our Zen 4 core more than doubled sequentially as we saw a strong demand for our rise in 7,000 series notebook and desktop processors that delivered both leadership energy efficiency and performance across a wide range of workloads.

We are focused on accelerating our leadership AI capabilities across our entire product portfolio executing on our hardware and software roadmaps and expanding our enterprise computing footprint.

I look forward to sharing more details on our AI progress in a few weeks at our together, we advanced AI event now.

Now I'd like to turn the call over to Jim to provide additional color on our third quarter results and our outlook for Q4 Jim.

Thank you Lisa and good afternoon, everyone I'll start with the review of our financial results for the third quarter, and then provide our kind of outlook for the fourth quarter of fiscal 2023.

We de Levered by <unk> third quarter results with the revenue from <unk> 8 billion and diluted earnings per share over 70.

Lisa Su: In commercial, we launched our first thread-repper pro-workstation CPUs based on our Zen 4 core that deliver unmatched performance from multi-threaded professional design rendering and simulation applications. Dell, HPE and Lenovo announced an expanded set of workstations powered by new thread-repper pro processors as we focus on growing this margin of creative portion of our client business.

On a year over year basis revenue increased 4% as growth in the client segment revenue was partially offset by lower gaming and embedded segment correct.

Revenue was up 8% sequentially driven by growth in both the client and the datacenter segment.

Lisa Su: Looking forward, we are executing on multi-year rise in AI roadmap to deliver leadership compute capabilities built on top of Microsoft's Windows software ecosystem to enable the new generation of AI PCs that will fundamentally redefine the computing experience over the coming years. Rakers.

Gross margin was 51% up approximately one percentage point year over year, primarily driven by stronger client segment revenue and product mix.

Operating expenses were $1 7 billion, an increase of 12% year over year, primarily driven by higher R&D investment to support our significant to AI growth opportunity operating income was $1 3 billion, representing a 22% operating margin.

Lisa Su: Now turning to our gaming segment, revenue declined 8% year-over-year and 5% sequentially to 1.5 billion, as lower semi-custom revenue was partially offset by increased sales of Radeon GPUs. Although semi-custom SOC sales declined in line with our projections for this point in the console cycle, overall revenue for this console generation continues tracking significantly higher than the prior generation, based on strong demand for Microsoft and Sony consoles.

Taxes interest expense and other was 100 and a 41 million for the third quarter diluted earnings per share was <unk> 70, compared to <unk> 67 in the same period last year.

Now turning to our reportable segments.

Lisa Su: In gaming graphics, revenue grew both year-over-year and sequentially driven by increased demand in the channel. We expanded our Radeon 7000 series with the launch of new RX-7000 series enthusiast desktop GPUs that offer leadership price performance for 1440p gamers.

Looking at the data Center segment revenue was $1 6 billion flat year over year as growth in the IP could processes sales was offset by a decline in adaptive iso's product sales.

Data center revenue grow 21% sequentially, primarily driven by strong sales of our fourth generation <unk> processors to both cloud and enterprise customers.

Lisa Su: Turning to our embedded segment, as we expected, revenue decreased 5% year-over-year to 1.2 billion.

Data Center segment operating income was 306 million or 19% of revenue compared to 500 and define media all 31% a year ago.

Lisa Su: Sequentially, revenue declined 15%, as lead times normalized and customers focused on reducing inventory levels. We expanded our leadership-versal SOC portfolio in the quarter with the launches of our first adaptive SOCs with on-chip HBM memory that deliver significant performance inefficiency for memory-bound data center, network, test, and aerospace applications. We also announced our next generation space-grade virtual SOC that integrates an enhanced AI engine and is the industry's only solution that supports unlimited reprogramming during development and after deployment.

Our operating income was primarily due to increased R&D investment to support future revenue growth and the product mix.

Client segment revenue was $1 5 billion up 42% a year over year, primarily driven by higher sales of ryzen mobile processors.

On a sequential basis revenue grew 46% as PC market conditions continue to improve and we ramped our ryzen 7000 series to meet strong demand.

Lisa Su: For the Fintech market, we launched our latest Alvio accelerator card that delivers a 7X improvement in latency compared to our prior generation and has already been deployed by multiple trading firms in their ultra-low latency training platforms. Since closing our acquisition of Xylenx a little over a year and a half ago, our embedded business has grown significantly driven by our leadership products.

<unk> segment operating income was 140 million or 10% of revenue compared to operating loss of 26 million a year ago, driven by higher revenue and disciplined Opex management. We are pleased that the client segment returned to profitability in the third quarter.

Gaming segment revenue was $1 5 billion down 8% year over year, primarily due to a decrease in semi customer revenue, partially offset by increase in Raytheon GPU sales.

Lisa Su: Looking ahead, based on our current visibility, we expect embedded segment revenue to decline sequentially as customers continue working through elevated inventory levels through the first half of 2024. Over the medium term, we see strong growth opportunities for embedded business based on our significant design wind traction in our broad and differentiated portfolio of embedded FPGAs, CPUs, GPUs, and adaptive SOCs that can address a larger portion of our customers' compute needs.

On a sequential basis gaming segment revenue declined 5% in line with our expectations. As we are now in the fourth year of the console cycle gaming.

Gaming segment operating income was 208 medium or 14% of revenue compared to 100, and the 42 million or 9% a year ago, primarily driven by higher Raytheon GPU revenue.

Lisa Su: In summary, I'm pleased with our third quarter financial result, driven by the significant acceleration of Zen4 server and client processor sales. Looking at the next couple of quarters, we expect strong growth in our data center business, driven by both epic and instinct processors. This growth will be partially offset by softening to bend in our embedded business and lower semi-custom revenue given where we are in the console cycle. As the PC market returns to seasonal patterns, we believe we are well positioned to gain profitable share in the premium and commercial portions of the market, based on the strength of our product offerings. We are focused on accelerating our leadership AI capabilities across our entire product portfolio, executing on our hardware and software roadmaps and expanding our enterprise computing footprint.

Embedded segment revenue was $1 2 billion down 5% year over year, primarily due to lower sales to the communication market on a sequential basis embedded segment revenue declined 15%, primarily due to inventory correction at the customers in several end market.

Embedded segment operating income was 600, and then tell me they are 49% of revenue compared to 635 million or 49% a year ago.

Turning to the balance sheet and the cash flow during the quarter, we generated 421 million in cash from operations and free cash flow was $297 million.

In the fourth quarter, we expect to pay approximately $550 million in cash taxes, primarily due to previously before the taxes are from California disaster relief efforts made available by the IRS.

Lisa Su: Group. I look forward to sharing more details on our AI progress in a few weeks at our together-we-advanced AI event.

Jean Hu: Now I'd like to turn the call over to Jean to provide additional color on our third quarter results and our outlook for Q4. Jean? Thank you, Lisa and a good afternoon, everyone.

Inventory decreased sequentially by 122 million to $4 4 billion.

Jean Hu: I'll start with a review of our financial results for the third quality and then provide our current outlook for the fourth quality of fiscal 2023. We delivered by to the expected third quality results with revenue of $5.8 billion and a diluted earning per share of $0.70. Our year-over-year basis revenue increased 4% as growth in the client segment revenue was partially offset by lower gaming and embedded segment revenue. Revenue was up 8% sequentially driven by growth in both the client and the data center segment.

At the end of the quality of our cash cash equivalents and short term investments was strong at five 8 billion.

We returned to $500 and 11 million to shareholders repurchasing four 8 million shares and we have a 5.8 billion EV many share repurchase authorization.

Now turning to our fourth quarter 2023 outlook.

We expect revenue to be approximately $6 1 billion, plus or minus $300 million, an increase of approximately 9% year over year and 5% sequentially.

Jean Hu: Growth margin was 51%, up approximately 1% in the year-over-year, primarily driven by stronger client segment revenue and product mix. All printing expenses were 1.7 billion and increase of a 12% year-over-year. Primely driven by higher R&D investment to support our significant AI growth opportunity. Operating income was 1.3 billion, representing a 22% operating margin. Taxes, interest expense, and other was 111 million. For the third quality, diluted earning per share was $0.70 compared to $0.67 in the same period last year.

Year over year, we expect revenue for the data center and client segments to be up by strong double digit percentage that gaming segment to decline given where we are in the console cycle and the embedded segment to decline due to additional softening of demand in embedded the market.

Sequentially, we expect data center segment to grow by strong double digit percentage client segment revenue to increase in the gaming and embedded segments declined by double digit percentage.

We said that we expect non-GAAP gross margin to be approximately 51, 5% now.

non-GAAP operating expenses to be approximately $1 704 billion non-GAAP effective tax rate to be 13%.

Jean Hu: Now turning to our report both segments. Starting with the data center segment, revenue was 1.6 billion, flat year-over-year, as growth in the IPCC process sales was offset by decline in adaptive SOC product sales. Data center revenue growth 21% sequentially, primarily driven by strong sales over our fourth generation IPCC process sales to both cloud and enterprise customers. Data center segment operating income was 300 and 6 million, all 19% of revenue, compared to 500 and 5 million, all 31% a year ago.

And the diluted share count is expected to be approximately $1 63 billion shares.

In closing I am pleased with our execution in the third quarter with year over year growth in revenue gross margin and the earnings per share.

In the fourth quarter, we expect to benefit from strong data center cloud and the momentum driven by <unk> 300, AI accelerated ramp and the strengths of our high performance leadership example of famine April products. Despite the lower sales in our gaming segment and additional softening of demand in the <unk>.

Jean Hu: Lower operating income was primarily due to increased R&D investment to support future AI revenue growth and product mix. Client segment revenue was 1.5 billion, up 42% a year-over-year, primarily driven by higher sales of rising mobile processors. On sequential basis, revenue growth 46%, as PC market conditions continue to improve, and we ramped our rising 7,000 series to meet strong demand. Client segment operating income was 140 million, or 10% of revenue, compared to an operating loss of 26 million a year ago, driven by higher revenue and displaying the all-packs management.

<unk> the market.

Looking ahead the investments we are making in AI across our data center client gaming and the embedded segment.

I'll ask two all four wall for the best industries, the broadest portfolio targeting the most compelling opportunities and positioning us to drive long term profitable growth.

With that I'll turn it back to meet for the Q&A session.

Thank you Jan John we're happy to poll the audience for questions.

Thank you Mitch we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue. You May press star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, we ask that you please limit yourself to.

Jean Hu: We are pleased that the Client segment returned to profitability in the third quarter. Gaming segment revenue was 1.5 billion, down 8% a year-over-year, primarily due to a decrease in semi-customer revenue, partially offset by increase in radiance GPU sales. Us sequential basis, gaming segment revenue declined 5% in line with our expectations, as we are now in the fourth year of the console cycle. Gaming segment operating income was 208 million or 14% of revenue, compared to 142 million or 9% of year ago, primarily driven by higher RDNA GPU revenue.

One question and one follow up thank you.

Please pull for questions.

And the first question comes from the line of Toshi Hari with Goldman Sachs. Please proceed with your question.

Great. Thank you so much.

I have two questions. My first one is on the datacenter GPU business.

You talked about 24 revenue potentially exceeding 2 billion I was hoping you could provide a little bit more color.

What percentage of this is AI versus supercomputing or other applications.

With NII and maybe talk about the breadth of your customer lineup and how should we think about which workloads are addressing again within the context of AI is primarily training or inference or or both.

Jean Hu: In the year of year, primarily due to lower sales to the communication market. On sequential basis, embedded segment revenue declined 15%, primarily due to inventory correction at the customers in several end market. Embed segment operating income was 600 million or 149% of revenue, compared to 635 million or 149% of year ago.

Great. Thanks for the question. So look we've made significant progress on the overall 300 program I think we're very happy with how the technical technical milestones look and then also we've made significant progress from a customer side of your question as to how the revenue evolved so the way to think about it is in the fall.

Jean Hu: Turning to the balance sheet and the cash flow. During the quarter, we generate the 400 and the 21 million in cash from operations, and the free cash flow was 297 million. In the fourth quarter, we expect to pay approximately 550 million in cash taxes, primarily due to previously before the taxes from California disaster relief efforts made available by the RRS. Inventory decrease is sequentially by 100 and the 22 million to 4.4 billion.

Quarter, we said revenue would be approximately $400 million and that's up mostly HBC.

Some of the start of our AI ramp and then as we go into the first quarter, we actually expect revenue to be approximately similar in that $400 million range and that will be mostly AI. So with a very small piece being HBC and as we go through 2024, we would expect our revenue to continue to ramp quarterly and again.

It will be mostly AI within the AI space we've had.

Jean Hu: At the end of the quarter, cash, cash equivalence and shelterment investment was strong at the 5.8 billion. We return the 500 and the 11 million to share holders repurchasing 4.8 million shares, and we have a 5.8 billion in remanion share repurchase authorization.

Very good customer engagement across the board from Hyperscale or two Oem's enterprise customers and some of the new AI.

Startups that are out there from a workload standpoint, we would expect that 300 to be on both training and inference workloads.

Jean Hu: Now turning to our fourth quarter, 2023 outlook. We expect revenue to be approximately 6.1 billion plus or minus 300 million, and increase the overall approximately 9% year for year and 5% sequentially. Year for year, we expect revenue for the data center and the client segments to be up by strong double digit percentage.

Very where we're very pleased with the inference performance on M. I 300, so, especially for large language model influenced given some of our memory bandwidth in memory capacity and we think that's going to be a significant workload for us, but I think we would see a broad set of workloads as well as.

Broad customer adoption.

Thank you and then as my follow up question on the server CPU side, you talked about John.

Jean Hu: The gaming segment to decline, given where we are in the console cycle, and the embedded segment to decline due to additional softening of demand in the embedded market. Sequentially, we expect data center segmented to grow by strong double digit percentage, client segments revenue to increase, and the gaming and embedded segmented to decline by double digit percentage. We expect non-gabber growth margin to be approximately 51.5%, non-gabber operating expenses to be approximately 1.74 billion. Non-gab effective tax rate to be 13%, and the diluted share count is expect to be approximately 1.63 billion shares.

Genoa.

Growing really nicely in the quarter I think you talked about both units and volume being bigger than its predecessor.

Is the growth that youre seeing or the growth that you saw in Q3 and the growth that you're guiding to for Q4 is this primarily a function of of share growth or are you actually seeing a pickup in the overall market I'd ask the question because obviously year to date there has been a significant shift away from traditional computing accelerated computing, but are you actually starting to see signs of.

Stabilization or even improvement.

On the traditional compute side. Thank you.

Sure. So the way I would frame it is.

Very pleased with our third quarter performance.

As it relates to epic overall.

The fourth Gen Epic's, so that's <unk>.

<unk>, plus Bergamo actually ramped very nicely and we got to a crossover in the third quarter, which is a little bit of ahead of what we had previously forecasted and when I look underneath that I would say was a strong growth in both cloud.

Jean Hu: In closing, I'm pleased with our execution in the third quarter, with year for year growth in revenue, growth margin, and earnings per year. In the fourth quarter, we expect to benefit from strong data center, client and momentum. Driven by IMAI-300 AI accelerated ramp and the strengths of our high performance leadership sample of family for products. Despite lower sales in the gaming segment, and additional softening of demand in the embedded market. Looking ahead, the investment we are making in AI across our data center, client gaming and embedded segment and able us to offer one of the best industries broadest portfolio targeting the most compelling opportunities and positioning us to drive a long-term profitable growth.

Cloud was strong so strong double digits.

The adoption is.

Pretty broad across our first party and third party workloads and new instances and then on the enterprise side. We've also seen some nice growth across our Oems and so from the standpoint of is it the market recovery or is it share gain I think it's I think it's some of both from a market standpoint I would.

Say, it's still mixed I think enterprise is still a little bit mixed depending on which region from a macroeconomic standpoint.

It depends a bit on the customer set but overall I think we're pleased with the progress and the leadership of Epic has has ended up allow.

Mitch Haws: With that, I'll turn it back to Mitch for the Q&A session. Thank you, Jane. John, we're happy to pull the audience for questions. Thank you, Mitch.

Allowing us to grow substantially in the third quarter, and then into the fourth quarter.

And the next question comes from the line of Aaron Rakers with Wells Fargo. Please proceed with your question.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up. Thank you.

Yes. Thank you for taking the question just to build off that last question.

<unk> I think last quarter, you kind of endorsed the notion that your data center business would grow I think it was in the high single digit range. I think you started the year thinking like 10.

So I guess the question is do you still see that kind of growth rate.

Operator: One moment please will we pull for questions.

Setup.

How has that 400 million evolved underneath of that.

Toshiya Hari: The first question comes from the line of Toshia Hari with Goldman Sachs. Please proceed with your question. Great. Thank you so much. Lisa, I had two questions. My first one is on the data center GPU business. You talked about 24 revenue, potentially exceeding two billion. I was hoping you could provide a little bit more color. What percentage of this is AI versus supercomputing or other applications? Within AI, maybe talk about the breadth of your customer lineup. How should we think about which workloads you're addressing? Again, within the context of AI, is it primarily training or inference or both? Great.

Was it $300 million go into 400, just how has that changed over the course of the last quarter.

Just to level set that that data center expectations.

Yeah. So I think for the second half, we said that we expect data center business to grow approximately 50% versus the first half or right now based on what we are saying we continue to see in that is similar grandeur of that 50%. So we are very happy and pleased about the strong moment.

Most of our datacenter business.

On the GPU side, Lisa mentioned about 400 million around 400 media as we go through the quarter, we have a strong engagement with the customers and so we do see the progress continues and we see customers replacing.

Lisa Su: Thanks, Toshia, for the question. I look, we've made significant progress on the overall MI300 program. I think we're very happy with how the technical milestones look and then also we've made significant progress from a customer side. Your question has to, you know, how the revenue evolves. So the way to think about it is in the fourth quarter, we said revenue would be approximately 400 million and that's mostly HPC with some the start of our AI ramp.

And so that's why when we go through the quarter, we start to increasingly confident about the revenue.

Profile in Q4, we are guiding.

Yes.

Add to that if I can just add to that I think what we've seen we've seen is the adoption rate of our AI solutions.

Lisa Su: And then as we go into the first quarter, we actually expect revenue to be approximately similar in that, you know, 400 million range and that will be mostly AI. So with the very small piece being HPC. And as we go through 2024, we would expect revenue to continue to ramp quarterly. And again, it will be mostly AI within the AI space. We've had, you know, very, very good customer engagement across the board.

As you know has given us confidence and not just the Q4 revenue number but also sort of the progression as we go through 2024.

Yes, that's helpful and maybe just the follow up.

How would you characterize the supply side of the equation as you look at that $2 billion number do you feel confident that <unk> got adequate visibility in the supply side.

To hit those expectations.

Lisa Su: From hyper scalers to OEMs, enterprise customers, and some of the new AI startups that are out there. From a workloads standpoint, we would expect MI300 to be on both training and inference workloads. We're very pleased with the inference performance on MI300. So, especially for large language model inference given some of our memory bandwidth and memory capacity. We think that's going to be a significant workload for us. But I think we would see a broad set of workloads as well as, you know, broad customer adoption. Thank you.

Any update on that front on that side.

Sure Aaron So we we've been planning the supply chain for the last year and we're always planning for success. So certainly for the.

<unk> current forecast of greater than $2 billion, we have adequate supply, but we have also planned for supply chain forecast that could be significantly higher than that and we would continue to work with customers to build that out.

And the next question comes from the line of Joe Moore with Morgan Stanley. Please proceed with your question.

Toshiya Hari: And then as my follow-up question on the server CPU side, you talked about Genoa, you know, growing really nicely in the quarter. I think you talked about both units and volume being bigger than its predecessor.

Great. Thank you following up on the.

Data Center GPU can you talk about the breadth of <unk>.

Customers that you might see there.

It's fairly concentrated in year, one, but you also did mention multiple hyperscale.

Can you just give us a sense for how concentrated that might be.

Lisa Su: Is the growth that you're seeing, or the growth that you saw on Q3 and the growth that you're guiding to for Q4, is this primarily a function of share growth or actually seeing a pickup in the overall market? And I asked the question because obviously you're today, there's been a significant shift away from traditional computer accelerated computing. But are you actually starting to see signs of, you know, stabilization or even improvement on the traditional computer side?

Yes, sure Joe So we've been engaging broadly.

With the customer said I think I'm. The last earnings call. We said that our engagements had increased seven times and so there is a lot of interest in <unk> 300, we will start let's call. It more concentrated in cloud sort of several large hyperscale, but we're also very engaged across the enterprise and you know theres a lot of interest our partnerships with the <unk>.

Lisa Su: Thank you. Sure, so the way I would frame it is, we're very pleased with our third quarter performance as it relates to EPIC overall. I think the fourth gen EPIC, so that's Genoa plus Bergamo actually ramped very nicely. We got to a crossover in the third quarter, which is a little bit ahead of what we had previously forecasted. And when I look underneath that, I would say with strong growth in both cloud, cloud was strong, so strong double digits.

<unk> are quite strong and when we think about sort of the breadth of <unk>.

Customers, who are looking for AI solutions, we certainly see an opportunity, especially as we get.

Beyond the initial ramp to broaden the customer set.

Great and now that Youre getting a look at volume in that space can you talk about.

Are the gross margins there are going to be comparable to your other data center businesses.

Yeah. So on the gross margin side that we do expect our GPU gross margin to be accretive to corporate average.

Lisa Su: The adoption is pretty broad across first party and third party workloads, and new instances. And then on the enterprise side, we've also seen some nice growth across our OEMs. And so from the standpoint of, is it the market recovery or is it shared gain? I think it's some of both. From a market standpoint, I would say it's still mixed. I think enterprise is still a little bit mixed, depending on sort of which region it is.

Right now we're at the very very early beginning over the ramp for the product as you probably know typically when you ramp new product. It takes some time to improve yield the testing time manufacturing efficiency. So typically it take few quarters to ramp the gross margin to a normalized arrival.

Until we are quite confident our team is executing really well.

Lisa Su: And from a macroeconomic standpoint, cloud depends a bit on the customer set, but overall I think we're pleased with the progress and the leadership of EPIC has ended up allowing us to grow substantially in the third quarter and then into the fourth quarter.

Yeah.

And the next question comes from the line of Timothy Arcuri with UBS. Please proceed with your question.

Lisa I also wanted to ask about that $2 billion number for datacenter GPU next year, that's still a pretty small portion obviously of the total Tam.

Aaron Rakers: And the next question comes from the line of Aaron Rakers with Wells Fargo. Please proceed with your question. Yeah, thank you for taking the question. Just to build off that last question, Jean, I think last quarter, you kind of endorsed the notion that your data center business would grow. I think it was in a high single digit range. I think you started the year thinking like 10. So I guess the question is, do you still see that kind of growth rate setup?

Where do you think that share can go do you think when we look at this out a couple of years do you think it can be <unk> 20 per share for total data center GPU or do you have aspirations to be the motor that.

Aaron Rakers: And how has that 400 million evolved underneath of that? Has that, was it 300 million now going to 400? Just how has that changed over the course of the last quarter, you know, just to level set that data center expectations? Yeah, so I think for the second half, we said we expect data center business to grow approximately 50% versus first half right now based on what we are saying. We continue to see in that similar range of that 50%.

Yeah, Tim I mean, I would say that first of all this is a incredibly exciting market right I think we all see the growth in generative AI workloads and the fact is we're just at the very early innings of people truly adopting it for enterprise business our productivity applications. So I think we are big believers in.

The strength of the market. We had previously said we believe that.

The compound annual growth rate could be 50% over the next three or four years and so we think the market is huge and there will be multiple winners in this market certainly from our standpoint, we want to be.

Playing to win and we think 300 is a great product, but we also have strong roadmap beyond that for the next couple of generations and we would like to be a significant player in this market. So we'll see how things play out, but overall I would say that I am encouraged with the progress that we're making on hardware and so.

Aaron Rakers: So we are very happy and pleased about the strong momentum of our data center business. On the GPU side, Lisa mentioned about 400 million around 400 million. As we go through the quarter, we have a strong engagement with the customers. So we do see the progress continues and we see customers placing orders. So that's why when we go through the quarter, we start to increasingly confident about the revenue profile in Q4, we are guiding.

Software and certainly with the customer set.

Thanks, a lot and then Jim I just wanted to ask on March I know that there is a lot of moving parts. It sounds like data centers up the PUC is going to be down normal seasonal and embedded in gaming sound down as well. So can you just help us shape sort of how to think about March is it is it down a smidge is it flat could it be up a little bit.

Aaron Rakers: If I can just add to that, I think what we've seen is the adoption rate of our AI solutions has given us confidence in not just the Q4 revenue number but also the progression as we go through 2024.

And maybe then how to think about like first half back half next year. If you even wanted to go there. Thanks.

The team, we're guiding one quarter at a time.

But.

To help you with the some of the color as Lisa mentioned earlier, we said that data center GPU revenue will be flattish sequentially. That's the first thing right the mix will shift from a.

Jean Hu: Yeah, that's helpful. And maybe just the follow up, how would you care for us the supply side of the equation, you know, as you look at that two billion number, do you feel confident that you've got adequate visibility in the supply side to hit those expectations? Any update on that right on that side? Thor, Aaron, so we've been planning the supply chain for the last year and we're always planning for success.

L kept him majority late in Q4, two predominantly mall for AI in Q1, so that that because of the long lead time of manufacturing cycle, we feel like it's going to be similar level for revenue with the datacenter GPU, but in general if you look at our business that we do have a seasonality.

Jean Hu: So certainly for the current forecast of greater than 2 billion we have adequate supply, but we have also planned for supply chain forecast that could be significantly higher than that and we would continue to work with customers to build that out.

Typically Q1.

Clay on the businesses silver business gaming business's seasonally is down of policy right now we.

We definitely have a little bit of muslin seasonality given embedded in the gaming dynamics that we're seeing right now.

Silver and the client typically were down sequentially seasonally too, but overall I think we are really focused on just execution, we probably can provide a more color when we get to close to Q1, 2024, and especially Lisa. Please add if we have any color. We can provide on the whole year of 2002.

Joe Moore: And the next question comes from the line of Joe Moore with Morgan Stanley, please proceed with your question. Great, thank you. Following up on the data center GPU, can you talk about the breadth of customers that you might see there? I assume it's fairly concentrated in year one, but you also did mention multiple hyperscalers. Can you just give us a sense for how concentrated that might be? Yeah, sure, Joe. So we've been engaging broadly with the customers that I think in the last year we said that our engagements had increased seven times and so there is a lot of interest in MI300.

And therefore.

Yeah, No I think I think that covers it when we look at the various pluses and minuses I think we feel very good about the data center business.

Continues to be a strong growth driver for us as.

As we think about 2024 for both.

Ever as well as Rmi 300 clients as well, we think incrementally improves from a market standpoint, as well as we believe we can gain share given the strength of our product portfolio and then we have the headwinds of embedded in the inventory correction that will go through in the first half and the console cycle. So I think those are.

Joe Moore: We will start, let's call it more concentrated in cloud, you know, it's sort of several large hyperscalers, but we're also very engaged across the enterprise and there's a lot of interest in our partnerships with the OEMs are quite strong.

Lisa Su: And when we think about, you know, it's sort of the breadth of customers who are looking for AI solutions, you know, we certainly see an opportunity, especially as we get, you know, beyond the initial ramp to broaden the customer set. Great, and now that you're getting the look at volume and that space, can you talk about the gross margins there are going to be comparable to your other data center businesses? Yeah, so on the gross margin side, we do expect our GPU growth margin to be a creative to corporate the average.

The puts and takes.

And our next question comes from the line of Vivek Arya with Bank of America. Please proceed with your question.

Hello, Thanks for taking my question Lisa on the M 300, many of your Hyperscale customers.

Internal ASIC solutions ready are in the process of getting them ready. So it influences the primary workloads for <unk> 300.

Lisa Su: Of course, right now we're at a very, very early beginning over the ramp over the product. As you probably know, typically when you ramp new product, it takes some time to improve yield testing time manufacturing efficiency. So typically it takes your quarters to ramp the gross margin to a normalize the level, but we are quite confident our team is executing really well.

Do you think it is exposed to replacement by internal Asics over time or do you think both of them at 300 and Asics can coexist.

Along.

With the incumbent GPU solution.

Yeah, I think when we look at the set of AI workloads going forward, we actually think they are pretty diverse I mean, you have.

Sort of the you know the large language model training and inference. Then you have what you might do in terms of fine tuning.

Timothy Arcuri: And the next question comes from the line of Timothy or Corey with UBS, please proceed with your question. Lisa, I also wanted to ask about that $2 billion number for data center GPU next year. That's still a pretty small portion, obviously, of the total time.

Off of our foundational model and then you have you know let's call it straight influenced what you might.

Do there so I think within that framework, we absolutely believe that I'm I 300 has a strong place in the market and that's what our customers are telling us and we're working very closely with them. So.

Lisa Su: Where do you think that you think when we look at this out a couple of years, do you think you can be 15 20% share for total data center GPU or do you have aspirations to be the larger than that? Yes, Tim. I mean, I would say that first of all, this is a incredibly exciting market, right? I think we all see the growth in generative AI workloads and the fact is we're just at the very early innings of people truly adopting it for enterprise, you know, business, a productivity application.

Yes, I think there will be other solutions, but I think for the particularly for the <unk> I think gpus are going to be the processing of choice and and then my three hundreds are very very capable.

Got it and then.

A question Lisa on just this interplay between AI and traditional computing.

It seems like especially when it relates to Asps and units.

Lisa Su: So I think we are big believers in the strength of the market. We previously said we believe that the compound annual growth rate could be 50% over the next three or four years. And so we think the market is huge and there will be multiple winners in this market. Certainly from our standpoint, we want to be, you know, we're playing to win and we think MI 300 is a great product, but we also have strong roadmap beyond that for the next couple of generations.

Server CPU maker or is that kind of holding the line on price for core but at the same time the cloud players about extending the depreciation and replacement cycles of traditional server Cpus. So I'm just curious to get your take what do you think is the interplay between units and ASP.

If you were to take a snapshot of what you have seen in <unk> and how it kind of informs you as you look at 'twenty forward that is it is it possible that.

Lisa Su: And we would like to be a significant player in this market. So we'll see how things play out, but overall I would say that I am encouraged with the progress that we're making on hardware and software and certainly with, with the customer set. Thanks a lot.

Maybe unit growth in servers is not that high but you were able to make up for it on the ESP side. So just give us some color on what is happening to traditional computing deployment and secondly is there a difference in kind of the unit and ASP integrate on the silver CPU side.

Jean Hu: And then, Jean, I just wanted to ask on March. I know that there's a lot of moving parts. It sounds like data centers up, but T.C, is going to be down, normal seasonal and embedded in, you know, gaming sound down as well. But can you just help us shape sort of how to think about March? Is it, is it down as mage? Is it flat? Could it be up a little bit? And maybe then how to think about like first half back half next year, if you've even wanted to go there, thanks.

Yeah, I think it's a it's a good point vivek. So I mean, if I take a look at 2023 I think it's been a mixed environment right. There was.

Good amount of let's call it.

Our caution in.

In the overall server market there was a bit of inventory digestion at some of the <unk>.

Cloud guys and then some optimization going on with enterprise again somewhat mixed.

Lisa Su: The team we're guiding one quarter time. But, you know, just to help you with the summer for the color, as Lisa mentioned earlier, we said the data center GPU revenue will be flatish sequentially. That's the first thing, right? The mix will shift from LCEP10, majority lay in Q4 to predominantly model for AI in Q1. So that's that because of the long lead time manufacturing cycle. We feel like it's going to be similar level for revenue with the data center GPU.

I think as we go forward, we've returned to growth in the server CPU market within that realm because.

These like for example.

Fourth Gen epic somewhere between 96 to 128 quarters. I mean, you just got a lot of compute for that so I do think there is the framework that unit growth may be more modest but.

ASP growth given the core count and the compute capability.

We'll will contribute to overall growth so from a traditional server CPU standpoint, I think we do see those trends 2023 was a mixed environment and I think it improves as we go into 2024.

Lisa Su: But in general, if you look at our business, we do have a seasonality typically Q1, the client, the business server business gaming business seasonally is down. Of course, right now, we definitely have a little bit more than seasonality given embedded and the gaming dynamics we are seeing right now. Silver and the client typically would down sequentially seasonally to, but overall, I think we are really focused on just execution.

And the next question comes from the line of Blayne Curtis with Barclays. Please proceed with your question.

Thanks for taking my question I wanted to ask something embedded side I think last quarter, you kind of talked about the headwinds being mostly in the communications end market Youre getting it out in December I was curious.

If that weakness in spread and then your competitor talks about kind of a reset getting back to pre pandemic levels I'm just kind of curious how you frame that reset you said it would be weak in the first half.

Lisa Su: We probably can provide a more color when we get close to Q1 2024. And especially Lisa, please add, if we have any color, we can provide on the whole year 2024. Yeah, no, I think I think that covers it. You know, when we look at the various causes and minuses, I think we feel very good about the data center business, you know, continues to be a strong growth driver for us, you know, as we think about 2024 for both, you know, server as well as our MI 300 client as well, we think incrementally improves from a market standpoint as well as we believe we can gain share given out the strength of our product portfolio. So, and then we have the headwinds of embedded in the inventory correction that will go through in the first half and the console cycle. So I think those are the puts and takes.

Yeah, absolutely Blayne, so I think when we look at end markets I think communications.

It was we can.

Sort of last quarter and it certainly continues to be weak and we see <unk> sort of Capex just down overall.

On the other market, where we see a little bit of let's call. It soft end market demand would be industrial and that's a little bit more geographic so a little bit worse in Europe than in other geographies.

Other end markets are actually.

Relatively good.

And what we just see as that inventory is high just given where we were with lead times coming into sort of through the pandemic and with the high demand that was out there as the lead times have normalized you know people are drawing down their inventories and they have an opportunity to do that given the normalization so from an overall.

Vivek Arya: And our next question comes from the line of Vivek Arya with Bank of America, please proceed with your question. Thanks for taking my question. Lisa, on the MI 300, many of your hyper scalar customers have internal ASIC solutions ready or in the process of getting them ready. So if inference is the primary workload for MI 300, do you think it is exposed to replacement by internal ASICs over time or do you think both MI 300 and ASICs can coexist along with the incumbent GPU solution?

Endpoint, we think demand is solid and.

What we view is that we have a very strong portfolio of embedded we like sort of the combination of the let's call. It the classic xilinx portfolio to go together with the embedded processing capabilities that we add customers have seen.

Sort of that portfolio come together and we've gotten some nice design win traction as a result of that so we have to get through sort of the next couple of quarters of inventory.

Vivek Arya: Yeah, I think for that, you know, when we look at the set of AI workloads going forward, we actually think they're pretty diverse. I mean, you have, you know, sort of the, you know, the large language model training and inference, then you have, you know, what you might do in terms of, you know, fine tuning off of a foundational model, and then you have, you know, let's call it straight inference, what you might do there.

Correction and then we believe we'll return to growth in the second half of the year.

Thanks, and then I just wanted to ask on the PC market I think you and Intel I've seen you're under shipping in the first half maybe you're kind of over shipping a little bit now restocking I'm just kind of curious of your perspective of what that normal normalized run rate is in terms of the size of the PC market and.

Vivek Arya: So I think within that framework, we absolutely believe that MI 300 has a strong place in the market, and that's, you know, what our customers are telling us and we're working very closely with them. So, you know, so yes, I think there will be, you know, other solutions, but I think for the, particularly for the LLMs, I think, you know, GPUs are going to. NPV, Processing of Choice, and MI300s, very, very capable.

Kind of any perspective, if inventory levels are starting to move back up.

Yeah, I would say again, when we look at sort of the third quarter and sort of the environment that we're on now I think inventory levels are relatively normalized and so.

Vivek Arya: Got it.

The selling and consumption R. R.

Are fairly close.

We're building up for holiday season that is a strong season for us overall, when I think about the size of the market I think from a consumption standpoint. This year is probably somewhere like 250 to 255 million units or so we expect.

Lisa Su: And then a question Lisa on just this interplay between AI and traditional computing. You know, it seems like, especially when it relates to ASPs and units, it seems like server CPU makers are kind of holding the line on price per core, but at the same time the cloud players are extending the depreciation and replacement cycles of traditional server CPUs. So I'm just curious to get your take. What do you think is the interplay between units and ASP?

Some some growth going into 2024, as we think about sort of the IPC cycle and some of the windows refresh cycles that are out there and I think the PC market returns to let's call. It a typical seasonality and which underneath that we have a strong product portfolio and we are very much focused on growing in.

Lisa Su: If you were to take a snapshot of what you have seen in 23, and how it kind of informs you as you look at 24, that is a possible that maybe unit growth in servers is not that high, but you are able to make up for it on the ASP side. So just give us some color on, you know, one, what is happening to traditional computing deployments? And secondly, is there a difference in kind of the unit and ASP interplay on the server CPU side?

Places like high end gaming Ultra thins.

Our premium consumer as well as commercial so those are that's.

So where do we see the PC market.

And the next question comes from the line of Matt Ramsay with TD Cowen. Please proceed with your question.

Thank you very much good afternoon.

Lisa Su: Yeah, I think it's a good point, Vivek. So, I mean, if I take a look at 2023, I think it's been a mixed environment, right? There was, you know, good amount of, let's call it, you know, a caution in the overall server market. There was a bit of inventory digestion at some of the cloud guys and then some optimization going on with enterprise, again, somewhat mixed. I think as we go forward, you know, we've returned to growth in the server CPU market within that realm because, you know, these, you know, like, for example, you know, fourth gen Epic somewhere between 96 and 128 cores.

Lisa I wanted to.

Lisa Su: I mean, you just get a lot of compute for that. So I do think there is the framework that, you know, unit growth may be more modest, but, you know, ASP growth, you know, given the core count and the compute capability, you know, will contribute to overall growth. So from a traditional, you know, sort of server CPU standpoint, I think we do see those trends. 2023 was a mixed environment and I think it improves as we go into 2024.

Maybe maybe ask the question a little bit differently, not just focused on.

Your GPU portfolio, but.

More broadly I think one of the.

Big surprises to a lot of us.

How quickly the AI market changed from from accelerator cards to selling full servers or full system.

For your primary competitor and they've done a lot of innovation not just on GPU, but on CPU on their own custom interconnect et cetera, So what I'd like to hear a little bit of an update on is just how you think about your roadmap going forward across.

CPU, GPU and networking and particularly in the networking part.

Look to continue to advance your AI portfolio. Thanks.

Yeah. Thanks, Matt I think it's an important point, what we're seeing with these AI systems is they are truly.

Truly complicated when you think about putting all these components together.

Certainly working very closely with our partners and putting together sort of the full system Cpus Gpus as well as the networking capability. Our <unk> acquisition has actually been really helpful. In this area.

Blayne Curtis: And the next question comes from the line of Blaine Curtis with Barclays. Please proceed with your question. Thanks for the second question. I want to ask the embedded side. I think last quarter, you kind of talked about the headwinds being mostly in the communications end market. You're going to get down in December. I'm curious, you know, if that weakness is spread and then your competitor talked about kind of a reset getting back to pre-pandemic levels.

We have a world class team of experts in this area and we're also partnered with some of the.

Blayne Curtis: They're just going to curious how you frame that reset. You said it'd be weak to the first half. Yeah, absolutely blaine. So I think when we look at end markets, I think communications, you know, was a week in, you know, sort of last quarter, and it certainly continues to be weak. We see, you know, 5G, you know, sort of CapEx, just down overall. On the other market where we see a little bit of, you know, let's call it soft end market demand would be industrial and that's a little bit more geographic, so a little bit worse in Europe than in other geographies.

The networking ecosystem overall, so going forward I don't think we're going to sell full systems, let's call. It AMD branded systems. We believe that there are others, who are more set up for that but I think from a definition standpoint, and when we're doing development. We're certainly doing development with the notion of what that full system will look like and what.

Work very closely with our partners to ensure that that's well defined so that it's easy for customers to adopt our solutions.

Got it thank you for that perspective.

Second question, Jean I wanted to dig into gross margin a little bit and I'm, just I guess complement you and the team on being able to guide up for the fourth quarter sequentially gross margin if we do I.

Blayne Curtis: The other end markets are actually, you know, relatively good. And what we just see is that inventory is high. Just given where we were with lead times, you know, coming into, you know, sort of through the pandemic and with the high demand that was out there. As the lead times have normalized, you know, people are drawing down their inventories and, you know, they have an opportunity to do that given the normalization.

I guess rewind the clock back to the beginning of the year and the embedded segment would be down from the peak to where youre guiding the fourth quarter, maybe down by a third.

I wouldn't have thought gross margin would have hung in there as well and grown sequentially each quarter through the year, obviously client margins got better, but maybe you could walk us through some of the puts and takes on gross margin and inside of each segment, where youre, making progress because I imagine some of that progress was pretty positive underneath.

Blayne Curtis: So from an overall standpoint, you know, we think demand is solid and, you know, what we view is that we have a very strong portfolio embedded. You know, we like, you know, sort of the combination of the, let's call it the classic Xilinx portfolio together with the embedded processing capabilities that we add. Customers have seen sort of that portfolio come together and we've gotten some nice design wind traction as a result of that.

Yeah, Matt and thank you for the question Yeah. There are a few puts and takes especially in a mixed demand environment.

Can you just comment on Q3 first year.

We are very pleased to lead to our gross margin expansion sequentially 140 basis points.

Lisa Su: So, we have to get through sort of the next couple of quarters of inventory correction and then we believe will return to growth in the second half of the year. Thanks.

As you mentioned is bad as segmented revenue actually declined at double digit sequentially. There are two primary drivers. So the first one is definitely the datacenter accrual of 21% sequentially, which you provide a tailwind to our gross margin secondly.

Blayne Curtis: And then I just wanted to ask on the PC market, you know, I think you and Intel have seen, you know, you were undershipping the first half, maybe you're kind of overshipping a little bit now, restocking. I'm just kind of curious your perspective of what that normal normalized run rate is in terms of the size of the PC market and kind of any perspective if inventory levels are starting to move back up.

As we go through the inventory correction and TC market, we did encounter some headwinds in this client segment. The gross margin and in Q3, we saw very significant improvement with our client segment. The gross margin I think going forward at the pace of the overall client on the second one the improvement that will moderate.

Blayne Curtis: Yeah, I would say again, Blaine, when we look at sort of the third quarter and sort of the environment that we're on now, I think inventory levels are relatively normalized. And so, you know, the selling and consumption are fairly close. You know, we were building up for a holiday season that is a strong season for us overall. When I think about the size of the market, I think from a consumption standpoint this year is probably somewhere like 250 to 255 million units or so.

But it will continue to drive the incremental gross margin improvement in client segment. So that really is why we are.

Able to drive a sequential growth in Q3 and in Q4, I would say the major dynamics.

Very strong double digit growth.

Data center business, we definitely have the tailwind, which more than offset the embedded segment to decline sequentially double digits again, I think that going forward. It's really makes that primarily makes it easy.

Blayne Curtis: So we expect, you know, some some growth going into 2024 as we think about, you know, sort of the AIPC cycle and some of the windows refresh cycles that are out there. And I think the PC market returns to let's call it a typical seasonality in which underneath that we have a strong portal portfolio. And we are, you know, very much focused on growing in places like, you know, high end gaming, ultra-thin, you know, premium consumer, as well as commercial. So those are, that's how, you know, sort of we see the PC market.

Driving our gross margin but.

We feel pretty good about second half next year, when we can expand the datacenter significantly and especially in that segment to start to recover.

We should be able to drive a more meaningful gross margin improvement in second half.

Yeah.

And the next question comes from the line of Ross Seymore with Deutsche Bank. Please proceed with your question.

Matt Ramsey: And the next question comes from the line of Matt Ramsey with TD Cowan. Please proceed with your question. Thank you very much.

I wish I had a question on 300 side of things when you go to market. Obviously, there's been shortages this year of GPU accelerators.

Lisa Su: Good afternoon. Lisa, I wanted to maybe ask the AI question a little bit differently, not just focused on your GPU portfolio, but more broadly. I think one of the big surprises to a lot of us is how quickly the AI market change from from accelerator cards to selling full servers or full system for your primary competitor. And they've they've done a lot of innovation, not just on GPU, but on on CPU on their own custom interconnect, et cetera.

So a second source is definitely needed, but beyond just providing that second source rule can you just walk us through some of the competitive advantages that the customer list that youre going to talk about on the six is finding to be so attractive relative to your primary competitor.

Yes, I think Theres a couple of different things Ross I mean, if we start with is just a very capable product. The way. It's designed from a triplet standpoint, we have a very strong compute as well as memory capacity in memory bandwidth.

Influenced in particular, it's very helpful and the way to think about it is on these largest language models you can't fit the model on one GPU you actually need multiple Gpus and if you have more memory you can actually use fewer gpus to infer those are those are those models and so it's very beneficial from a total cost of ownership standpoint.

Lisa Su: So what I'd like to hear a little bit of an update on is just how you think about your roadmap going forward across CPU GPU and networking and particularly the networking part as you look to continue to advance your AI portfolio. Thanks. Yeah, thanks Matt. I think it's an important point. What we're seeing with these AI systems is, you know, they are, you know, truly, you know, complicated when you think about putting all of these components together.

From a software standpoint, this has been perhaps the area, where we've had to invest more and do more work.

Lisa Su: We are, you know, certainly working very closely with our partners in putting together, you know, sort of the full system CPU GPUs, as well as the networking capability. Our pencil acquisition has actually been really helpful in this area. I think we have a world class team of experts in this area, and we're also partnered with some of the networking ecosystem overall. So, you know, going forward, I don't think we're going to sell full systems.

Our customers and partners are actually moving towards an.

An area where there.

More able to move across different hardware so.

Really optimizing at the higher level frameworks, and that's reducing the barrier of entry of.

Sort of taking on a new solution and we're also talking very much about going forward. What the roadmap is it's very similar to our epic evolution. When you think about sort of the.

Lisa Su: Let's call AMD branded systems. You know, we believe that there are others who are more set up for that. But I think from a definition standpoint, and when we're doing development, we're certainly doing development with the notion of what that full system will look like. And, you know, we'll work very closely with our partners to ensure that that's well defined so that it's easy for customers to adopt our solution. Thank you for that perspective.

Our closest partners in the cloud environment, we've worked very closely to make each generation better. So I think 300 is an excellent product and we'll keep evolving on that as we go through the next couple of generations.

Then for my follow up on the focus on the Opex side of things you guys have kept that pretty.

Pretty tight.

The years, Jean I, just wondered what the puts and takes on that might be heading into 2024, I think you're exiting this year at about.

Jean Hu: As my second question, Gene, I wanted to dig into Gross Margin a little bit and just I guess compliment you and the team on being able to guide up for the fourth quarter, sequentially Gross Margin, if we to, I guess, rewound the clock back to the beginning of the year and the embedded segment would be down from the peak to where you're guiding the fourth quarter maybe down by a third. I wouldn't have thought Gross Margin would have hung in as well and grown sequentially each quarter through the year.

High single digits, maybe 10% year over year any sort of unique puts and takes especially as you guys are driving for all of that amount 300 success.

We think about Opex generally in 2024.

Yeah. Thanks for the question our team has done an absolutely great job the E reallocating resources within our budget envelope to really invest in the most.

Jean Hu: Obviously quiet margins got better but maybe you could walk us through some of the puts and takes on Gross Margin and inside of each segment where you're making progress because I imagine some of that progress is pretty positive underneath. Thanks. Yeah, Matt, thank you for the question. Yeah, there are a few puts and takes especially in a mixed demand environment. So let me just comment on Q3 first. We are very pleased with our Gross Margin expansion sequentially 140 basis of point.

Important areas in AI in the data center, we are actually in the planning process for 2024, I can comment on it very high level given tremendous opportunities that we have in AI in the data center, we definitely will increase both R&D investment and the go to market investment too.

Dress or those opportunities I think the way to think about it. He said our objective is to drive topline revenue growth much faster than opex growth So our investment.

Jean Hu: As you mentioned, the embedded segment revenue actually declined double digits sequentially. There are two primary drivers. The first one is definitely the data center, 21% sequentially, which provide the tailwind to our Gross Margin. Secondly, as we go through the inventory correction in TC market, we did the encounters and hide the ones in the client segment of Gross Margin. And in Q3, we saw very significant improvement with our client segment of Gross Margin.

Can drive long term growth and we also can leverage our operating model to really actually expand earnings much faster than revenue.

That's really how we think about running the company and they are driving the operating margin expansion.

And the next question comes from the line of harsh Kumar with Piper Sandler. Please proceed with your question.

Yeah, Hi, Lisa I had a strategic one for you and then somewhat of a tactical one on the strategic side.

Jean Hu: I think going forward the pace of client segment improvement will moderate but we will continue to drive incremental Gross Margin improvement in client segment. So that really is why we are able to drive sequential gross in Q3. And in Q4, I would say the major dynamics is very strong double digit gross data center business. We definitely have the tailwind which more than offset the embedded segment decline sequentially double digit again. I think going forward, it really makes the primary makes the driving out gross margin.

As your key competitor is sort of getting their act together on the manufacturing technology and the nodes.

Would it not be feasible to think that their manufacturing costs could be significantly better, let's say than that of yours.

So if that's the case down the line a year or two years out I'm curious what kind of value add offerings with AMD.

Provided to a customer to keep the market share that you have in the server space data Center space, and then keep that growing as well.

Yeah harsh.

Maybe I should just take a step back and just talk about sort of the the.

<unk> that we have with our data center customers. When we think about sort of the the epic portfolio and what we've been able to build over the last few generations and what we have going forward with gen five and beyond.

Jean Hu: But we feel pretty good about your second half next year when we can expand the data center significantly and especially embedded segment start will recover. We should be able to drive more meaningful gross margin improvement in second half.

Process technology is only one piece.

Of the of the optimization, it's really about process technology packaging were leading sort of the usage of triplets and and two and a half D and three D integration.

Ross Seymore: And the next question comes from the line of Ross Seymour with Deutsche Bank. Please proceed with your question. Hi, Lisa. I had a question on the MI300 side of things. When you go to market, obviously, there's been shortages this year of GPU accelerators. And so a second source is definitely needed.

And then when you go to architecture and design. So it's really the holistic product and from a pricing standpoint actually price is only one aspect of the conversation much of the conversation is on how much performance can you give me at what efficiencies. So from a from an overall efficiency standpoint, I think we've developed a fantastic products.

Lisa Su: But beyond just providing that second source role, can you just walk us through some of the competitive advantages that the customer list that you're going to talk about on the six is finding to be so attractive relative to your primary competitor? Yeah, I think there's a couple of different things Ross. I mean, if we start with is, you know, it's just a very capable product. You know, the way it's designed from a chiplet standpoint, we have, you know, very strong compute as well as memory capacity and memory bandwidth in inference in particular, it's very helpful.

Our working closely with our customers to ensure that we continue to evolve.

Our overall portfolio. So I think from an from a value added standpoint. It is providing the best T. C. O is what what our customers are looking for and that's where our roadmap is headed.

Going forward I think having the CPU GPU. The FPGA is the Gpus I think it gives us actually a nice portfolio to really optimize not just on a single component basis, but on sort of all of the different workloads that you need in the data center.

Lisa Su: And the way to think about it is, you know, on these largest language models, you can't fit the model on one GPU. You actually need multiple GPUs. And if you have more memory, you can actually use fewer GPUs to infer those models. And so it's very beneficial from a total cost of ownership standpoint. From a software standpoint, you know, this has been perhaps the area where we've had to, you know, invest more and do more work.

Very helpful. Lisa and then for my follow up.

A lot of folks that we talk to you now think that compute game is shifting completely from Cpus Gpus. So it was actually very encouraging to hear you talk about your core epic Cpus and the traction that youre seeing with the new generation of <unk>.

Lisa Su: Our customers and partners are actually moving towards an area where they're more able to move across different hardware. So, you know, really optimizing at the higher level frameworks. And, you know, that's reducing the barrier of entry of, you know, sort of taking on a new solution. And we're also talking very much about, you know, going forward what the roadmap is. It's very similar to our epic evolution. When you think about, you know, sort of the, you know, our closest partners in the cloud environment, we've worked very closely to make each generation better. So, I think MI300 is an excellent product and we'll keep evolving on that as we go through the next couple of generations.

Cpus so.

I'm curious if I was to ask you. How you think the long term growth prospects for the next call. It two to three to four years, our CPU business not the GP with the CPU business I am curious what the answer would be.

Yeah, So look I'm, a big believer in you need all types of compute in the data center, especially when you look at the diverse set of workloads.

A lot of excitement around AI and we are very much a clear that that is the number one priority from a growth standpoint going forward, but the epic CPU business, we feel like we have consistently gained share.

Jean Hu: For my follow-up on the focus on the OPEX side of things, you guys have kept that pretty tight over the years. Jean, I just wondered what the puts and takes on that might be heading into 2024. I think you're exiting this year at about a kind of high single digits, maybe 10 percent year over year. Any sort of unique puts and takes, especially as you guys are driving for all that MI300 success, as we think about OPEX generally in 2024.

Throughout the last few years and even with that.

Still underrepresented in large portions of the market right. We're underrepresented in enterprise we've seen some nice.

Our sequential growth and a nice prospects there, but theres a lot more we can do in enterprise and we're still we're still underrepresented in cloud third party workloads, which.

That's it's a you have to sell through the cloud manufacturers. So.

Jean Hu: Thanks for the question. Our team has done absolutely great job in relocating resources within our budget envelope to really invest in the most important areas in AI and the data center. We are actually in the planning process for 2024. I can comment on a very high level, given tremendous opportunities we have in AI and the data center, we definitely will increase both R&D investment and the go-to-market investment to address those opportunities.

Overall, we feel good about our epic leadership and also our go to market efforts that will help us continue to grow that business in 2024 and beyond.

Operator, we have time for two more questions.

Okay and the next question comes from the line of Stacy <unk> with Bernstein Research. Please proceed with your question.

Hey, guys. Thanks for taking my questions first I wanted to just dialed in on the Q4 guidance.

You're all going to grow data center, 50% half over half.

Jean Hu: I think the way to think about it is our objective is to drive top-line revenue growth much faster than OPEX growth. Our investment can drive long-term growth and we also can leverage our operating model to really actually expand earnings much faster than revenue. That's really how we think about the running the company and the driving the operating margin expansion.

And I assume client is up sequentially unemployed gaming in gaming and embedded both likely down sequentially in the 20% range I know you said double digits.

Is that right.

As to especially for embedded.

What does that mean going forward into next year I know you said, it's going to be weak in the first half does that mean I mean is it stable at these levels or does it continue to decline.

Through the first half until things stabilize this how do we think about that in the context of the guidance that you've given for Q4.

Yeah sure Stacy let me, let me take that and then Jim I had a.

Harsh Kumar: And the next question comes from the line of Harsh Kumar with Piper Sandler. Please proceed with your question. Hi Lisa, I had a strategic one for you and then somewhat of a tactical one. On the strategic side, as your key competitor is sort of getting their act together on manufacturing technology and the notes, would it not be feasible to think that they manufacturing costs could be significantly better, let's say, than that of yours.

A few comments so without getting very specific.

Harsh Kumar: And so if that's the case down the line a year or two years out, I'm curious what kind of value add-off things would AMD have to provide to a customer to keep the market share that you have in the service space, data center space, and then keep that growing as well.

I would say I think your comments about data center and client are correct and then from an embedded and gaming standpoint, we would say embedded.

Think about it down similar levels sort of in the teens compared to.

Sort of Q3 was down in the teens in Q4 will be down in the teens.

And then gaming from a console standpoint, we do expect that to be down a bit more than that.

Then as we go into Q1 again without being.

There are lots of things that need to happen, we would expect that both gaming and embedded would be down into into Q1, as well and and sort of the other comments would be more around seasonality.

Lisa Su: Yeah, Harsh, maybe I should just take a step back and just talk about sort of the engagement that we have with our data center customers. When we think about sort of the epic portfolio and what we've been able to build over the last few generations and what we have going forward with Zen5 and beyond, process technology is only one piece of the optimization. It's really about process technology, you know, packaging, we're, you know, leading sort of the usage of chiplets and, you know, two and a half D and 3D integration.

Does that help.

That does help thank you.

For my follow up I wanted to ask you about gross margin. So I know that <unk> been expanding through the year, but for the full year they are actually down.

And I get the mix things and everything else, but as I look into next year.

Like how do I think about this because it sounds like embedded is going to be pretty weak next year client needs whether it be a data center is growing but it does feel like even if the.

The Gpus are accretive they are not accretive yet and it's going to take them, a while to get to be accretive.

Lisa Su: And then when you go to architecture and design, so it's really the holistic product. And from a pricing standpoint, actually price is only one aspect of the conversation. Much of the conversation is on how much performance can you give me at what efficiency? So from an overall efficiency standpoint, I think we've developed fantastic products. We are working closely with our customers to ensure that we continue to evolve our overall portfolio. So I think from a value added standpoint, it's providing the best TCO is what, you know, what our customers are looking for and that's where our roadmap is headed.

How much do you think you can expand gross margins year over year like in 24 versus 23, given given the trends that we are entering the year.

Yeah, Hi, Stacy I'll say the first thing is that if you look at 2023, it's a very unusual year for the industry right.

Especially the PC market, it's one of the worst downcycle in during the last three decades, so doing that kind of a downcycle definitely we had headwinds on gross margin side on our clay on the business.

We have made significant progress in Q3 and Q4 in second half or.

Lisa Su: You know, going forward, I think having the CPU, the GPU, the FPGAs, the DPUs, I think it gives us actually a nice portfolio to really optimize, you know, not just on a single component basis, but on, you know, sort of all of the different workloads that you need in the data center.

Going into next year the mix it primarily is the driver.

Our gross margin the way to think about it. He said the datacenter is going to be the largest incremental revenue contribute here next year and then they did both gaming and embedded facing continue the sequential.

Lisa Su: Data Center. Very helpful, Lisa. And then, from my follow-up, a lot of folks that we talked to, you know, things that compute game shifting completely from CPUs to GPUs. So it was actually very encouraging to hear you talk about your core Epic CPUs and the action that you're seeing with a new generation of CPUs. So I'm curious if I was to ask you, you know, how you think the long-come growth prospects for the next college, two to three to four years are for your CPU business, not the GPU, the CPU business.

The sequential decline I think it's all about the mix. We do expect next year will improve gross margin versus the 2023, and especially second half. So that's how we think about the right now.

Okay.

Our final question comes from the line of Christopher Roland with Susquehanna. Please proceed with your question.

Thanks for the question.

Lisa Su: I'm curious what the answer would be. Yeah, so look, you know, I'm a big believer and you need all types of compute in the data center, especially when you look at the diverse set of workloads. Yeah, there's a lot of excitement around AI and we are, you know, very much, you know, clear that that is the number one priority from a growth standpoint going forward. But the Epic CPU business, you know, we feel like we've consistently gained share, you know, throughout the last few years.

There wasn't a article suggesting that you guys could be interested in doing some harm based cpus.

I guess I'd I'd love any thoughts that you have there on that architecture for PC.

But also apples or M. Three out now it seems pretty robust Qualcomm has are.

Actually new chip it was rumoured and video might be doing that as well.

Would love your expectations for this market and what does that mean for the Tam for AMD moving forward.

Lisa Su: And even with that, you know, we're still underrepresented in large portions of the market, right? We're underrepresented in enterprise. We've seen some, you know, nice sort of sequential growth and nice prospects there, but there's a lot more we can do in enterprise. And we're still underrepresented in cloud third-party workloads, which, you know, again, it's a, you have to sell through the cloud manufacturers. So I think overall, we feel good about our Epic leadership and also our go-to-market efforts that will help us continue to grow that business in 2024 and beyond.

Yes sure Chris Thanks for the question so look.

The way, we think about arm arm as a as a partner in many respects. So we use arm throughout parts of our portfolio I think as it relates to Pcs.

X 86 is still the majority of the volume in Pcs and if you think about sort of the ecosystem around X 86 and.

Windows I think it is.

It's been a very robust ecosystem.

Most excited about in Pcs is actually the AIP see I think the IPC opportunity is an opportunity to redefine what pieces are in terms of productivity tool and really sort of operating on sort of user data and so I think we're at the beginning of a wave there we're investing heavily in <unk>.

Stacy Raskin: Operator, we have time for two more questions. Okay, and the next question comes from the line of Stacey Raskin with Bernstein Research. Please proceed with your question. Hi guys, thanks for taking my questions. First, I wanted to just like dial in on the Q4 guidance. If you are going to grow data center 50 percent half over half, and I assume client is up sequentially, it implies gaming and gaming and embedded both likely down sequentially in the 20 percent range.

And AI and the opportunity to really broaden.

The AI capabilities of Pcs going forward and I think that's where the conversation is going to be about it's going to be less about.

Stacy Raskin: And I know you said double digits, but is that right? And if that is true, especially for embedded, what does that mean going forward into next year? I know you said it's going to be weak in the first half. Does that mean that it's stable at these levels? Or does it continue to decline through the first half until things stabilize? Just how do I think about that in the context of the guidance that you've given for Q4?

Instructions that youre using in more about what experience are you delivering to customers and you know from that standpoint.

We have a very exciting portfolio that that Ah I feel good about over the next couple of years.

Thank you Lisa.

And one quick one on FPGA for the data center in particular that was a really cool fintech win I understand that.

Jean Hu: Yeah, sure, Stacey. Let me take that and then Dean might add a few comments. So without getting very specific, I would say, I think your comments about data center and client are correct. And then from an embedded and a gaming standpoint, we would say embedded, think about it down similar levels, sort of in the teens, compared to Q3 was down in the teens and Q4 will be down in the teens. And then gaming from a console standpoint, we do expect that to be down a bit more than that.

Can you talk about where we stand in datacenter FPGA in that outlook.

PGA for AI.

And could we even mix in an FPGA into the M 300 tile at some point or is there really at this point not not an AI market for FPGA.

Yeah, I mean, Chris the way I think about sort of their ppas in the datacenter that's another compute element.

Jean Hu: And then as we go into Q1, again, without being there are lots of things that need to happen, we would expect that both gaming and embedded would be down into Q1 as well. And sort of the other comments would be more around seasonality. Does that help?

We do use FPGA is a or there are <unk> in a number of the systems I would say from a revenue contribution standpoint, it's still relatively small.

In the.

Sort of in the near term we have.

Stacy Raskin: That does help. Thank you.

Some design wins going forward that we would see that content grow but that won't be so much in 2024 that it will be beyond that and part of our value proposition I think to our data Center partners is look whatever compute element you need whether it's cpus or gpus are at Ppas or DPA.

Jean Hu: For my follow-up, I want to ask about gross margins, so I know that they've been expanding through the year, but for the full year, they're actually down. And I get the mixed things and everything else, but as I look in the next year, like how do I think about this, because it sounds like embedded going to be pretty weak next year. Client is what it is, data centers growing, but it does feel like even if the GPUs are creative, they're not a creative yet, and they're going to take them a while to get to be a creative. Like how much do you think you can expand gross margins year? It feels a year like in 24 versus 23, given the trends that we have entering the year.

Use or we have the ability to sort of bring those components together and that is a strong point as we think about just how heterogeneous. These datacenters are going forward. So.

Thank you for that.

At this time, we have a question and answer session and I would like to turn the floor back over to Mitch for any closing comments.

Jean Hu: Hi Stacy, I'll say the first thing is if you look at 2023, it's very unusual year for the industry, especially the PC market. It's one for the worst down cycle during the last three decades. So during that kind of a down cycle, definitely, you know, we had high winds on gross margins side on our client business, which we have made a significant progress. In Q3 and Q4 in second half, going into next year, the mix primarily is the driver of our gross margin.

Great John that concludes today's call. Thank you to everyone for joining us today.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

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Jean Hu: The way to think about it is the data center is going to be the largest incremental revenue contribute to your next year, and then both gaming and embedded facing, you know, continue the sequential decline. I think it's all about the mix. We do expect next year. We will improve gross margin versus 2023, especially second half. So that's how we think about it right now.

Christopher Rolland: And our final question comes from the line of Christopher Roland with Susquejana. Please proceed with your question. Thanks for the question. There was an article suggesting that you guys could be interested in doing some arm based CPUs. I guess I'd love any thoughts that you have there on that architecture for PC, but also Apple has their M3 out now. It seems pretty robust. Qualcomm has an excellent new chip. It was rumored in video might be doing that as well.

Christopher Rolland: Would love your expectations for this market. And what does that mean for the TAM for AMD moving forward? Yeah, short Chris. Thanks for the question. So look, you know, the way we think about arm, you know, arm is a partner in many respects. So we use arm, you know, throughout parts of our portfolio. I think as it relates to PCs, you know, X86 is still the majority of the volume in PCs. And, you know, if you think about sort of the ecosystem around X86 and Windows, I think it's, you know, it's been a very robust ecosystem.

Lisa Su: What I'm most excited about in PCs is actually the AI PC. I think the AI PC opportunity is an opportunity to redefine what PCs are in terms of productivity tool and, you know, really, you know, sort of operating on, you know, sort of user data. And so I think we're at the beginning of a wave there. We're investing heavily in rise in AI and the opportunity to really broaden, you know, sort of the AI capabilities of, you know, PCs going forward.

Lisa Su: And I think that's where the conversation is going to be about. It's going to be less about, you know, what instructions that you're using and more about what experience are you delivering to customers. And, you know, from that standpoint, I think that we have a very exciting portfolio that that, you know, I feel good about over the next couple, of Years.

Lisa Su: Thank you, Lisa.

Unknown Executive: And one quick one on FPGA for the data center in particular. It was a really cool Fintech win. I understand that.

Lisa Su: Can you talk about where we stand in data center FPGA and that outlook FPGA for AI? And could we even mix in an FPGA into the MI300 tile at some point? Or is there really at this point not an AI market for FPGA? Yeah, I mean, Chris, the way I think about sort of FPGAs in the data center, it's another compute element. You know, we do use FPGAs, or there are FPGAs in a number of the systems.

Lisa Su: I would say from a revenue contribution standpoint, it's still relatively small in the sort of in the near term. We have, you know, some design wins going forward. That we would see that content grow, but that won't be so much in 2024 that it will be beyond that. And part of our value proposition, I think, to our data center partners is, look, whatever compute element you need, whether it's CPUs, or GPUs, or FPGAs, or DPUs, or we have the ability to sort of bring those components together. And that is a strong point as we think about, you know, just how heterogeneous these data centers are going forward.

Unknown Executive: So thank you for that.

Operator: At this time, we have reached the end of the question and answer session.

Mitch Haws: Now let's turn the floor back over to Mitch for any closing comments. Great, John, that concludes today's call. Thank you to everyone for joining us today.

Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.