Q2 2019 Earnings Call
Greetings and welcome to the advanced micro devices second quarter 2019 earnings conference call at this time, all because penetrate listen only mode.
Question 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.
My pleasure to introduce your host Walgreens. Please go ahead.
Thank you and welcome to M.D. second quarter 2019 conference call.
By now you should have had the opportunity to review a copy of our earnings release and slides.
If you have not reviewed these documents they can be found on the Investor Relations page of MTS website, <unk> Dot com.
Participants on today's conference call are Dr., Lisa Su, our President and Chief Executive Officer, and Devinder Kumar, Our senior 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 highlight some important dates for you.
Andy will officially launch our second generation epic datacenter CPQ on Wednesday August seven.
On Tuesday August 27th Forest neuron Senior Vice President and General manager of our data Center and embedded solutions group will present at the Jefferies 2019, semiconductor hardware and communications infrastructure summit in Chicago.
On Tuesday September 10th Devinder Kumar Senior Vice President Chief Financial Officer, and Treasurer will present at the Deutsche Bank Technology Conference in Las Vegas.
And on Friday September 13th 2019, our third quarter quiet time is expected to begin at the close of business.
Today's discussion contains forward looking statements based on the environment as we currently see it.
Those statements are based on current beliefs assumptions and expectations.
Speak only as of the current date and as such involve risks and uncertainties that could cause actual results to differ materially from our current expectations.
We will refer primarily to non-GAAP financial measures during this call except for revenue and segment operational results, which are on a GAAP basis.
The non-GAAP financial measures referenced today are reconciled to their most directly comparable GAAP financial measure in today's press release, which is posted on our website.
Please refer to the cautionary statements in our press release for more information you will also find detailed discussions about our risk factors in our filings with the FCC and in particular and these quarterly report on Form 10-Q for the quarter ended March Thirtyth 2019.
Now with that I'd like to hand, the call over to Lisa.
Thank you Laura and good afternoon to all those listening in today.
We made history in the second quarter, both as the first company to simultaneously launch high performance Gpus end Gpus and the first to ramping seven nanometer high performance processors across PC gaming and the data center.
I am extremely pleased with our execution in the quarter as we wrapped production on rising 3000, Gpus Radiata 5700, Gpus and early volumes of our second generation epic processors in advance of their third quarter launch.
Looking at the second quarter revenue of 1.53 billion increased 20% sequentially driven by growth across both of our business segments.
Revenue declined 13% year over year in line with our expectations as client and server processor revenue increases were offset by lower graphics channel and semi custom revenue.
Turning to our computing and graphics segment revenue declined 13% year over year, a significantly higher client processor sales were offset by lower graphics channel sales.
Mobile client processor revenue increased by a double digit percentage year over year and sequentially driven by our highest quarterly unit shipments in five years.
In desktop, we launched our industry, leading rising to 3000 processors, featuring our news Gen. Two core to overwhelmingly positive customer response.
Numerous third party reviews highlighted the superior performance of our seven nanometer rises gpus in both multi threaded and single threaded applications, while consuming less power than competitive offerings.
Right. The 3000 processor customer demand has been very strong with sales at global E Tailers and retailers outpacing our previous generations of rising by more than three times at the same point following their respective launches.
Based on the market response to our latest mobile and desktop processors and the growing number of M.D. powered commercial and consumer Pcs, we expect to gain share in the high volume back to school and holiday periods.
In graphics revenue decreased year over year, driven largely by lower channel sales, partially offset by a significant increase in data center GPU sales.
P. P revenue increased by a double digit percentage sequentially driven by increased channel sales of our Rx 500 series Gpus and the launch of our Radiata 5700 family.
The radio and 5700 series with our new our DNA architecture delivers up to 1.5 times more performance per watt compared to our previous generation.
Initial demand for our new Gpus has been strong as third party reviewers have highlighted our leadership gaming performance at relevant price points.
We are well positioned for growth in the second half of the year as we continue to ramp our radio on 5000 GPU family.
We had another quarter of strong year over year data center, GPU sales growth driven largely by HPC and cloud wins.
We continue making progress expanding this margin accretive part of our business based on our strategy to focus on working closely with marquee customers.
We also announced a strategic partnership in the quarter with Samsung to bring radio and graphics to their future smartphone and mobile associates.
The partnership showcases our strategy to engage with industry leaders across the ecosystem to drive radian everywhere.
We now have deep partnerships across the PC game console cloud and mobile markets that contributed to a growing developer ecosystem and installed base for radio and graphics architecture.
Turning to our enterprise embedded and semi custom segment revenue decreased 12% from a year ago due to lower semi custom revenue.
In semi custom we have extended our game console leadership as both Microsoft and Sony have now both announced they will use custom A.M.D.S. So sees the power their next generation game consoles.
We're very proud to power back to back generations of the world's highest performing game consoles.
As we look into the second half of the year, we are seeing additional softness and game console demand, which is now reflected in our full year guidance.
In server CP revenue grew significantly year over year and sequentially driven by initial shipments of our next generation rone processors to lead cloud and OEM customers.
First generation epic processor based cloud deployments continued to increase in the quarter.
Amazon expanded availability of its epic processor powered instances to more than 15 regions and dozens of new configurations.
And Microsoft launched general availability of its Azure H.B. supercomputing virtual machines that for the first time ever enable customers to run demanding HPC workloads in the cloud.
Turning to our next generation Rome server processor role is on time and exceeding expectations delivering leadership performance and T. C O across a significantly expanded number of cloud and enterprise workloads.
Customer excitement continues to grow.
Compared to our first generation epic processors, we have more than twice the number of platforms in development with a larger set of <unk> partners.
We also have four times more enterprise and cloud customers actively engaged on deployments prior to launch.
As a result roam is on track to ramp significantly faster than our first generation epic processor.
We are seeing particular strength in HPC, where we offer leadership compute density and Io.
We had multiple supercomputer wins in the quarter, including public announcements from Indiana University, and Norway's National Research network.
Our supercomputing momentum was highlighted by the U.S. Department of energy and Oak Ridge National Laboratory, selecting both epics Gpus and radio on instinct Gpus to power their next generation frontier extra scale supercomputer built by Craig.
Frontier is expected to be the world's fastest computer when it launches in 2021.
We look forward to providing more details on Rome at our launch events on August seven.
In summary, as we complete the first half of 2019, we have reshaped significant inflection point for the company as we enter our next phase of growth with the most competitive product portfolio in our history.
We have seen some uncertainties across our supply chain driven by terrorists create concerns and the U.S. entities list.
In the second quarter, we stopped shipping to customers added to the U.S. entities list.
While we remain cautious given the fluidity of the situation the impact to date has been limited and offset by growing momentum in other parts of our business.
We are executing well to our plans and see a path to significant market share gains for product portfolio across the PC gaming and data center markets in the coming quarters.
Now I'd like to turn the call over to the vendor to provide some additional color on our second quarter financial performance.
Thank you Lisa and good afternoon, everyone. We are pleased with the financial results for the first half of 2019, which provides a solid foundation for the second half of the year.
Second quarter revenue of 1.53 billion grew 20% over the first quarter.
Gross margin of 41% increased four percentage points from the prior year driven by the ramp of our strong portfolio of high performance products.
Quarterly revenue was down 13% from a year ago strong sales hold ryzen and epic processors, and our new read Dion Rx 5700, Gpus will more than offset by lower semi custom sales and lower graphics channel sales associates that bid block chain.
Operating expenses grew 10% year over year to 512 million driven primarily by go to market activities and new product introductions.
Operating income was $111 million down from 186 million a year ago, primarily due to lower revenue and higher operating expenses.
Operating margin plus 7% down from 11% a year ago.
Net income was 92 million compared to 156 million a year and a goal and diluted earnings per share was eight cents per share compared to 14 cents per share a year ago.
Now turning to the business segment results computing and graphics segment revenue was $940 million down 13% year over year has strong client process sales were more than offset by lower overall graphic sales due to negligible block chain related revenue in the second quarter of 2019.
Computing and graphics segment operating income was 22 million compared to 117 million a year ago, primarily due to lower revenue.
In the enterprise embedded and semi custom segment revenue was 591 million down 12% from the prior year.
Semi custom revenue was slow and partially offset by significant growth in data center CPQ revenue.
He has CE segment operating income was 89 million compared to 69 million a year ago, the improvement plus largely due to growth in data center CPQ revenue.
Turning to the balance sheet, our cash cash equivalents and marketable securities totaled 1.1 billion at the end of the quarter.
Year over year, we have reduced gross debt by $392 million and in the second quarter. We also replaced our asset backed loan facility with a 500 million secured revolving line of credit.
Free cash flow was negative 28 million in the quarter, while cash flow from operations was 30 million.
Inventory was $1 billion up 16 million sequentially, primarily due to increased inventory off our new seven nanometer products in anticipation of accelerating product sales in the back half of the year.
Adjusted EBITDA was 163 million compared to 228 million a year ago due to lower quarterly earnings.
On a trailing 12 month basis, adjusted EBITDA was 672 million and gross leverage at the end of the quarter was 1.9 times.
Turning to the outlook for the third quarter Oftwenty 19.
We expect revenue to be approximately 1.8 billion plus or minus 50 million, an increase of approximately 9% year over year and 18% sequentially.
The sequential and year over year increases I expect it to be driven by rising have picked can review on product sales, partially offset by lower than expected semi custom sales.
In addition for Q3 2019, we expect non-GAAP gross margin to be approximately 43% non-GAAP operating expenses to be approximately 525 million non-GAAP interest expense taxes and other to be approximately 30 million and third quarter diluted share count is expected to be approximately 1.21 billion shares.
For the full year, we now believe revenue will increase mid single digit percent over 2018, driven by significant sales growth of our new ryzen epic and review on processors, partially offset by lower than expected semi custom revenue.
Revenue, excluding semi custom is expected to increase approximately 20% year over year.
Full year non-GAAP gross margin is expected to be approximately 42%.
In closing we had a strong first half of 2019, we remain focused on executing to our plans for the remainder of the year.
And look forward to ramping our new ryzen and Raytheon products as well as the upcoming launch of fuel.
With that I'll turn it back to Laura for the question and answer session Laura.
Thank you defender operator, we're ready for our first question. Please.
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One moment, please while we pull for questions.
Our first question today is coming from Mitch Steves from RBC capital markets. Your line is now live.
[noise] Hello.
Hi, Mitch as Laura the team from A.M.D., we are ready for you.
Oh, yes, sorry. So my question is really just twofold number one first on the gross margin side.
So you guys are talking about semi custom coming down pretty materially and that's kind of the entire reason for the I guess the.
Hi, mid single digit growth number so why I guess aren't the gross margins expanding a little bit more if you're seeing more traction on the server side.
Well I think I think if you look at it from an overall standpoint in Q2, we did 41% in the third quarter and at all 21% gross margin and then Q3 Youre right with the decline in semi custom holiday's benefit to the margin and the margin guide for Q3 is that approximately 43% I can tell you that you know the richer product mix, especially with the new products ramping in Q3 are going to drive the gross margin. Although there is a benefit from the decline of semi custom also the margin benefit is more weighted towards the towards the non semi custom business and that's where we end up with a 43% in Q3. We've also updated our call guidance for 2019, and now are projecting 42% for the year.
2019.
Right, Yes, I guess just to follow up on that so the assumption there is that by the end of 19, you guys have more share on the server side. So I guess just high level. If I assume that 2020 gross margins are going to start going up as well TJ. If you keep gaining share in server is that a fair assumption for for the next till the next year or so.
I think what I would say as you know we're very pleased with the progress we have made on the margin and pending 19, the product mix continues to get richer and we'll see as we get closer to 2020 in terms of the specifics, but youre right. The product mix does get better so and even in the other businesses, including the client business as the product mix being richer benefits to margin.
Okay perfect. Thank you.
Thank you. Our next question is coming from the Victoria from Bank of America. Your line is now live.
Hi, Thanks for taking my question and good to see the attraction and the new products.
Lisa for my first question I was wondering if you could give us some more color around on the traction you are seeing in Rome, both from if you're able to quantify it somewhat but importantly.
No traction you're seeing with customized weather.
That is any pricing pressure from your main competitor.
And I think in the past you had outlined targets to treat certain market share. Just you know now that product is out in front of customers. How are you seeing that traction, but been bought the cloud on the enterprise side.
Yeah, absolutely the that thanks for the question. So look we are very pleased with how growth is coming up we we did ship initial shipments this past quarter in the second quarter to both cloud and enterprise customers. The feedback that we're getting from customers is that the performance is a very compelling both from a performance standpoint, as well as a total cost of ownership standpoint, we've gotten a number of wins on both the cloud and the enterprise side as well as HPC no from our standpoint.
Next week is up a big week for US obviously, we're going to officially launch from on August seven.
But from a customer pull standpoint, we see good customer pull out your question, specifically about the pricing environment.
The pricing environment is always competitive we expected it to be competitive.
That being the case in servers price is not the first the first variable in terms of a buying decision and so we believe the value proposition that we have for Rome from a overall standpoint is very strong and we see a good a good pricing environment for that.
Thanks, Lisa as my follow up on the quantification side I think in the last quarter, you had given us some color around.
Data centres, CPU and GPU kind of around that mid teens as a percentage of sales I was hoping you could give us some sense of what it was in Q2 and just what the outlook is for 2019 or or the second half.
Yes. Thank you.
Oh, yes, so I'm in the second quarter. The percentage is similar to the last few quarters in terms of percentage of our business wheel were more heavily weighted towards GPU versus GPU in the second quarter. So we saw a data center GPU sequentially declined as expected the sheep use grew as expected as we go into the second half of the year you should expect that the percentage of our revenue through the data center will increase as a as we ramp from.
Thank you.
Thank you. Our next question is coming from Toshiba hearing from Goldman Sachs. Your line is now live.
Great. Thanks, so much for taking the question.
Lisa obviously, it seems like you're making a lot of progress.
What's wrong way or at least the initial feedback continues to be very positive.
That said the overall hyperscale environments seems.
Pretty slow based on based on commentary from from your peers and your customers I guess could that impact the ramp in the second half is that a concern for you going forward.
Hi, Bill.
Sure. So long yeah, we certainly have 'em have heard the same conversation, especially around the cloud environment in the first half of the year. Our plan was always very heavily second half weighted and from our standpoint, we have seen a significant customer engagement and pull a for the wrong product and we see a number of new installations that will come online over the next couple of quarters. So.
No I agree I believe that there is some cloud digestion that's happening out there I also believe that no given where we are from the product cycle standpoint, we are well positioned to grow.
Got it and then as a follow up.
I was hoping to learn a little bit more about.
The partnership with Samsung the VIP win in the quarter and also.
Frontier on the HPC side, just from a modeling perspective, how should we think about those two.
Deals if you will over the next couple of years and Andy accretion to channel. Thank you.
Sure. So look we're very pleased with both they're both very significant announcements for us on the Samsung. So it's a multi year multi generational no deal that we have 'em across our graphics portfolio for mobile in terms of 2019. The the revenue is approximately 100 million that would be added. This is this was not originally in our guidance and offset some of the headwinds that we talked about in and semi custom and.
And China as it as it's not pure IP. Those are the way you should think about it is there. There is some specific development expenses that are being that are part of that that deal and so those will be part of the the cogs portion of that as it relates to frontier Frontier. You know again very very significant deal for us. It is NRT for the next couple of years to really get the software infrastructure I would say that's not material. It's a it's a a relatively smaller number and then the the actual deployment will be in 2021, so the bulk of the CPU and the GPU revenue will be in 2021.
With me a small portion of that perhaps in the second half of 2000 2020.
Thank you.
Thank you. Our next question is coming from Matt Ramsay from Cowen and company. Your line is now live.
Thank you very much good afternoon.
Yes, I think we'll be hearing plenty about next week.
Some questions about your PC business.
I'm going into the back half of the year.
Got momentum seems there.
Book Space.
Intel is obviously going on so it's a 10 nanometer for a portion of that portfolio.
Seems to seven nanometer refresh on your side is a little bit later.
Got the SKU coverage, you've talked about I think is 50% higher than it was last year for back to school and holiday. So maybe you could talk a little bit about the momentum in the PC business into the back half and differences between what you might see in desktop and notebook. Thank you.
Yeah for Matt. So we are we're pleased with the progress of our PC business now in the second quarter, we had a notebook perform very well we saw a ramp up our second generation mobile product and yeah that is.
Due to some of the additional platforms that we mentioned going into the second half of the year.
On the desktop side, our third generation rising products are very well positioned.
We expect to ramp significant production here in the third quarter, and we expect that to lead to a share gains and we're also yeah feeling quite good about the the mobile products into the second half of the year, we made progress on both consumer and commercial Oh, No. We had always been strong in consumer but on the commercial side, we have a number of new platforms as well and those are wrapping here into the second half of the year. So overall I think the PC business continues to be a good opportunity for us to gain share through the second half of the.
Got it. Thank you and then as a quick.
A follow up for me.
Couple of things for for dividend or I Wonder if you might talk about the margin or gross margin differential between some of the new seven nanometer products that you're rolling out versus.
Some of the.
<unk> products.
12, or 14, just so we can get an understanding of magnitude.
And before you take that just congrats on.
Cash positive for the company overall even.
Yeah portable.
Okay, Yeah. So on the margin side, the new products as we have said previously nags again greater than 50% margin and so as we launch new products in particular on the seven nanometer node those are accretive and that's why you see us updating the guidance in terms of the margin, but just for the quarter in Q3, but also for the year and from that standpoint, as the product mix got richer with more seven nanometer.
Products ramping that should benefit the gross margin.
Thank you.
Thanks, Matt.
Thank you. Our next question is coming from Hans Mosesmann from Rosenblatt Securities. Your line is now live.
Thanks, guys and congrats on the execution with the seven nanometer.
Hey, Lisa are you guys constrained in terms of seven nanometer at TSMC.
Uh Huh, yes, so up we do have a number of products ramping at a TSMC in seven nanometer and we're not constrained per se.
I will say that cycle times of seven nanometer or longer and so it just takes more time to ramp up but we are not a constraint TSMC has supported us quite well.
Great and can you give us a sense. If you can on seven nanometer high end, Navi and and mobile seven nanometer cpms.
Oh, Hi did you ask the a the the good product questions I would say they are coming you should expect that our execution on on those are on track and you know we have a a rich seven nanometer portfolio beyond the products that we have currently announced I'm in the upcoming quarters.
Okay. Thank you.
Thank you. Our next question is coming from Mark what pieces from Jefferies. Your line is now live.
Oh, hi, Thanks for taking my question.
Lisa you you have a lot of things working for you at a you got room rise in the GPU portfolio, where are you seeing the biggest upside surprise on the feedback that you were getting relative to your original expectations.
[noise] Oh, yeah, So look Mark I think.
I think all products have really performed quite well I think the [laughter] third generation ryzen desktop or both in terms of the reviews third party reviews as well as just the customer interest now what we see is you obviously, it's only been in market for three weeks and so you know we watched the data points very carefully but across the globe. We're seeing you know sort of significant uptick in our share.
In a in the desktop market I think navias come out positioned very well, where we're very pleased with our our DNA architecture. You know an obvious the first step and we have you know a couple of more steps going and then we'll talk much more about epic next week.
I think the key thing is you know the <unk> products have been you know on schedule and no at or above the performance. So you know our goal is of course to turn that into a revenue growth in the second half of the year.
Yeah, that's great color thinking that follow up if I may you mentioned the Gen five game console wins at Microsoft and Sony.
Can you give us a sense here when do these start to ramp when they ramp do you book the revenues that you build inventory as you did the previous generation and is there going to be do we think about anything differently on the gross margin profile or is it going to be similar to what you had in the past on on on these things. So just some color on the Gen. Gen. Five game console. Thank you.
Sure. So smart work, we're proud of the wins at Sony and Microsoft those are big wins for us and as you know over many years.
Yeah, We got we can't comment on specific customers in their ramp profiles of the only thing I will say is you can expect that you know in general consumer ramps are second half weighted especially weighted towards the holiday season. So you would expect that and then as it relates to the gross margin profiles.
With our semi custom business model I think the margins.
We'll be under the corporate average however, our business model is actually quite different if you look forward to our business model the up the growth that we see across all of our other products you know ryzen epic radio on is actually quite significant and so the percentage of semi custom as a percent of the overall business will be lower than you know for example in the last last few years.
That's very helpful. Thank you.
Thank you. Our next question is coming from Stacy Rasgon from Bernstein Research. Your line is now live.
Hi, guys. Thanks for taking my questions. My first one I want to follow up on that second half gross margin question again, I want to put some numbers behind that.
So you're guiding 43% for Q3 your implied guidance for Q4 s 43 person or maybe a little under.
It's only up about a 160 bips year over year and slots sequentially, but you're guiding Q4 revenues up over 50% a year over year.
And counsel seems to be falling like 40% to 50% sequentially. So the mix must be massively switching over to the new products.
Then in aggregate have gross margins over 50%, while gross margins only being guided up like 160, Bips a year over year in Q4.
Given that kind of a revenue trajectory going why are the only flat sequentially, even with revenues growing over 20% cequent quarter quarter into Q4, I just I don't understand yeah. Stacy Let me start and then you know maybe a devinder can add to it. So look you know, we we guide approximately to us.
The full.
Marketing point, what you should expect as we go from Q3 to Q4 is that the product mix will get better show a we will expect a more new products and Ah you know from the standpoint of semi custom semi custom will be down sequentially Q3 to Q4, and so you should expect that we are we're not implying that the margin will be down.
In Q4, and you know well, we'll get to the Q4 guide as we as we get through the next 90 days.
Okay for my follow up the $100 million from Samsung Good your 20% year over year growth, excluding that semi custom include that $100 million that wasn't in the prior guidance and what is the impact on the gross margins at that Samsung revenue as well.
Yeah. So the the Samsung you know additional revenue is included as part of the 20% year on year and it offset some weakness that we have.
I'm in a in China due to the the entities list adds to the gross margin profile for that you can expect that to be somewhat above corporate average.
Bob so somewhat over a low 40.
Somewhat above corporate average, okay and it doesn't look when you click on thank you very much I appreciate it.
Thanks Becky.
Thank you. Our next question is coming from Aaron Rakers from Wells Fargo. Your line is now live.
Yeah. Thanks for taking the question I have one question and a follow up as well just building on that last kind of question I think last the last couple of quarters Youve talked about your semi custom business being down somewhere in the 20% plus range. It looks like by my math. Your assumption now is that that business declines maybe as much as 40 plus percent and so when you parse through that you kind of factor in the Samsung.
Relationship and an incremental 100 million revenue has your has your estimate at all changed ex those items.
Meaning revenue ex.
Ex the semi custom decline and then also ex the 100 million Samsung.
Yes, So let me try to help you Aaron with with that math. So local originally when we started the year, we thought semi custom would be down let's call it approximately 20%.
In the first half of the year it was down more than that and based on what we see today, we would expect a full year now to be down let's call. It mid thirtys a year on year. If you talk about now the rest of the business I think the rest of the business is is close to a two hour, where we thought it would be close plus or minus you know you know a couple of percent and if you think about all of the moving pieces. We do have some customers that were not shipping to in China. You know that is offset by you know the Samsung upside up and the new products and how they are coming in so I think we are pretty close plus or minus to where we thought we would be you know ex those factors.
Okay. That's very helpful. And then you know did you just looking at your product segmentation I'm curious of how you.
Think about the trajectory of the data center GPU business going forward.
Obviously I can appreciate that could be lumpy, but I'm just trying to understand how you see that is there is there a point in time, where we can actually get some better visibility into that incremental growth driver a revenue stream going forward. Thank you yeah, not yeah I think that's a that's a fair comment it is a little bit lumpy you know because of its size and its a fairly concentrated in a couple of customers I will say that we're going to see very nice year over year growth. This year and you know we see good customer momentum across both cloud as well as HPC I'm on the cloud side. It is both yeah, let's call it cloud streaming slush gaming as well as machine learning and on the HPC side, you know the frontier when it's a public win but we have a number of others that we're working as well. So yeah. I think we will give more color as we go forward, but it continues to be a business that we feel will be a good growth driver I'm over the next few years.
Thank you.
Thank you. Our next question today is coming from David Wong from Instinet. Your line is now live.
Thanks very much.
One small clarification and then a second question the clarification the Samsung hundred million does that come in on the income statement as a revenue what is your tone. Another line as a special item or something its revenue. So its revenue and then offset by some specific development.
Cost it also in Cogs and like Lisa said earlier the margin when you take the revenue on the Cogs offset somewhat above corporate average.
Okay excellent and can you give us any numbers in terms of for the June quarter sequential unit growth in desktop and notebook processor units and Oh, the sales growth in PC Gpus.
[noise], let's see David so the.
In the your question about the second quarter.
That's correct yes.
Yes, so in the second quarter, we saw sequentially mobile units up and we saw a desktop units down and the desktop units down is somewhat due to the seasonality in the second quarter as well as the fact that we were going through a product transition as we were preparing for the third generation launch which happened at the very ended the quarter in terms of graphics. You know we were up double digits sequentially and that's you know both units and revenue statement as it relates to and that was driven primarily by the graphics channel.
Great. Thanks very much.
Thank you. Our next question today is coming from Joe Moore from Morgan Stanley . Your line is now live.
Great. Thank you.
So your full quarter your full year guidance mid single digit if I sort of project 5%.
You need to get to to a $2.2 billion number for the December quarter, you know I guess, how literally should I take that is there anything you know I understand there's a lot of product momentum, but that still seems like a big number just anything we should understand in terms of seasonality or things that would kind of give you confidence in mid single digit for the full year. So.
Yeah, I think you know Joe our view is that we have significant amount of product launches to happen. So you know as we go through the third quarter and the fourth quarter.
Both on the PC side or the GPU side as well as on the server side. So yes. It is significant growth and you know I think we feel good about you know sort of the drivers there.
Okay, Great. That's all I had thank you.
Thank you. Our next question today is coming from John Pitzer from Credit Suisse. Your line is now live.
Yeah. Good afternoon, guys. Thanks, Let me ask question congratulations on the solid results policyholders if I Miss this leasing just going back to the Samsung revenue.
Hundred million, all coming into the calendar fourth quarter or will there be some in the September quarter as well.
Ah, Yes, John So that 100 million is approximately 100 million for the year, a there was a little bit in Q2, and then other breast will be in Q3 and Q4.
Is there a live linear do you can talk about on that or is it should we just kind of evenly split between Q3 Q4.
I think that's close.
Okay.
And then just a similar question on bridging the gap between your Q3 guide and your full year guide as it pertains to Opex.
If you look at kind of at the full year guide, you're giving on opex. It could imply that the hopper opex dollars are actually flat to down sequentially in Q4 on a pretty meaningful revenue growth, which is great leverage and understandable and yes, you nailed line, but I'm just kind of curious how we should be thinking or how you're thinking about the R&D spend.
As you start to see revenue begin to accelerate again.
Well I think you should expect that you know opex should be flattish you know as we go you know through the rest of the year and we have increased opex. Obviously, the first half of the year was you know higher opex as a percentage of revenue Oh, we are investing in the right places and you know I think the the product execution shows that you know we will about weight I'm, obviously in 2020 as we look through the or the overall revenue growth picture you know, what we'll do with Opex, but I think we've made the right investments and we'll continue to do so and John If you would be looking at no additional update us since you're doing the math you know you expect opex will be approximately 30% for 2019.
You take Q3 and Q4 into consideration.
Perfect. Thanks, guys.
Thank you. Our next question is coming from Ross Seymore from Deutsche Bank. Your line is now live.
Hi, guys. Thanks for let me ask a question Lisa maybe this is something you'll address next week on the the realm launch but in aggregate now that were this much closer to the launch in the second half ramp what you sound very confident on a year ago, you talked about the market share goals I think it was a double digit market share a four to six quarters. After you hit the 5% market share any sort of update on the timing and or comfort around hitting that target.
Yes, so I think for US we feel good about that being the right target I'm I'm not ready to update that yet I think if we want to get through there's a lot of platforms to launch here in the third quarter and in the fourth quarter, we'd like to get through some of that but we feel that you know the targets. The right target you know the product is certainly performing well and now it's about helping our customers get their platforms to market as soon as possible.
Got it thanks for that.
Follow up a it was part of a prior question that I don't think I heard the answer to but is the accounting for the semi custom ramp whenever it may occur next year. The same in so far as when you build it you recognize the revenue so even if the customer tends to ramp in consumer in the second half of the year you guys, obviously have to build and get the inventory stage et cetera, much earlier than that and therefore that would be revenue or does something change accounting wise that that's no longer true yeah. No that was asked earlier and I don't think I I responded to it the accounting is the same so I don't think the accounting changes. The only difference though is we tend we would not ramp of product prior to qualification. So there are some when you're doing a brand new product. There is a a more involved qualification cycle and a and so yeah. I think there would be no it would be more commensurate with the actual product shipments.
The two things would happen more simultaneously is what you're saying correct.
Great. Thank you.
Thank you. Our next question today is coming from Ambrish Srivastava from BMO capital markets. Your line is now live.
[noise] hi, Thank you I also had a clarification Lisa I'm not sure I quite understood.
And the.
Delta for revenues you talked about semi custom and then you also said that China is having an impact what specific product areas are those and is that a tick is also part of that and then I had a follow up on the vendor.
Yeah. So yeah, we did have a small impact due to China. The ER. We have several customers that are now on the U.S. entities list and we stopped shipping to those customers in the second quarter and so it's a small impact but there is a intact that is offset by some of the positives in the rest of the business. So I'm, assuming that's see pews desktop and and so and or server bolt right.
But there is some PC business and there's some server business. Okay. Okay. Thank you for that and the vendor my.
Follow up is on free cash flow the gap between free cash flow per share earnings per share is massive a if I look at the first two quarters.
Roughly 300 million negative free cash flow, but you're guiding for positive can you put out for the full year can you put some numbers around that is that tens of millions or what's the right way to think about that thank you.
I think I think so if you ask me Q3, we expect people because of positive and because were positive for the year.
It won't be tens of millions from a user standpoint, I think it's triple digit, but I'm not going to give you a specific number.
Okay. That's helpful. Thank you.
Thank you operator, two more questions. Please certainly our next question is coming from Blayne Curtis from Barclays. Your line is now live.
Hi, Good afternoon. Thanks for taking my question just curious on the on the notebook market Intel talked about some pull ins, but also shortening the market you're ramping products. I was wondering you could parse those items out because notebook was pretty strong for you in June and just curious if that impact any seasonality into the end of the year.
Oh sure Blaine from our standpoint, you know our notebook ramps, where do the <unk> platform breath, you know, we we ramped a number of second generation platforms as well as some new chrome platforms I can't say that I can point to any particular, you know no pull ins per se I'm I think we're still expecting that yeah. We have we see a seasonal uplift in the second half of the year.
Okay. Thanks, and then maybe just a follow on to that in your September guidance. If you look between the compute and graphics segment I'm wondering between the three segments as you can just highlight.
Which one do you expect to be the strongest.
So.
Oh, let's see.
I think what I would say is that you know amongst the product lines and where they are in their ramp cycle.
You would expect perhaps p. she used to be the strongest and then you know graphics and server next.
Thank you.
Thank you. Our final question today is coming from Timothy Arcuri from U.S. Your line is now live.
Thanks, a lot Lucius is my first question I just wanted to ask how do you think about semi custom sort of over the longer term.
And talk maybe about cloud gaming in sort of how you think about its long term effect on you because on one hand, you have done quite well.
With that you know somebody's big launches coming up but you're also exposed to some potential cannibalization on the <unk>.
Custom side, so I'm wondering how you think about those two factors.
Yeah. So look I think we like you know sort of gaming overall, so if you think about gaming overall, there's PC gaming, there's cloud gaming and there then there's console gaming.
Yeah, we believe a rich ecosystem is important we want to have our radio on graphics architecture across all those three segments. Yeah I've been asked about the cannibalization question I think it's too early to talk about that you know maybe in a few years I mean, we think cloud gaming is going to be important but it's too early to say, whether it's you know really a cannibalization thing or is it a additive you know getting access to more users. Overall. So you know our goal is to make sure that our architecture is very friendly to all segments of gaming.
Great. Thanks, and then I just wanted to go back to the question that Ross just asked about on the server share target. So it's not that you're not really integrating that targets here, it's more you're going to update us on a target. When you launch well is that is that the right way to think about it.
No let me, let me say it this way I think we we do stand by the target. So that's the target being you know double digit you know sort of four to six quarters. After the initial.
5% I think we feel good about that target I'm not being more specific than that until we get through you know more of the ramp.
[noise] perfect color. Thank you.
Thank you we reached end of our question and answer session, let's turn the floor back over to management for any further or closing comments.
No there were good it was a good call. Thank you everyone for joining us for M.D. second quarter call. Today, we look forward to speaking to you from San Francisco and August seven and we appreciate your support of our company. Thank you.
Thank you that does conclude today's teleconference. You may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.