Advanced Micro Devices, Inc. (AMD) on Q1 2021 Results - Earnings Call Transcript
Operator: Hello, and welcome to the AMD First Quarter 2021 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Ruth Cotter, Senior Vice President, Worldwide Marketing, Human Resources and Investor Relations. Please go ahead, Ruth. Ruth Cotter: Dr. Lisa Su: Thank you, Ruth, and good afternoon to all those listening in today. Our business continued to accelerate significantly in the first quarter, driven by the best product portfolio in our history, strong execution and robust market demand. We delivered our sixth straight quarter of double-digit percentage year-over-year revenue growth and record quarterly revenue and profitability. First quarter revenue increased 93% year-over-year to $3.45 billion with growth in all of our businesses. Turning to our Computing and Graphics segment. First quarter revenue increased 46% year-over-year to $2.1 billion, led by growth in both Ryzen and Radeon processor sales. In client computing, revenue grew by a significant double-digit percentage year-over-year and increased sequentially as we set records for client processor revenue and ASP. Against the backdrop of strong overall PC demand, our revenue is growing significantly faster than the market, particularly in the ultrathin, gaming and commercial segments. Devinder Kumar: Thank you, Lisa, and good afternoon, everyone. AMD had excellent execution and very strong financial performance in the first quarter. Our multi-generation product roadmap is driving significant revenue growth, and we delivered record financial results and free cash flow. Driven by this momentum, we delivered first quarter revenue of $3.45 billion, up 93% from a year ago, and up 6% from the prior quarter. Year-over-year growth was driven by strong increases in sales across all businesses. Gross margin was 46%, flat from a year ago, despite significantly higher semi-custom product revenue. Operating expenses were $830 million, compared to $584 million a year ago, as we continue to invest in our business. Operating income was $762 million, up $526 million from a year ago, driven primarily by revenue growth. Operating margin increased from 13% a year ago to 22%. Net income was $642 million, up $420 million from a year ago, excluding $15 million of Xilinx acquisition-related costs. Diluted earnings per share was $0.52 per share, compared to $0.18 per share a year ago. Current quarter results include a 15% effective tax rate compared to a 3% tax rate a year ago. We continue to anticipate a cash tax rate of approximately 3% for 2021. Now, turning to business segment results. Computing and Graphics segment revenue was $2.1 billion, up 46% year-over-year due to the significantly higher client processor and graphics revenue. Computing and Graphics segment operating income was $485 million, or 23% of revenue compared to $262 million a year ago. Ruth Cotter: Thank you, Devinder. And operator, if you’d like to poll the audience for questions, please? Operator: Absolutely. We’ll now be conducting a question-and-answer session. Our first question today is coming from Vivek Arya from Bank of America Securities. Your line is now live. Vivek Arya: Thanks for taking my question. Lisa, you’re guiding -- you’re increasing the full-year guidance by almost $1.2 billion, $1.3 billion. Could you give us some sense of what has changed in the last three months? Because your competitor was recently talking about cloud digestion, and you’re raising guidance by $1.3 billion. So, I’m curious what changed in the last three months. And if you could help us parse, which products or end markets are contributing to this increase, how much from servers or PC or semi-custom, or if there is any crypto impact? So, any color on what’s driving this really strong guidance and increase for the year would be very helpful? Dr. Lisa Su: Yes, absolutely, Vivek. Thanks for the question. So, we are -- we started the year very strong, very pleased with the first quarter performance and what we see overall for the year. So, we are increasing our full-year guidance. We exceeded in the first quarter, we guided up in the second quarter, and then that’s carrying through to the second-half of the year. What we’ve seen is the following. We came into the year with an overall strong demand picture, and that was certainly true. What we’ve seen over the last 90 days is consistent strong demand, very strong visibility from our customers on what they need throughout the year. Particularly, you asked about data center. I think, we saw actually strong signals in the first quarter that it would be a strong data center year for us. We’re on a product ramp cycle. We launched new products in PCs on the mobile side with our Ryzen 5000. We launched new products on the graphics side with Radeon 6000. And then, the launch of the third-generation Milan has actually gone very, very well. So, in terms of what we see, we see very strong demand for our products. We see good customer ordering patterns and strong backlog. And then, we have also seen that the supply chain has been tight overall for the semiconductor industry. And we’ve been working very closely with our supply chain partners. And so, we also have good visibility to additional supply as we go throughout the year. So, with all of that in place, I would say, we feel very good about how the year is shaping up. In terms of where you see the strength overall, I would say it’s strength across all businesses, but particularly the strength in data center is good, and we also see just, again, very good visibility and very close working relationships with our customers. You asked about crypto. We do not -- we have negligible crypto in here. So, this is really the foundational business, really the new products and just seeing the customers adopt and ramp quickly. Vivek Arya: Got it, very helpful. And Lisa, for my follow-up, should we assume that now you are getting adequate supply, so you’re kind of caught up from a supply perspective and supply is no longer a constraint, or is that still a constraint? And if it is, in which end market? Because you’re keeping full-year gross margins steady at 47%. So, I was curious if there is any impact from supply or rising input costs that could be impacting your gross margins, which you decided to keep to kind of flat versus your last outlook? Thanks. Dr. Lisa Su: Yes. I would say, Vivek, it’s still early in the year. So, the entire semiconductor supply chain is very, very tight. I think, you hear that from all of our peers in the marketplace. That being said, we’ve been working very closely with our supply chain partners. We have seen improvements that have led to the improved full-year guide. We’re going to continue to work on that because right now, I would say the channel -- the inventories are very low throughout the entire supply chain, whether you talk about at our customers or in the channels. And so, there’s quite more that we would like to be able to do. That being the case, I think, we continue to work well with our partners and take lots of actions there. As it relates to overall costs and things like that, we are watching those things, I think, from logistics and some of the component costs and things like that. So, there’s – mostly, the gross margin guidance is reflective of the fact that we do have ramping of our new products. And we also have some ramp of the gaming products, which are a little bit below corporate average. But we’ll see how things progress as we go throughout the year. Vivek Arya: Thank you, Lisa. Dr. Lisa Su: Thanks, Vivek. Operator: Thank you. Our next question is coming from Blayne Curtis from Barclays. Your line is now live. Blayne Curtis: Hey. Thanks for taking the question and nice results. Maybe just following up on Vivek’s question. I was just curious, the semi-custom business obviously is not following any sort of seasonality, but there’s a lot of talk about supply constraints there as well. You basically saw no seasonality in March, and it seems like it’s not growing much in June. So, just maybe just, is that still impacted by maybe not your shortages, but other shortages, and just any perspective on that business for the year? Dr. Lisa Su: Yes. So thanks, Blayne, for the question. I think, the semi-custom business, if you look at the console launches that happened last year, I mean, they were phenomenally good launches, right, very, very good products. So, you’re right. Seasonality is completely different this year than sort of a typical year. We had a strong first quarter better than seasonal. We were down, but down single digits. There’s a bit of growth as we go through the year, but it’s just starting from such a high point in the first-half of the year. So, the way I would say it is, I think there is a strong secular demand for gaming. And whether you’re talking about consoles, or you’re talking about PC gaming, or you’re talking about the overall sort of gaming ecosystem, there’s a significant demand. And so, we believe there’s strong demand, and we’re continuing to ramp supply to meet that. Blayne Curtis: Thanks. And then, I just want to ask you on the competitive landscape on the client side. You clearly gained a couple of points of share in March. Intel was talking about they’re being more aggressive on their percent of 10-nanometer product. Maybe just talk about the competitive landscape as you look through the rest of the year? And are you seeing any change to that landscape as they ramp 10-nanometer? Dr. Lisa Su: Yes. So, Blayne, I think, the PC business has certainly -- had a very strong second-half of last year and is strong this year. I think, within that, we feel very good about our progress, particularly in notebooks and particularly in the premium segments of notebooks. So, we had a strong record quarter for our notebook business. Our ASPs were up sequentially and year-over-year. I think, we’re seeing traction in sort of the premium ultrathin, gaming and commercial. We feel very good about the platforms that we have and the platforms that we have throughout the year. Ryzen 5000 is a very competitive product. I will say that there are lots -- a bit of low-end units have come into the market, but our focus on the premium segments have done very well. So overall, pleased with the PC environment and feel that we’re very competitive. Blayne Curtis: Thanks. Operator: Thank you. Our next question is coming from Aaron Rakers from Wells Fargo. Your line is now live. Aaron Rakers: Yes. Thanks for taking the question, and congratulations on the quarter. I wanted to ask a little bit about the server CPU cycle. I know, you’ve talked about kind of an expanding footprint with the cloud guys. But I was curious of where we stand today, as far as more of the traditional OEMs, the progression of their systems. I think you said 100-plus systems. When do you think that those will all be shipping in the market? And how would you put the context of Milan relative to Rome on that front? And I have a follow-up. Dr. Lisa Su: Sure. So, Aaron, the data center business obviously is a very strategic focus for us. And with EPYC with each generation, we’ve really tried to expand the reach. I think, here in the first quarter, what we saw is very strong results, doubling year-over-year. It is on the strength of cloud. But what we saw was both Rome ramping, so we saw Rome units up sequentially, and we also saw Milan ramping. And what that says, this is what we expected. We actually expected that we had a good footprint in Rome and that that would continue to be well deployed as we come into the first half of this year, and that’s played out. And then, Milan is just a very, very good product. I mean, it’s extremely well positioned. Not only do we have per-socket leadership, but we have per-core leadership, which again expands the footprint. So, in terms of your question about cloud versus enterprise, we were more cloud weighted in the first quarter as some of those instances, both internal and external, ramped. We would expect that enterprise, both enterprise as well as HPC deployments will increase as we go through the next couple of quarters. But we’ll see Rome and Milan in the market together all through this year, and we expect strong adoption on the enterprise side. Aaron Rakers: Yes. And then, the other question kind of dovetailing off that is, you talked in response to a couple of different questions. You talked about visibility. Our visibility is very strong. It’s improved, et cetera. So, how would you characterize your visibility today relative to, let’s say, what it was three months ago? And what gives you the confidence? Has there been something that’s happened as far as discussions with the cloud guys, that’s given you more confidence in the visibility of the growth through the remainder of this year? Dr. Lisa Su: Yes. So, Aaron, I mean we -- when we started this year, we expected to have a strong product cycle, just given everything that we saw in terms of platforms, design wins, sort of customer engagements and process. But, in the last 90 days, I think we’ve seen that really firm up. So, from the standpoint of just the consistency in all of the schedules that were supposed to be met, I think customers are liking what they see. We are having multi-quarter conversations. Just given the tightness overall in the supply chain, I think everyone is wanting to be clearer and more transparent about their needs. And that’s very helpful for us, frankly. That’s very helpful for us in a tight environment. It gives us the ability to plan several quarters out. And so, I think that’s the differences. We have strong visibility into what customers want and what we can deliver. And so, that gives us confidence that we have the right signals in place. Operator: Our next question today is coming from Matt Ramsay from Cowen & Company. Your line is now live. Matt Ramsay: Lisa, I wanted to ask a question about the enterprise notebook business. And I noticed you highlighted in the release and in the slides where you are in several different verticals in design wins on enterprise notebook in the Fortune 500. And I wonder if you might speak a little bit about the relationships that you’re building with the big enterprise customers? Do you have FAE support, software support, firmware support, et cetera? Do you have the right people in place to really ramp that business more materially going forward? Thanks. Dr. Lisa Su: Yes, definitely, Matt. It’s been a high focus for us to ramp our enterprise notebook business as well as the enterprise server business. And they actually share many of the same customers and IT departments. And so, yes, we’ve made very good progress on the enterprise notebook business. I think, we have a great set of platforms with our OEM partners. We’ve also ramped up our field application support and our customer engagement models for deployment. Overall, I think, we’ve gotten some very nice commercial notebook design wins. And again, in this environment, for us, the important thing is to stay very focused on the longevity of the business that we win. And so, a lot of focus is on those commercial pipelines and how they develop, both on the notebook side as well as on the server side. And I think we’ve made good progress, but we still have a lot of opportunity to grow as we go through the coming quarters. Matt Ramsay: Thanks for that. For my follow-up, it’s a bit unrelated. One of the businesses that maybe you’ve not had supply or there’s been other parts of the business growing much more quickly, I wanted to ask a bit about gaming. The new RDNA 2 architecture I think brings some new features, but obviously there’s a strong incumbent competitor in the gaming market. Maybe you could just talk about where you are competitively right now, how you see supply coming online that might support that gaming franchise a bit better, and just maybe the lay of the land in gaming right now? Because it’s one piece of the business that everything else is going so well, I think there are some opportunities there. Dr. Lisa Su: Yes. So, the consumer graphics or the gaming graphics business, as you talk about, has actually done well for us. It grew double digits this past quarter. We had a very deliberate strategy here with the launch of RDNA 2. We started at the top of the stack with our big Navi product. And then, we’ve now introduced a couple of additional products. And you’ll see that both from the channel, sort of adding board cards into more OEM systems and notebook business as well as additional variants. So, it’s an important market segment for us. We’re happy with the progress. I think, gamers really appreciate the product. It’s fair to say that the graphics demand is very high across the marketplace. So, we’ve actually put quite a bit of product into the market, but the demand still exceeds supply. You’ll see that increase as we go through the second half of the year. And overall, I think, the progress that we’ve made with RDNA 2 is fantastic, and we continue to believe that gaming overall is a great secular growth story. Operator: Our next question today is coming from Toshiya Hari from Goldman Sachs. Your line is now live. Toshiya Hari: Lisa, I wanted to ask about the data center GPU business. I realize it’s still a relatively small percentage of the overall business. You talked about production ramping in the second half of this year. You talked a little bit about Frontier as well. But what kind of customer pull are you seeing in your data center GPU business? And then, I got a quick follow-up. Dr. Lisa Su: Yes, Toshiya, thanks for the question. We’re making very nice progress in the data center GPU business. It’s in the investment mode now, so we’re investing heavily in the business. We launched the CDNA architecture or the compute optimized architecture last year. You’ll see updates to that this year as we bring out the next generation with our Frontier systems. The revenue is, albeit, on the lower side in terms of just size of the business relative to the rest of the business, but we will see growth into the second half of the year. And the business here is actually very strategic, right? It’s the idea of really putting together heterogeneous systems and bringing our CPU technology with EPYC together with our GPU technology with Instinct with the software capabilities that we have been investing in, and really getting strong HPC systems as well as AI and machine learning capabilities. So, we will see growth in the second half this year. It will still be a smaller business, but we see it growing in this strategic time frame over the next couple of years. And it is very much that end-to-end story of what you need to really satisfy sort of the key workloads in the data center. Toshiya Hari: Great. And then, as my follow-up, I wanted to ask about the potential threat from ARM longer term. Within x86, obviously you’ve got significant runway from a market share perspective. But how are you thinking about the potential threat from ARM-based processors, both in your client business as well as your server business? You’ve got Apple obviously internalizing some of their CPUs on the client side, hyperscalers talking about internal solutions. And your closest GPU competitor launched -- or introduced rather ARM-based CPU multiple years out. So any thoughts on ARM versus x86 and how you address that would be helpful. Dr. Lisa Su: Yes, so, absolutely. I think the key point here is you really have to have a very, very strong product roadmap, and that is really what we’re focused on. I think the overarching trend that computing is becoming very important. And so, there are additional entrants trying to address different aspects of computing, I think is to be expected. And when you look at the data center in particular, I think the trend that computing is becoming more workload optimized is also an important trend. These are the things that we’ve been thinking about for a long time, and we’ve been looking at ensuring that we address that in our roadmap. So, our focus is to continue to optimize solutions across the data center and across the PC ecosystem, make sure that what we have is very competitive, addressing what customers’ needs are. And we also have the ability to customize solutions as well with our strong IP portfolio. So, all that being the case, I think the answer is very competitive market, but we feel very good about the roadmap that we have in front of us. Operator: Our next question today is coming from John Pitzer from Credit Suisse. Your line is now live. John Pitzer: Congratulations on the solid result. Lisa, maybe another way to ask that last question of x86 versus ARM. I’m wondering if you could address it from the perspective of general purpose compute versus semi-custom and ASIC. Because clearly, as Moore’s Law is coming up with some issues the move towards semi-custom and ASIC is much more prevalent. I know to the answer to Toshiya’s question, you said that you’re doing -- or you have the ability to do semi-custom. Do you actually have engagements? And how do you see sort of general purpose compute versus semi-custom ASIC playing out over time? Dr. Lisa Su: Yes. So John, the way I would address that is I think there’s a whole range of computing solutions that you need. And this is back to a few years ago, our conversations about heterogeneous compute being you need to have the right compute for the right workload. I think that’s the overarching aspect of it. No question that for our business, general purpose compute is the largest piece of our business and will continue to be so. We are doing -- we certainly do optimizations for specific customers today. And I think that’s -- that for large cloud customers, they expect that, and we are doing that. We do have the ability to optimize on a more specific basis. And if you look at the evolution of our architecture, I think that when we do these chiplet architectures and things like that, it really allows that. So, lots of good engagements going on with customers overall, and I think the key is to be able to have the right IP building blocks. And that’s what we’re focused on, right, having the best CPU cores, the best GPU capability, having great interconnect, and then, with the bringing on of Xilinx, having the adaptive computing solutions there as well, gives us a lot of options to optimize solutions with customers. John Pitzer: That’s helpful. And Lisa as my follow-up, you’re still relatively early in this new gaming console cycle. And typically through those cycles, your products gross margins had some pretty good uplift. I’m wondering if you can just help characterize where you think you are in sort of the gross margin cycles for the gaming console business. And if you want to tell us kind of how dilutive you think it is to overall margins and where that might go by the end of the year. That would be helpful. Dr. Lisa Su: Yes. John, I would say that we’re still very early in the console cycle. And from -- if you think about it, we’re only a couple of quarters into it. So, I think this is a big cycle, and there’s a lot of momentum in the cycle. We’re going to continue to work on improving costs and improving margins and things like that. But, I would say that we still have a ways to go and lots of opportunity there as we go through the next couple of years. Operator: Our next question today is coming from Mark Lipacis from Jefferies. Your line is now live. Mark Lipacis: Lisa, I guess, you had indicated you believe -- I believe you said you thought you gained share in the server market. My back of the envelope calculation suggests you gained at least 2 points of share in service, which is an acceleration on my estimate of about 1% share gain a quarter over the previous four quarters. So, I guess, can you tell me if my math is materially off? And if not, what is -- is this a new higher rate of share gains? And what would you chalk this up to? Are you guys at a tipping point? Are your customers at a tipping point for embracing AMD as a supplier? Do they have increased comfort, or is your ecosystem for support? Can you just maybe just give us the higher-level picture about where you think your customers are and really embracing and ramping up your server offerings at a higher rate. And I have a follow-up, if I may. Dr. Lisa Su: Yes, sure. So, in terms of our data center performance in the first quarter, it was quite strong. And when I look at the drivers of that, we saw cloud in particular quite strong. And when I look at the drivers underneath that, there are a couple of things that have come together. I mean, first of all, I mean we’ve been very, very deeply engaged with our customers the last number of quarters in qualifying new instances, qualifying new internal workloads, really expanding the regional capability of our coverage. And so, all of those things, I think, have led to some lift overall in the data center business. And then, going forward, I think the other piece of it is, if you recall when we did the Naples to Rome transition, that transition was pretty much people switched from Naples to Rome. What we’re seeing in this cycle is a bit different. What we’re seeing is that Rome has a set of very strong coverage in terms of applications that they’re in, that are ramping very nicely, that are having good demand. And then on top of that, we’re adding Milan, which is just a very strong product on top of that. So, I think those are some of the things that are perhaps a bit different about what we’re seeing right now. That being this case, things move around from quarter to quarter. So, I would say that the data center signals that we’re seeing are positive. We’re excited about what we’re seeing. It’s a lot of engagements with customers. And the main thing for us is as important as the current year is we’re also very focused on the long-term road map. And so, we’re engaging now on Zen 4 and beyond. So, it really is a multigenerational discussion with our top customers. Mark Lipacis: Great. That’s very helpful. And then, a follow-up on -- just coming back to ARM, you answered the previous questions with kind of talking about embracing the idea of having heterogeneous architectures in semi-custom and working with your customers to develop solutions. If I go back, AMD had an ARM server offering before. Can you give us an update on the state of that ARM server IP? Is that something that you can resurrect, or have you been keeping it, the development, working on that? And can you discuss -- are your customers asking for your help in delivering semi-custom solutions that have an ARM component to it? Because from what I can tell, it looks like three cloud service providers have ARM server offerings in their platform, and -- but there’s a lot that don’t and don’t have quite the development capabilities. So, I was hoping if you could just talk more specifically about the IP that you had? And are you bringing that back if your customers are asking for it? Dr. Lisa Su: Yes. Sure, Mark. So, look, we know the ARM architecture well. Certainly, our engineers know it well. And we consider ARM a partner in many respects. We use ARM IP in various aspects of our devices. In terms of that specific custom ARM design, we don’t have that in plans right now. In terms of whether we would do custom ARM designs, I think the answer is yes. That’s the whole idea of the semi-custom business. And so, I think it’s less about ARM versus x86 and much more about having the right IP in the right sort of combination to satisfy sort of the customer solutions. And that’s the way we look at it. It’s really what problem are you trying to solve? And let’s look at sort of the collection of IP that we have and the capabilities that we have to help address that set of sort of issues. Operator: Our next question is coming from Ross Seymore from Deutsche Bank. Your line is now live. Ross Seymore: Hi. Thanks for letting me ask the question and congratulations on the strong results and guide. Lisa, I wanted to ask you a little bit of a conceptual question. In your full-year guidance, you clearly raised the revenues to a very strong number, but you kept the margins the same. I think, people understand the operating margin side of it that you have an opportunity to invest and great opportunities in front of you to grow. But, on the gross margin side of things, I’m just a little surprised, given the strength that you’re talking about in the data center business, the HPC, Frontier, those things kicking in the back half of the year. I’m a little surprised that it didn’t go up. Now, you’ve delivered very consistent guidance and increases improvements over time, and I can’t recall the last time you missed your gross margin guidance. But, I’m just wondering what the puts and takes are that would keep that gross margin guidance flat for the year. Dr. Lisa Su: Yes, Ross, sure. So, let me perhaps start, and then Devinder may have a few comments. So, I think from an overall revenue standpoint, I think we are very comfortable with the guide up, just given the visibility that we have on the customer demand front and on the supply front. On the overall margins, we are guiding up sequentially as we go from Q1 to Q2. And then, I think for the second half of the year, what we would say is look, it’s early in the year. And it’s a very dynamic environment, Ross, I mean a very dynamic environment. And so, we’re watching the puts and takes, and there’s always product mix things that come into play in terms of the puts and takes. But, I think we’re confident that we’re in a good place. And as we go through the year, we’ll give you more updates on that. But, there isn’t anything more than that. I think, it’s just where we are in the year. And given the dynamic environment we have in the marketplace, that’s what gives us approximately the 47% guide. I don’t know, Devinder, you want to add to that? Devinder Kumar: The only thing I’ll add, Ross, I think as you know, the situation is pretty tight, as we talked about the overall global supply situation in semiconductors. So, we are seeing some increases in component costs, but overall we are managing it. On the higher revenue by more than $1 billion, we are maintaining the 47% guide for 2021, which is up from last year. And last quarter was 45, this quarter 46, guiding 47. The trend is very good, and we are very, very happy with that. Ross Seymore: Thanks for the detail. That’s really helpful. For my follow-up, I want to be a little more tactical, but it will somewhat fold into your answer to the first question. That is for your second quarter guide from the midpoint of up roughly 4%, could you give us a little bit of puts and takes between your two main segments? And I guess, the slightly longer-term question part of that would be, data center being high teens in the first quarter was great sequential growth, doubling year-over-year. Any sort of color on how you think that percentage changes throughout the rest of the year, given your 50% growth guidance for the entirety of the year? Dr. Lisa Su: Sure, Ross. So, in terms of the second quarter, as we look at sequential growth, we do see sequential growth in the data center business, so on the server side as well as on the data center graphics side as well as some growth on the gaming side. As we look at the full-year, our expectation is that the percentage of the company that is sort of the data center percentage of the company will increase as we go through the next couple of quarters. And that’s just the dynamic of some of the strength in the consumer businesses in the first half. So, that’s not normal seasonality. And just the acceleration or some of the growth that we see in the data center business as we go throughout the year would lead to a higher percentage of revenue in data center on higher revenue. Operator: Next question is coming from Stacy Rasgon from Bernstein Research. Your line is now line. Stacy Rasgon: I first had a question on data center in the quarter. So, the EESC was up almost 100 million. EPYC was up, and semi-custom was down, which means EPYC was up even more than that. Can you -- I know it was both Rome and Milan grew. But how much of the actual growth -- the 100 million plus sequentially that must have been EPYC, how much of that growth, how did that split out between Rome and Milan? Was it like the majority of the growth of that was Milan? And how do you see Milan as a percentage of a data center CPU mix in Q2? Dr. Lisa Su: Sure, Stacy. So, if I look at the first quarter, we shipped Milan as well in the fourth quarter, right? So, we shipped a good amount of Milan in fourth quarter, a good amount in the first quarter. I would say, in terms of growth, it was probably more Rome weighted in the first quarter compared to Milan, but there was good growth in both. And then, as we go into the second quarter, we would still expect to see growth in both Rome and Milan, with Milan growing faster, as that ramps. And we would expect by the third quarter that it would cross over and Milan would perhaps be higher than Rome. Now, obviously, these things change a little bit as customers go through their ramps, but that’s sort of what we see. So, the meta point is Rome demand is robust and will stay a good part of the revenue for this year in its entirety. And then, Milan is ramping quickly, and customer adoption is strong. And so, we expect it will ramp quickly as we go through the next couple of quarters. Hopefully, that answers your question. Stacy Rasgon: That does. Thank you. I have a follow-up, if you don’t mind. I actually do want to ask a question about OpEx. So, I know, the model you gave at the Analyst Day had a midpoint for OpEx revenue of 26.5%. And I know you’re running ahead of revenue and everything right now. But, if I sort of back out the second half implied guidance for OpEx, it actually is at that 26.5% run rate in the second half, to get to 26% for the full-year. Should we think about -- I guess, it’s like as we go into 2022, do you think you’re sort of at the model OpEx run rate, that sort of like more than 26%, 26.5% on whatever the revenue is? Is that the right way to think about the OpEx trajectory going forward? And I guess, like -- do you think you’re actually spending enough at this point, given where you’re taking the roadmap? Are you spending at the right levels right now to ensure that, that roadmap is actually cemented and firm? Dr. Lisa Su: Yes. Stacy, very good question. I think we are -- the revenue is well above our long-term model. And certainly in this year, it’s well above our long-term model. Last year, it was well above our long-term model. And we’re taking the opportunity to invest. And from that standpoint, our investments in R&D really, as you say, cementing roadmap, our investments across sales and field support and all of the customer-facing support. And frankly, we’re making investments in sort of some of the infrastructure surrounding the company as well since it’s just a much larger company than it was a few years ago. So, I think the answer is yes. We’re investing enough. And I think we’re taking the opportunity to be very aggressive with those investments to -- given the strength of the revenue growth. Maybe, Devinder, you want to add to that or... Devinder Kumar: No, I think that’s good. I think you covered it. We’ve been very disciplined, as you know, Stacy, over the years about managing the OpEx. It does scale with revenue. But, OpEx is growing lower than -- lower rate than revenue. And obviously, that shows up in the financial results from a model standpoint. The leverage, as you mentioned, the operating margin is going up for the Company. Operator: Our next question is coming from Timothy Arcuri from UBS. Your line is now live. Timothy Arcuri: Lisa, I wanted to ask also about share gains. You’ve done a great job this year in both, client and in data center. At the same time as was referenced before, Intel’s tone is definitely changing. They use the word leveraging relationships. And they talked about other tactics to sort of stem or arrest some of their share losses. And they’re now offering x86 cores via foundry and things like that. So, I guess, the question is sort of beyond this year, because the competitive environment this year is pretty much set. So, do you think we can extrapolate the success you’ve had this year into ‘22 and ‘23, or do you think the competitive environment will intensify in the next few years? Thanks. Dr. Lisa Su: Well, Tim, I would say that we have always expected the competitive environment to be very strong, and we still do. So, by the way, there are lots of competitors out there. From our standpoint, I think over the past few years and the past few generations, I think we’ve built a track record with customers, and we’ve built a set of deep relationships. And we’ve learned a ton about what’s important to customers, where to spend the time, the effort, and where we need a close partnership. So, I feel very good about where we’re positioned this year, but I feel very excited about what we have in the road map going forward. And I mean we’re not slowing down. So, there’s a lot in the roadmap. And we have more resources and more capabilities to bring to the market. And I think we’re going to be very competitive going forward. Timothy Arcuri: Totally, thanks. I guess, as my follow-up then, can you give just -- Devinder, maybe give some sense of what the loading is for semi-custom first half to back half? It seems like it’s going to be about even back half versus front half this year. Is that correct? Devinder Kumar: We’re slightly up in the second half. Because the launch of product in the second half of last year started out strong because it’s a new console generation. And then, maybe slightly up in the second half as well I would say. Operator: Our final question today is coming from Joe Moore from Morgan Stanley. Your line is now live. Joe Moore: You talked a little bit about the supply constraints that you’ve been dealing with. Can you talk about where those are coming from? Is that a wafer constraint, substrate constraint, both or other stuff? And where -- when you talk about making progress and kind of getting more supply out, what’s the source of that progress? Dr. Lisa Su: Yes. So, I think, Joe, I would say overall, the demand if we look at coming into this year, the demand has been sort of higher than our expectations. And there are sort of industry-wide types of things that are going on. We work very closely with our supply chain partners. So, whether it’s wafers or back-end assembly test, capacity or substrate capacity, we work it on a product line by product line level. So, I don’t know that there is a single thing that I would point out. I would say that on a product line level what we’ve done and what we’ll continue to do is ensure that there are multiple sources for things, particularly in the back end, that gives us flexibility to move things back and forth. We continue -- on the substrate side in particular, I think, there has been underinvestment in the industry. And so, we’ve taken the opportunity to invest in some substrate capacity dedicated to AMD, and that’ll be something that we continue to do going forward. We’re also -- I mean we also have fantastic engineering teams that are just looking at how we, together in the ecosystem, just get more productivity into the system. And we work very closely with TSMC to make sure that we’re forecasting well and getting the right support. So, I think, it’s all of the above in terms of making sure that we have the capabilities. And the other thing I’ll mention, Joe, is just it’s not just about processors, but it’s included -- it’s also ensuring that they’re matched sets in the ecosystem. And so, our teams are also working very closely with our OEMs to make sure that we’re together ensuring that they’re the full system components necessary. So, it is a complex supply chain environment. And I will tell you, given everything that I’ve seen, it is a complex environment because all markets are so hot. But I’m happy that we’ve been able to make progress. And by the way, we’re not done, right? There’s plenty more that we would like to do to get more capability in the supply environment. And so, we’re working closely with our partners across the board. Joe Moore: Great. Well, definitely very impressive results in the context of everything going on. Thank you. Operator: Thank you. We’ve reached the end of our question-and-answer session. I’d like to turn the floor back for any further or closing comments. Ruth Cotter: Thank you, Kevin. We would like to thank everybody for joining today’s call, and we’ll look forward to engaging with you throughout the quarter. Thank you, everyone. Operator: Thank you. That does conclude today’s teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
AMD Downgraded as AI GPU Challenges Persist, Shares Down 2%
AMD (NASDAQ:AMD) shares fell more than 2% pre-market today after HSBC analysts downgraded the stock to Reduce from Buy, slashing the price target nearly in half to $110 from $200. The move reflects concerns over AMD's competitive position in the AI GPU market and potential setbacks in its product roadmap.
The analysts highlighted tepid demand for AMD's new MI325 GPU and potential delays in the launch of a competitive AI rack solution as key factors limiting the company’s ability to gain ground against market leader Nvidia. This outlook led to a significant downward revision in AMD's fiscal 2025 AI GPU revenue projections, which were reduced from $12.3 billion to $8.1 billion—well below the market consensus of $9.5 billion.
While AMD’s share price has already declined 24% over the past three months, the analysts see further downside. They noted that AMD’s penetration into the AI GPU market is likely to be much weaker than previously expected, further weighing on its valuation.
The company’s product roadmap remains on track with the MI350 chip expected to launch in the second half of 2025. However, the analysts believe AMD’s ability to compete directly with Nvidia’s NVL rack platform will be delayed until late 2025 or early 2026, coinciding with the anticipated launch of the MI400.
AMD Positioned for Significant Upside in 2025
Northland analysts reaffirmed an Outperform rating and a $175 price target for AMD (NASDAQ:AMD), highlighting the company’s strong position across AI GPUs, server CPUs, and PC clients. With headwinds in the embedded and gaming segments easing, AMD is set to deliver substantial growth through 2025.
AMD’s gains in the AI market are driven by its competitive roadmap and superior total cost of ownership (TCO). AI-related revenue is projected to surge to $9.5 billion in 2025, up from $5.2 billion, reflecting a 7% increase in the first half of the year compared to the second half of 2024. The ramp-up of AMD’s MI325X chip is expected to be a game-changer, offering hardware performance competitive with NVIDIA’s H200. While software remains a key challenge, AMD’s hardware advancements put it in a strong position for growth, according to the analysts.
In the server market, AMD continues to outpace Intel, with early indications showing its Turin CPUs outperform Granite Rapids in most workloads. Non-AI data center revenue is forecasted to grow by 26% year-over-year in 2024 to $7.7 billion, with an additional 10% growth projected in 2025. These estimates are considered conservative, leaving room for upside potential.
The PC client segment also offers a compelling growth story. With Microsoft ending support for Windows 10, an estimated 1.2 billion systems will need upgrading. AMD is poised to benefit, with approximately 40% of these systems, or 480 million units, expected to be replaced over the next 18 months. Despite elevated channel inventory in the PC market, AMD’s inventory levels are healthy, and spot shortages highlight robust demand for its products.
With leadership across key markets, a strong product pipeline, and favorable industry tailwinds, AMD is well-positioned for substantial upside, making it a top pick for 2025 at Northland.
Bank of America Downgrades AMD Amid Concerns Over AI Competition and PC Market Slowdown
Advanced Micro Devices (NASDAQ:AMD) shares fell nearly 2% pre-market today after Bank of America downgraded the company to Neutral from Buy, citing potential risks to its 2025 outlook. The firm also reduced its price target from $180 to $155 and cut its 2025/26 earnings estimates by 6% and 8%, respectively, reflecting a significant 13-23% gap from consensus projections.
Two key factors contributed to the downgrade. First, Bank of America expressed concerns over competitive pressures in the AI sector. NVIDIA and custom chip providers like Marvell and Broadcom were highlighted as major players that could hinder AMD’s market share growth in AI accelerators. The firm pointed to signals from Amazon, AMD’s largest cloud customer, which indicated a preference for custom solutions such as Trainium, Marvell, and NVIDIA products, limiting demand for AMD’s offerings. Similar trends were observed among other cloud giants like Google.
Bank of America projected that AMD would hold just 4% of the $200 billion AI accelerator market by 2025, far behind NVIDIA’s dominant share of over 80%.
The second concern centered on the potential for a correction in the PC processor market. AMD’s client PC sales had surged 40% in the latter half of 2024, but the firm anticipated a slowdown in the first half of 2025, which could challenge the company’s growth trajectory.
Despite these challenges, the note acknowledged AMD’s strong execution and its ability to capitalize on Intel’s ongoing restructuring issues, which provide opportunities for AMD to expand its market share in PC and server CPUs. Additionally, the company’s partnerships with Microsoft, Meta, and Oracle were viewed as strategic positives.
However, Bank of America tempered its outlook by emphasizing that AMD’s prospects in the AI sector remain limited, reducing the likelihood of the company exceeding Street estimates.
Marjorie Taylor Greene Invests in Advanced Micro Devices (AMD) Amid Semiconductor Export Restrictions
- Marjorie Taylor Greene has purchased shares in Advanced Micro Devices Inc (NASDAQ:AMD), a key player in the semiconductor industry.
- The outgoing Biden administration is planning to impose new restrictions on semiconductor exports to China, potentially impacting AMD and its competitors.
- AMD offers a more attractive investment opportunity compared to Nvidia, trading at 28 times forward earnings and positioned to benefit from AI growth.
On November 25, 2024, Marjorie Taylor Greene made a purchase of shares in Advanced Micro Devices Inc (NASDAQ:AMD). AMD is a prominent player in the semiconductor industry, competing with companies like Nvidia. The company is known for its microprocessors and graphics cards, which are integral to various computing applications.
The outgoing Biden administration plans to impose new restrictions on the export of semiconductor equipment and AI microchips to China. This move is expected to affect global chipmakers, including AMD and Nvidia, as highlighted by Proactive Investors. However, sources suggest these measures will be less stringent than initially proposed, potentially easing the impact on these companies.
Nvidia has seen a significant 180% increase in its stock this year, reaching a market cap of nearly $3.5 trillion. Despite this growth, Nvidia's high valuation of approximately 48 times the consensus FY2025 earnings may limit future gains. In contrast, AMD presents a more attractive investment opportunity, trading at 28 times forward earnings. This positions AMD to benefit from AI growth while offering better value to investors.
AMD's stock is currently experiencing a bearish trend, with its price at $142.68, below its five-day, 20-day, and 50-day EMAs. The 20-day SMA is at $141.97, and the 50-day SMA is at $153.29, indicating declining momentum. The stock is also trading below its 200-day SMA of $160.23, suggesting long-term bearish pressure.
Despite these challenges, there is potential for a short-term rebound. The eight-day SMA at $138.81 offers a slight bullish indication. However, the RSI of 46.42 remains neutral, indicating the stock is neither oversold nor overbought. Currently, AMD's stock price is $136.24, reflecting a decrease of 1.48, or approximately -1.07%.
AMD Shares Drop 7% on Disappointing Q4 Guidance Despite Strong Q3 Results
Advanced Micro Devices (NASDAQ:AMD) reported third-quarter earnings that matched expectations, but shares fell more than 7% in after-hours trading as the company’s fourth-quarter revenue outlook came in below analyst estimates.
AMD posted adjusted earnings per share of $0.92 for Q3, in line with projections, while revenue reached $6.82 billion, surpassing the anticipated $6.71 billion and marking a 22% year-over-year increase. The strong results were driven by record sales of EPYC and Instinct data center products, alongside robust demand for Ryzen PC processors.
However, AMD’s Q4 revenue guidance, set at $7.5 billion plus or minus $300 million, fell short of investor hopes, with the midpoint below the Street estimate of $7.55 billion.
The Data Center segment was a bright spot, with revenue more than doubling year-over-year to $3.5 billion, while the Client segment saw a 29% rise, reaching $1.9 billion. In contrast, the Gaming segment experienced a steep 69% decline, with revenue dropping to $462 million, dampening overall growth momentum.
Barclays Maintains "Overweight" Rating on Advanced Micro Devices Inc (NASDAQ:AMD)
- Barclays reiterates its "Overweight" rating for NASDAQ:AMD, highlighting the company's strong position in the semiconductor industry.
- AMD's focus on AI and next-generation chips is expected to drive significant growth, with the TAM for AI accelerators projected to reach $800 billion by 2028.
- Despite challenges such as high valuation and potential competition from customers developing their own CPUs and GPUs, AMD's strategic investments in AI infrastructure are poised to enhance its market share and revenue.
On October 11, 2024, Barclays reiterated its "Overweight" rating for Advanced Micro Devices Inc (NASDAQ:AMD), maintaining its previous grade. At the time of this announcement, AMD's stock price was $167.08. AMD is a leading player in the semiconductor industry, known for its CPUs and GPUs. It competes with companies like Nvidia and Intel.
AMD has made significant strides in the tech industry, marked by strategic moves such as hiring Jim Keller and transitioning to TSMC for manufacturing. These efforts have bolstered AMD's market position. The company's latest GPUs are poised to compete directly with Nvidia's upcoming Blackwell series, which could potentially pressure Nvidia's profit margins while enhancing AMD's market performance.
AMD's recent "Advancing AI" presentation highlighted the impressive performance capabilities of its next-generation chips, which are crucial for sustaining the company's growth outlook. The company forecasts that the total addressable market (TAM) for AI accelerators will expand at a compound annual growth rate (CAGR) of 60% over the next five years, reaching $800 billion by 2028. This strategic focus on AI innovations reinforces AMD's trajectory towards a potential stock price of $200.
Despite these positive developments, AMD faces risks due to its high valuation and the possibility that customers might start developing their own CPUs and GPUs. This could impact the long-term demand for AI-related products. However, AMD's increasing involvement in various key areas of the AI infrastructure ecosystem, including software, hardware, and cluster-level systems, is expected to bolster its revenue share in the long term.
Currently, AMD's stock price is $167.68, reflecting an increase of 2.13% or $3.50. Today, the stock has fluctuated between a low of $163.01 and a high of $167.79. Over the past year, AMD's stock has reached a high of $227.30 and a low of $93.12. The company has a market capitalization of approximately $271.39 billion, with a trading volume of 24,377,529 shares on the NASDAQ.
NASDAQ:AMD Acquires ZT Systems to Bolster AI Capabilities
- AMD's acquisition of ZT Systems for $4.9 billion aims to enhance its position in the artificial intelligence sector, competing closely with industry giants.
- The company's financial health is robust, with net cash from operating activities at $593 million, indicating strong operational efficiency and the ability to support strategic investments.
- Strategic financial management is highlighted by AMD's prudent investment and financing activities, maintaining a strong liquidity position with $3.962 billion in cash despite significant outflows.
NASDAQ:AMD's recent announcement to acquire ZT Systems for $4.9 billion marks a significant move aimed at bolstering its position in the artificial intelligence sector. This strategic acquisition is expected to enrich AMD's product offerings, potentially setting the stage for enhanced market competitiveness and growth. AMD, a key player in the semiconductor industry, competes with giants like Intel and NVIDIA, particularly in areas of CPUs and GPUs. This acquisition could provide AMD with a crucial edge in the rapidly evolving AI market.
The financial health of AMD, as reported for the recent quarter, showcases a company in a strong position to undertake such a substantial acquisition. With net cash provided by operating activities reaching $593 million, AMD demonstrates robust operational efficiency. This financial metric is crucial as it indicates the company's ability to generate cash from its core business operations, which is essential for supporting expansion and strategic investments like the acquisition of ZT Systems.
However, AMD's financial activities also highlight its prudent approach to managing its resources. The company's investment activities accounted for an outflow of $386 million, with capital expenditures of $154 million. This level of spending on investing activities is indicative of AMD's commitment to fostering growth and innovation. Moreover, the financing activities leading to a net cash outflow of $1.056 billion, primarily due to debt repayment of $750 million, reflect AMD's strategic focus on strengthening its balance sheet by reducing liabilities.
Despite these significant cash outflows, AMD managed to maintain a strong liquidity position, ending the period with $3.962 billion in cash. This slight decrease in working capital by $608 million, when viewed in the context of its acquisition plans and debt repayment, underscores AMD's effective financial management and strategic planning capabilities.
The acquisition of ZT Systems, therefore, is not just a strategic move to enhance AMD's portfolio in artificial intelligence but also a testament to the company's solid financial foundation and its ability to pursue growth opportunities. With a clear focus on expanding its technological capabilities and maintaining a healthy financial status, AMD is well-positioned to navigate the competitive landscape of the semiconductor industry.
