AMD (NYSE: AMD) CEO Lisa Su: “AI is One of Our Largest Growth Opportunities”

AMD (NYSE: AMD) Q4 2022 Earnings Call Highlights

CEO Lisa Su

2022 was a strong year for AMD as we navigated the challenging macro environment to deliver best in class growth and record profitability. Driven by our embedded and data center segments, we also transformed the company. We accelerated our data center business and closed our strategic acquisitions of xyx and Pens.

Sano significantly diversifying our business and strengthening our financial model as our data center. Embedded product sales grew from 3.9 billion in 2021 to 10.6 billion in 2022. Looking at our financial results, fourth quarter revenue increased 16% year over year to 5.6 billion. Driven by significant growth in our embedded and data center segments, which accounted for more than 50% of overall revenue in the quarter.

On a full year basis. We grew annual revenue, 44% to 23.6 billion. We set annual records for revenue, gross margin, and profitability driven largely by a 64% increase in our data center segment revenue, and the strong performance of our embedded segment. Following our XYX acquisition, turning to the fourth quarter business results, starting with our data center segment, revenue increased 42% year over year to 1.7 billion, led by increased adoption of our epic processors by cloud providers in cloud sales to North American hyperscalers More than doubled year over year as hyperscale customers continued moving more of their internal workloads and external instances to Epic processors.

Epic processors now power more than 600 publicly available instances globally. Following the launches of new AMD based instances from aws, Microsoft, and others in the quarter, in enterprise revenue decline year over year has demand slowed based on the macro environment. Against this backdrop, we continue expanding our pipeline and closed a number of new wins in the fourth quarter with Fortune 500 financial services, automotive technology, energy, and aerospace companies.

In HPC growing Epic processor adoption was highlighted by the number of AMD powered supercomputers on the latest top 500 list increasing by 38% year over year. A MD now powers more than 100 of the world’s fastest supercomputers and 15 of the top 20 most energy efficient supercomputers in the world.

To build our data center leadership, we launched our fourth gen Epic processors this past November that deliver up to two times faster performance in cloud enterprise and HPC applications. And are up to 80% more energy efficient than the competition’s most recently announced offerings. We are seeing very strong customer poll for fors gen epic CPUs, which complement our third gen offerings with additional performance and capabilities.

Initial cloud deployments are going very well, and we expect to ramp both internal workloads and public instances throughout 2023. For enterprise, there are more than 144th gen epic platforms in development from hpe, Dell, Lenovo, Supermicro, and others. An increase of 40% compared to the prior generation.

Now looking at our broader data center portfolio, we had record sales of our Xylinks data center and networking products in the quarter, led by strong demand from financial services companies for our newly launched Alveo X three series boards optimized for low latency trading. sales of our Pendo. DPU also ramped significantly from the prior quarter driven by supply chain improvements and continued demand.

We are very pleased with the customer reception of the Pendo technology with good long-term growth opportunities as DPU become a standard component in the next generation of cloud and enterprise data centers. Data center GPU sales were down significantly from a year ago when we had shipments supporting the buildout of multiple instinct MI two 50 accelerator supercomputer wins.

In January, we previewed our next generation MI 300 accelerator that will be used for large model AI applications in cloud data centers, and has been selected to power the two plus Exaflop El Capitan Exoscale supercomputer at Lawrence Livermore National Laboratories. MI 300 will be the industry’s first data center chip that combines A C P U G P U and memory into a single integrated design.

Delivering eight times more performance and five times better efficiency for HPC and AI workloads compared to our MI two 50 Accelerator currently powering the world’s fastest supercomputer. MI 300 is on track to begin sampling to lead customers later this quarter, and launched in the second half of 2023.

Turning to our client segment, revenue declined 51% year over year to 903 million. We continued to ship below PC consumption in the fourth quarter as we focused on further reducing downstream inventory while overall PC demand remained soft Desktop channel sell through increased sequentially during the holiday season.

We launched our latest generation rise in 7,000 series notebook processors earlier in January, including our rise in 70 40 CPU series that deliver leadership performance and battery life, and are our first processors to feature rise in ai. The industry’s only dedicated on-chip AI inference engine in an X 86 processor.

Verizon AI is powered by the highly scalable XD n a architecture, which is the first integration of a MD and Xing ip. Less than a year after closing the acquisition, we also launched our Rise 70 45 series CPUs. Our first mobile processor is based on a triplet design that delivers significantly higher performance than the competition in gaming and content creation applications.

We have more than 250 ultra thin gaming and commercial notebook design wins spanning our full family of rising 7,000 series processors on track to launch this year. An increase of 25% year over year with the first notebooks planned to go on sale in February. Now turning to our gaming segment, revenue declined 7% year over year to 1.6 billion as lower gaming graphic sales more than offset higher semi custom revenue.

Semi custom s o c revenue grew year over year as demand for game consoles remained strong during the holidays. Gaming graphics revenue declined year over year. As we further reduced desktop GPU downstream channel inventory channel sell through of our radi on rx. GPU’s increased sequentially and we launched our high-end Radiant 7,900 series GPUs to strong demand based on the performance of our new R d three architecture and five nanometer triplet design.

In January, we announced our first rDNA three mobile GPUs that have been selected to power new gaming notebooks from Dell, Alienware, asus, and others that are on track to begin shipping in the first half of 2023. Looking at our embedded segment, revenue increased significantly year over year to a record 1.4 billion.

We had record sales across a number of our embedded markets, including communications, automotive, industrial and healthcare, aerospace and defense, and test emulation. In communications, we saw particular strength with expanded 5G wireless installations in India, and ongoing wired infrastructure deployments with tier one communications providers.

Automotive growth was driven by the ramps of new Ford Camera, 4D radar and infotainment wins across multiple customers. We recently announced multiple new wins for our automotive grade zinc ultra scale plus platforms with some of the largest vehicle equipment suppliers, including Asians Next Generation automated parking assist system, and Den SO’S next generation lidar platform that can improve the resolution required for autonomous driving and other industrial machine vision applications by 20 x.

We also continued to see strong growth with industrial and healthcare, aerospace and defense and test emulation customers in the quarter, driven by Sam expansion for our leadership, adaptive SOCs, new design, wind ramps, and increased supply across multiple nodes. Taking a step back as we approach the one year anniversary of the closing of our xyx acquisition next month, the integration has gone extremely well and our embedded business has become a major growth driver for amd, strengthening our financial model and significantly diversifying our business.

In addition, we are seeing substantial new revenue synergy opportunities as we combine xyx X’s Indu, industry leading adaptive products and 6,000 plus customers with AMD’s expanded breadth of compute products and scale. In summary, overall, 2022 was a strong year for AMD despite the weak PC market. . We significantly grew our data center embedded and gaming businesses and executed well across our product portfolio as we entered 2023.

We expect the overall demand environment to remain mixed with the second half stronger than the first half in the PC market. We are planning for the PC TAM to be down approximately 10% for 2023. We expect to continue to ship below consumption in the first quarter to reduce downstream inventory, which is reflected in our guidance in our embedded and data center segments.

We believe we are well positioned to grow revenue and gain share in 2023. Based on the strength of our competitive positioning and leadership, high performance and adaptive product portfolio, we do see elevated levels of inventory with some cloud customers, which will lead to a softer first half and a stronger second half of the year.

We continue working very closely with our customers to navigate the dynamic market conditions. While also making the right strategic investments to exit the current cycle with an even stronger and more differentiated set of products to drive future growth over the next several years. One of our largest growth opportunities is in ai, which is in the early stages of transforming virtually every industry service and product.

We expect AI adoption will accelerate significantly over the coming years and are incredibly excited about leveraging our broad portfolio of CPU’s, GPUs, and adaptive accelerators in combination with our software expertise to deliver differentiated solutions that can address the full spectrum of AI needs in training and inference across Cloud edge and client.

Now, I’d like to turn the call over to Jean to provide some additional color on our fourth quarter and full year financial results. Jean. Thank you, Lisa, and good afternoon everyone. 2022 was a very strong year for a m d. . We had a record revenue, gross margin profitability, and we generated a significant free cash flow.

The year was also highlighted by our strategic acquisitions of Zalink and Pan Sendo. Expanding on the diversifying our business portfolio. Fourth quarter 2022. Revenue for 5.6 billion was up 16% from year ago. Driven by higher revenue in the embedded and data center segment, partially offset by lower client and the gaming segment.

Revenue growth margin was the 51% up 70 basis point from a year ago, primarily driven by reacher product mix with a higher revenue in embedded and data center segment, partially offset by lower client segment. operating expenses were 1.6 billion compared to 1.1 billion a year ago, driven by the inclusion of Zalink opex and additional r and d and go to market investments to support the next phase of our revenue growth.

Operating income declined 66 million from year ago to 1.3 billion, and the operating margin was 23% down from 27% a year ago. That income was 1.1 billion flat year of year diluted. The earning per year was the 69 cents compared to 92 cents per year a year ago, primarily due to lower client the operating income.

Now turning to our report for Segment for the fourth quarter. Starting with the data center segment, revenue was 1.7 billion, up 42% year for year, primarily driven by strong growth in third generation epic server processor revenue, and the early ramp of a fourth generation iPic processors data center operating income was a 444 million or 27% of revenue compared to 369 million or 32% year ago.

Higher operating income was driven primarily by stronger revenue, partially offset by higher earned investment. To support the top plan revenue growth client on the second of the revenue was 903 million down 51% year for year due to reduce the processor shipments, resulting from a weak PC market and significantly inventory correction across the PC supply chain.

Client operating loss was 152 million compared to operating income of 530 million a year ago. All 29% of revenue, primarily due to lower revenue gaming. Segmented revenue was 1.6 billion down 7% year of year due to lower gaming graphics revenue, partially offset by higher semi customer product sales.

Gaming operating income was 266 million or 16% of revenue compared to 407 million or 23% a year ago. The decrease was primarily due to lower graphics revenue. Embedded segmented revenue was 1.4 billion, up 1.3 billion from a year ago, primarily due to the inclusion of zarlink embedded revenue. Embedded operating income was a 699 million or 50% of revenue compared to 18 million or 25% a year ago, primarily driven by the inclusion of xx.

Turning to the balance sheet, we have a strong balance sheet with the cash, cash equivalent and short term investment over 5.9 billion at the end of the fourth quarter. During the quarter, we return the 250 million to shareholders through share purchases. In 2022, we returned a total of 3.7 billion to shareholders, which was 119% of a free cash flow.

We have 6.5 billion in remaining authorization to share your purchases. Free cash flow was the 443 million compared to 736 million in the same quarter last year. Free cash flow decreased primarily due to higher inventory. Inventory was the 3.8 billion up approximately 400 and the 2 million from the prior culture, primarily driven by the inventory increase in advanced the process notes to support the ramp of new products.

Now let me turn to our full year financial result. 2022 revenue was 23.6 billion, up 44% year over year. Driven by increased the embedded data center and the gaming segment. Revenue partially offset by lower client segmented revenue. , I combined AMD and the zing company basis 2022. Proforma revenue was 24.1 billion, up 20% compared to 20.1 billion in 2021.

Gross margin was the 52% up 370 basis point from the prior year, primarily driven by richer product mix with higher revenue from embedded and data center segment, partially offset by lower client segment Revenue. Operating expenses were 26% of revenue compared to 24% in 2021. 2022. Operating income was 6.3 billion, up 2.3 billion.

An increase over 56% from year ago resulting in operating margin over 27% compared to 25% in 2021. Primarily driven by higher revenue and gross margin expansion. Net income was a 5.5 billion compared to 3.4 billion, up 60% from the prior year. Earning per share was the $3 and the 50 cents compared to $2 and the 79 cents for the prior year, primarily due to data center growth and addition of X full year free cash flow was a 3.1 billion, resulting free cash flow margin of 13% for the year.

We invested approximately 1 billion in long-term supply chain capacity in 2022 to support our expectations for future revenue growth and increase the market share. Let me now turn to our financial outlook. Today’s outlook is based on current expectations and the contemplates, the current micro environment.

For the first quarter of 2023, we expect revenue to be approximately 5.3 billion, plus or minus 300 million, a decrease of approximately 10% year for year. And the 5% sequentially year over year data center and the embedded segmented revenue are expect to grow offset by lower client and the gaming segmented revenue sequentially.

Embedded segmented revenue is expected to increase client and the gaming segmented revenue are expected to decline, largely consistent. The way the seasonality data center segmented revenue is expected to, to decline due to elevated the levels of the inventory with some cloud customers. In addition, for Q1 2023, we expect non gap growth margin to be approximately 50% non gap operating expenses to be approximately 1.6 billion.

Interest expense taxes and the other to be approximately 146 million based on 13% effective tax rate. The diluted share account is expected to be approximately 1.62 billion shares for the full year of 2023. We’re not providing specific guidance due to the uncertainty in the micro environment. However, let me provide some color.

Directionally, we expect embedded and data center annual revenue to grow from 2022 based on the strengths of our product portfolio and expect the share gains. In addition, we expect client and the gaming segmented revenue to decline based on the current demanding environment. We expect non gap growth margin to be approximately flat-ish in the first half and the expansion in the second half of the year.

We expect to manage your quarterly non gap operating expenses flat with the first quarter until we see the demand environment improves. For modeling purpose, we expect non gap effective tax rate for the year to be 13%, and the diluted share account to be approximately 1.62 billion shares. In closing, we had a strong year with the record revenue and the profitability driven by our leadership product portfolio and the diversification of our business.

Looking forward to 2023. As Lisa mentioned earlier, we’ll continue to focus on executing our long-term growth strategy while driving financial discipline and operational excellence. We believe our leadership of products, growing customer momentum and strong financial foundation position as well for long-term profitable growth.

With that, I’ll turn back to Ruth for a q and a session. Thank you Jean. Um, operator, if you could poll the audience for questions now, please. Certainly. If you’d like to be placed into question Q, please press star one on your telephone keypad. We ask you, please ask one question, one follow up, then return to the queue.

Once again, that’s star one to be placed into Question Q. If you’d like to remove your question from the queue, please press star Q. Once again, that’s star one to be placed into question Q, and we ask you please ask one question and one follow up, then return to the queue. Our first question today is coming from Matt Ramsey from Cowen Line is now live.

Um, yes, thank you very much. Good afternoon. Um, first of all, congratulations Jean. Um, and congrats as well to Deiner. I mean, the, the last five years of the company have been remarkable, but I. Remember all the work you and your finance team did six or seven years ago to, to keep the foundation stable for what’s happened since.

So, uh, enjoy the retirement. Um, my my first question, Lisa, is, is just about the drivers of, of 2023. You, you guys talked in the prepared script about all the different cross currents that are kind of going on right now versus your, the strength of your portfolio versus, um, some inventory, digestion in, in the data center space, and obviously what’s going on in the PC market.

But, uh, I’ve gotten about a, a zillion versions of the same question tonight, which was, do you, do you think the company can grow, um, for the year 2023 overall? And if you could just kind of walk us through the drivers of the business as we work through the year. Yeah, absolutely Matt. Uh, thanks for the question.

So there are lots of puts and takes in 2023 and, and we wanna give you, you know, kind of some of the drivers. Um, our, you know, largest growth driver is, um, certainly the data center. Uh, we are, you know, a very, um, positioned well with our product portfolio. Uh, we just launched our, uh, Genoa fourth gen, epic.

We also have Bergamo coming, um, you know, this year as well. You know, when we talk to our cloud customers, um, what they’re telling us is, you know, they, um, they appreciate the execution of our roadmap. and uh, we have an opportunity to move more workloads to AM MD as we go through, um, the year. So we feel very good about our product positioning.

Um, you know, as we mentioned in the prepared remarks, uh, you know, coming off of a very strong 2022, uh, there is, um, some inventory at, um, some of the cloud customers. And so we are expecting a softer first half and then a stronger second half. Um, but we feel very good about our market share position and opportunity to grow with data center.

Um, also on the embedded side, I would say we have a very strong portfolio there. The XYX business has done, uh, very well in 2022. Um, it’s a diversified set of markets. Um, you know, we see strength in a number of the end markets and, um, so we think, uh, that’s also a grower for AM md. Um, on the other. our, um, you know, client and gra uh, gaming businesses, uh, we believe will decline.

Um, you know, we have made, um, good progress when we look at the PC market, you know, in the second half of the year, uh, of 2022. We were, um, you know, really trying to rebalance inventory and I think we made progress exiting q4. Um, you know, we’re still expecting to ship. Below consumption in the first quarter.

Um, and then, um, you know, sort of go from there. You know, our product portfolio is strong. Uh, we think there’s an opportunity for, uh, growth as we go into the second half of the year. Uh, but we think overall for the year, um, client, uh, will decline just given the tam. Um, and then on the gaming segment, you know, again, we’re coming off of a very strong 2022.

And so, um, you know, console demand has been, um, actually quite strong. Um, and, you know, given where we are in the cycle, uh, we would expect, you know, gaming to be, um, down on a year over year basis. But, you know, overall, um, I think, uh, lots of puts and takes, but you know, we’re, uh, you know, positive on, you know, what we can do in terms of the data center and the embedded segments, uh, given our product portfolio.

And, you know, we’ll watch the macro on, um, you know, the client in gaming and, and see how that. Um, thank you very much, Lisa, for, for all the, the details there. I, I guess it’s my follow up. I wanted to ask a, a question about gross margin. The margin I guess, sequentially down a little bit in, into March, but I, I kind of wanted to focus on the, the drivers of, of the longer term margin that’s down I, I guess three or four points from where you were, uh, a few quarters ago, despite more mix of the revenue coming from embedded in data center.

So if, if there’s any way that you guys could try to quantify maybe how much of, uh, the, the margin headwind is, is from just lower client revenue, how much of it might be from any programs that you’re working through to, to clear the channel, uh, and, and how might we model what are the drivers that we should think about in terms of the margin recovering?

Thank you. Yeah, maybe. Um, so on the overall margin, the way to think about our business, um, Matt is, and a margin is, uh, primarily driven by product mix. So as the embedded in data center, uh, businesses are, uh, grow, um, you know, sort of the margin expansion, uh, grows with it. Um, in terms of the, uh, sequential, um, you know, question that you had from Q4 to q1, that’s just a, a, a product of the mix.

So with data center being, um, you know, lower sequentially, uh, that, um, you know, that’s, that, uh, we are also, uh, working through our client, um, inventory clearing, you know, what we’re seeing in the PC business is, um, as we’re going through this, um, you know, sort of normalization of inventory, uh, especially on some of the older products, uh, we ha we do have more marketing programs and, you know, pricing incentives in place.

Uh, we do expect that to normalize as we go through the first half of the year. And so, as, um, you know, Jean said in the prepared remarks, uh, we would expect margin expansion as we go into the second half. With the, uh, growth and data center embedded and some normalization of the client business as well.

Thank you. Next question is coming from Aria, from Bank of America, security Airline is now live. Uh, thanks for taking my question and, uh, thanks and best to the vendor and Gene from my side as well. Um, on the first one, Lisa, I think you mentioned some elevated inventory, uh, among your cloud customers. I was hoping you could give us some quantification of how elevated, is it a one quarter issue, is it a two quarter issue?

Um, you know, does it impact the pace of your, uh, gen ram? Because I think coming into this year, the expectations were you could grow server sales by over, uh, 20%. Do you think that is still, you know, a, a possibility? Because I imagine you get some benefit from, you know, better general pricing. So just puts and takes of how we should think about your, uh, data center business, uh, uh, through this year.

Yeah, sure. Vec. So, uh, look, we remain very bullish about our data center business. I mean, I think the, the feedback that we’ve gotten on Genoa from our customer set is, uh, very strong. And as I said, the, the important thing is, um, you know, we are expanding workloads, uh, in terms of, uh, you know, where we believe the, um, you know, as the, um, inventory normalizes, um, you know, each customer is different.

So they have, um, you know, what they’re trying to achieve in terms of, of inventory levels. Um, our expectation is that, you know, sort of the first half softness for cloud, um, and then second half strength as, um, as that’s worked through. But like I said, it’s, it’s different for, you know, each cu uh, each customer.

And then in terms of, you know, overall growth, um, you know, as I said, we’re, we’re very, um, you know, bullish on the overall growth of our data center business and, you know, the opportunity to gain share. Um, as we, uh, go through the year and as we go through the ramp in Genoa, um, you know, we do have more content with the higher core count.

That should also help ASPs.

And then, um, on the PC side, and also kind of, you know, kind of as it relates to the pricing environment, um, you mentioned the PC TAM is, uh, you know, could be down about 10%, but when we look at the shipments, um, right from you and, and your competitor, you know, they could be down as much as 40 or 50%, um, right.

Year on year in, uh, q1. So do you think there’s a possibility that the time assumption of just down 10% could be an optimistic one? Um, because I would imagine that would suggest, uh, the inventory clears out soon. Uh, but you’re suggesting that it may not clear out till, uh, q2. So, uh, I was just hoping you could give us some better sense for, you know, when the PC market starts recovering and, and do you think it could become more price competitive, uh, before it recovers?

Yeah, so, um, maybe just to make sure that we’re, um, uh, just correlating the numbers. So, um, you know, my comment about. PCT being down 10% was assuming, if you take a look at sort of what IDC just published for, um, you know, 2022 at about 290, uh, million units, and that’s more of a, a sell through tam, um, versus a, uh, a sell in tam.

So we have been under shipping, um, sort of the, the, uh, The sell through or consumption for the last two quarters, um, in an attempt to, uh, renormalize that as soon as possible. Um, in terms of, you know, do I think it’s conserv? I, I think it’s in the zip code. I think it’s in the zip code. So if you imagine, uh, 2023, uh, sell through TA of about, you know, 260 million units, plus or minus, um, uh, seems to be, um, about the right number.

Uh, we have made good progress in, um, inventory normalization. Um, you know, we want to be cautious, obviously, uh, heading into, um, the. The year just given the macro environment. Um, you know, first quarter we said would be roughly seasonal. Um, you know, for PCs, I think second quarter, you know, first quarter should be the bottom for us in PCs.

Uh, we, um, and then grow, uh, from there into the second quarter and then into the second half. And, and I should note also vec. I mean, we just launched our Rise Rising 7,000 series, uh, with, um, uh, you know, sort of our, our ai uh, capabilities, uh, both from, you know, from a notebook and desktop standpoint. So we feel good about the product roadmap and PCs and obviously we have to get through, um, this normalization.

Um, you know, most of the, uh, you know, the focus is on continuing to differentiate our products and working with our customers to, um, you know, to offer, you know, sort of very strong platforms. Thank you. Next question is coming from Stacy Rascon from Bernstein. Researcher Line is now live. Hi guys. Thanks for taking my questions.

Um, I noted that you, you said that gross margins would expand in the second half, but you didn’t give us any color on, on how much they might expand. Can you give us any idea of like first half to second half? I mean, just for the full year, do you think gross margins grow year over year from the 52% that you printed in 2020?

Hi Stacy, this is Jean. Uh, let me take this question then Lisa can add. Is, uh, uh, as we talk about it, is both our embedded and data center segment have strong growth margin, so feel pretty good about, uh, second half. We continue to have the growth of both embedded and data center segment. The major height when we are facing is really client side, uh, which if you think about the gross margin, the first half of, of 2022 versus the first half of 2023, the major impact is from the client.

Uh, revenue inventory correction, which impact the gross margin in the client Sacramento. So going into second half, the normalization of a client on the segment will help us to expand the gross margin. Uh, I think it really depends. How the client segment will recover, that will drive the gross margin if it’s going to go back to the first half, 2022 or expand beyond that level.

But overall we feel pretty good. Once we normalize the client segment, our gross margin will continue to expand. So I guess, ask the question again for 2023. Do you think gross margins can expand over the 2022 maybe? Uh, what I would say Stacy, is I think we’ve given you the puts and takes for where the margin goes.

I think it depends a bit on what happens in the macro environment, but um, you know, we do feel, you know, good about second half expansion and you know, we’ll see sort of the relative recovery in, um, in macro as it, uh, relates to, you know, all of our segments. Got it. Thank you. I guess for my follow up, maybe it follows up on that a little bit more, just around the mix.

Um, I get how data center. and embedded should be growing in the second half versus the first half, but presumably client will too. First half to second half. Given that you are, you know, under shipping, sounds like by a pretty wide margin right now, how do you feel about your mix just, just across the four businesses of the second half versus the first half?

Do you think your data center plus embedded mix as a percentage total revenue in the second half is materially higher than it is in the first half? Or, I mean, could it, could it even be, you know, not, not that different at all, given the potential growth that you might see just from the channel normalization in client?

Yeah, I think the, um, the way to think about it is I think our, our data center grow, uh, growth in, you know, the second half versus first half, we expect that to be, uh, significantly stronger as it relates to client. We would also expect it to be stronger. Um, again, depending a bit on macro and sort of how the tam, uh, actually evolves.

I think for the embedded businesses, I would say that we expect to grow over the full year, um, 2023 versus 2022. Um, what we see right now is a fairly, um, you know, strong backlog and good visibility into the first half of the year. Um, I’m not ready to say that embedded will grow in the second half versus the first half though, because we are coming off very strong growth, um, already, and uh, so I think those are the puts and takes.

Thank you. Next question is coming from Toshia Hari from Goldman Sachs line is now. Hi, good afternoon. Thank you so much for, for taking the question. Um, Lisa, the, the pushback that we often get is, you know, AMD is doing really well, gaining share, but you’re gaining share in relatively mature markets. And, you know, when it comes to ai, you do have a strategy, but you really haven’t shown, you know, the, the products yet, if you will.

Um, you talked about, you know, how you have cpu, gpu, F PGA and, and Pendo and, you know, you’re shipping samples of MI 300 i I guess later this quarter and potentially launching in the second half. You know, at what point do we as analysts and investors start to see, you know, your, your AI strategy materialize in the p and l and, and, and your profitability, if.

Yeah, thanks for the question. Um, uh, you know, I, we believe that AI is a huge driver of, you know, compute growth. And given our portfolio, um, it should be a driver of, you know, our growth as well. I think if you think about the product sets, um, that we are, you know, uh, putting, you know, sort of AI content in, you should expect, uh, you know, MI 300 of course.

Um, on the GPU training side, uh, we just launched Verizon ai. Um, in our, um, PC portfolio, uh, you can expect, um, additional, you know, AI acceleration, uh, coming in our server portfolio as well. So you’re gonna see AI broadly across, um, our, our roadmaps. Um, in terms of, you know, when, you know, we’ve talked before about sort of our data center, G P U ambitions and, um, the opportunity there, uh, we see it as a large opportunity, um, as we go into the second half of the year and launch MI 300, you know, sort of the first user of MI 300 will, uh, be the super computers or El Katon, but we’re working closely.

Um, with some large cloud, um, uh, vendors as well, uh, to qualify MI 300 and AI workloads, and we should expect that to be more of a meaningful contributor in 2024. So, uh, lots of focus on, you know, just huge opportunity. Um, lots of investments, um, in software as well to, uh, you know, bring the, um, the ecosystem, uh, with us.

That’s very helpful. And then Lisa, as my follow up, um, had a question on profitability in, in your client business, um, or your PC business. Um, I think a year ago, you know, margins were, were really high. You know, supply was relatively tight. Um, since then with the inventory correction and perhaps a little bit, little bit more competition, your, your profit margins are, are down.

You, you talked about the first half of this year still being sort of in digestion mode and, and then in the second half, things normalizing. But w would it be realistic to assume your gross margins in the client business returned to first half, 22 levels or in hindsight, you know, margins back then were, were, were, were perhaps, you know, you were overrunning in that business given the environment.

Thank you. Yeah. Sure. So I think on the client, um, you know, segment, I, it’s, it’s fair to say that, um, you know, we believe given where we are with, you know, the client, um, you know, inventory levels, the first half will certainly be lower. Uh, we expect some improvement in the second half. But in terms of, you know, overall, you know, margin, we expect that, you know, the client business, uh, will be below the corporate average.

And, you know, that’s how we’re, uh, modeling, uh, the client business. Thank you. Next question is coming from Aaron Rikers from Wells Fargo. Your line is now live.

Aaron, perhaps your phone is on mute. Please pick up your handset. Yes. Uh, thank you, uh, for taking the question. Um, yeah, I guess the first question is, you know, going back to the, the da, the data center piece of the business and specifically around the ramp of Genoa, I’m curious of, you know, is there any help that you can provide us as thinking about the A S P uplift you expect to see with the Genoa product cycle and.

I guess at some point through 2023, how do we start to think about the beamo, uh, product cycle as well, uh, impacting, uh, the, the server CPU business? Sure. Um, so Aaron, um, you know, we started shipping, um, you know, Genoa in the third quarter, um, that ramped into the fourth quarter. It will continue to ramp through 2024.

Um, the way I think about, or, you know, the way you should think about the Genoa ramp is, um, Uh, it is a new platform for our customers, so they’ll be introducing it, uh, you know, introducing, you know, first in cloud, um, sort of internal workloads and then, um, going to external workloads and then, you know, enterprise.

So I think it’ll be, um, you know, throughout 2024, uh, we have, I’m sorry, throughout 2023, um, you know, we do have higher core counts on, uh, Genoa. So you would expect that, um, you know, that will give us some ASP uplift, um, as we, uh, you know, go through to some of those, um, higher core count, uh, products. Um, Bergamo will launch in the first half of the year.

We are on track for the Bergamo launch, and, um, you’ll see that become a, uh, larger contributor in the second half. So as we think about the Zen four Ramp and the crossover to our Zen three ramp, um, it should be, uh, you know, towards the end of the year, sort of in the fourth quarter, that you would see a, a crossover of sort of Zen four versus Zen three, if that helps you.

Yeah. Yeah, that, that’s very helpful. And then if a quick follow up, I, you know, this business isn’t really ask that much about, but but’s been doing phenomenally well here in these last couple quarters. Is, is actually the XXX business. I know it’s within the embedded largely, but, but, you know, yourself reporting, I, I think if I read the, the, the filing correctly, growing 40% plus on a, on a, you know, like to like basis for XY linx, I think your competi.

Also growing a solid pace. How do you think about the sustainability or durability of that demand in that embedded or xyx business as we move through 23? Sure. So Aaron, um, now that bus business has done very well. So, uh, you know, the XXX business, I think our overall embedded business, um, continues to do well.

You know, when we look across the, um, the, uh, sub-segments, there are puts and takes in the sub-segments, but what we see is content is going up. So, uh, we had records and communications, um, industrial and healthcare, um, aerospace and defense. Automotive, uh, you know, we have the embedded processor content that’s also going into automotive, so we feel, um, you know, very good about that business.

I think as we look into 2023, I, I mentioned this in the question with Stacy. Uh, you know, we have a very good visibility to the first half just given the lead times and the backlog and the first half looks strong. So, you know, we expect to grow sequentially in the first quarter. Um, you know, as we go into the second half of the year, we’re monitoring the, um, you know, the overall demand environment and just given how strong it’s been, um, you know, we are looking at, you know, whether there’ll be some puts and takes and some of the end market segments there.

But overall, I think the, the key point is the, um, the content and our design win momentum is, is good. And, uh, we continue to, uh, ramp new design winds, um, in, uh, the zings business. Thank you. Next question is coming from Joe Moore, from Morgan Stanley. Your line is now, . Great. Thank you. I wonder if you could, uh, talk to us about the puts and takes of PC market share in a down 10% environment.

You know, I would assume it helps you if consumers better than commercial, but, you know, what is your progress in terms of penetrating the notebook market and penetrating the commercial market where you could continue to gain share? Yeah, uh, Joe, we, um, you know, we view that, uh, the opportunity. So first of all, I would say that in general, the, the PC market share numbers are probably a bit noisy right now, just given, um, you know, all of the, the sell-in sell through and the inventory dynamics that are being worked through.

Um, actually in the fourth quarter, we believe we gained a little bit of share. And in the, um, in the PC market as we go forward into 2023, um, uh, we think our product portfolio is very strong. Um, you know, as we look at rising 7,000 and where it goes and where we are positioned, um, in, uh, the commercial. , um, as well as a high end, um, consumer segments.

We’re not changing our strategy on PCs, you know, quite, um, you know, a few years ago we, we really focused on sort of the more premium segments. Uh, we have, you know, less penetration in the low end, which, um, I think is helpful. And as we go forward, um, you know, we’re continuing to focus on, uh, commercial PCs and, um, you know, getting a larger footprint in there.

I will say the, um, the enterprise work that we’re doing on the server side, I think links very well to the commercial pc, um, uh, work and, you know, we’re continuing to invest in sort of the sales and, and, uh, marketing resources to, uh, to ramp that side of the business. Great. And then going back to the general question, um, that was asked a second ago.

Uh, you know, as you are in this kind of budget conscious environment, you’re introducing a, a chip in a system that has pretty high platform costs, you know, does that slow the adoption at all? Seems like people, you know, and your competitors dealing with some of the same issues, you know, just how, how does the current environment affect the, the, the rate at which Jenna Wood.

Yeah, I would say, Joe, the total cost of ownership benefit of Genoa, um, particularly in, um, some of the, the larger cloud workloads is very, very significant. So I, I wouldn’t say that that’s, um, necessarily slowing, um, the pace of adoption. Um, it is a new platform though, so if you think about, you know, when we went from Rome to Milan, it was, you know, basically similar platforms.

So I would say that that ramp was, um, a bit faster. But as it relates to Genoa, we had always expected that Milan and Genoa would coexist through 2023. and that we would have, um, you know, we still have Milan instances that are just ramping, uh, now and we expect, um, that will continue through 2023. And so, you know, I, I really view this as the natural thing when we introduce, uh, Genoa at, you know, sort of the, the higher core count that both will, um, coexist and, you know, as some of the platform costs, uh, come down, you’ll see, you know, the general cutover.

And that’s, that’s what I mentioned towards the, um, fourth quarter of 2023. Thank you. Next question is coming from Ross Seymour from Doja Banker Line is now alive. Hi everybody. Thanks. Well, let me ask a question. And Jean, congrats on the new job. Uh, Lisa, I was hoping you could give a little bit of sequential color to just size the magnitudes of the, the three segments that are going down in the first quarter and, and then embedded going up.

And, and really what I’m getting at there is in an answer to a prior question, you talked about the mix being a headwind to gross margin and, and I think Jean, you cited data center dropping as a percent of the mix. So just trying to get the magnitudes of, of just how much data center has to drop to make that outcome and on the mix side be true.

Uh, sure Ross, so let’s see. We said, um, the client and gaming segments would be, um, you know, seasonal. Um, so, uh, you would expect that, uh, the data center would be more than seasonal. So maybe to help you size that, um, you know, think about the data center sequential drop as double digit, whereas, um, the, uh, the client and the gaming segments are more like single digit, if that helps.

Yes, it does. And, and anything similarly on embedded, is that kind of a single digits? Oh yes, yes. Embedded will will grow sequentially. Single digit. Yeah. Got it. Sorry for the, uh, the nitpicky question, a bigger picture one for you than Lisa on competitive intensity. Uh, on one hand I could see that the total cost of ownership, benefits of these products, multi-core, better performance, et cetera, could lead to higher ASPs.

Whether you’re talking about the data center side or your client business on the other side, competitive intensity and overall demand is weaker. Uh, and at some point you might even get, uh, deflationary costs on the, the, uh, foundry side of things. Can you talk a little bit about the pricing environment, given those somewhat contradictory pressures?

Sure. So, um, maybe let me separate data center and uh, and client cuz they’re a little bit different I think on the data center side. Um, So we would, we, we do see that in general, the, the performance, the power performance, the um, the total cost of ownership, you know, selling the solution. Um, is the most important, um, piece of it because the, the solutions are actually quite different in terms of what you can do, uh, between, you know, sort of fourth gen, epic and, um, you know, sort of other solutions.

Um, you know, the, the environment is always competitive, but we feel, um, you know, very good about the overall value proposition that we bring to both cloud and enterprise customers. Um, I think on the client side, you know, we’ve said for the last, um, couple of quarters that the pricing environment is more aggressive.

I think that normally happens when, you know, the industry is working on rebalancing. I think, you know, we’re working on rebalancing. Our OEM partners are working on rebalancing the, the retailers are working on rebalancing and so, um, you know, there are more incentives and more, uh, a more aggressive pricing environment.

You know, I view that, um, that’s primarily on, you know, let’s call it older products, let’s call it previous generation products. And, um, as we work through that, , uh, there will be some no normalization. Um, as we, you know, think about our newer generation products where, uh, you know, there’s, uh, you know, more capability added.

So hopefully that gives you a little bit of the, the puts and takes and, um, you know, in terms of the, the cost environment, I think all of us in the industry have seen some elevated, um, costs. But I think, you know, we also see, uh, expect that to normalize too as, um, you know, everyone is, uh, you know, sort of optimizing their CapEx spending.

Thank you. Thank you. Next question. Today is coming from Mark Leis from Jeffrey Joline is now live. Hi, uh, thanks for taking my question. Um, and congrats to Jean on the new seat. Um, two questions if I may. First, um, the PC side, uh, can you give us a sense of about roughly how far under consumption you’re, you’re believe, you believe you’re shipping on the PC side, either in, in Q4 and q1?

And, and Lisa, um, uh, correct me if I’m wrong. I, I, I thought I heard you say, uh, in an answer to an earlier question that, uh, you’d expect the PC client is just to grow into second quarter. So is that, is that suggest that that one queue you, you think is the bottom on the pc? And, and then I had a follow up.

Thank you. Uh, sure, mark. So, um, we, so, uh, the, the first, uh, the second question, uh, yes. Um, we do believe, uh, the first quarter is the bottom for our PC market, uh, for our PC business. Uh, and, um, you know, we’ll see, um, some growth in the second quarter and then, you know, a seasonally higher second half. Um, in terms of the under shipment, I mean, I think we’re, you know, we’re we, um, under shipped in q3?

We under shipped in q4. Uh, we will under ship to a lesser extent in q1. So, um, I think you can, you know, infer that from our guidance of, um, you know, single digit, uh, down and, um, and then, you know, we’ll, we’ll be back to a, a more normal environment. Now, just as a reminder though, you know, the first half is not usually a, the first half is usually a seasonally weak client, um, you know, time anyways.

So, uh, we would expect, uh, more lift in the second half. Um, not, not so much in the second quarter. . Gotcha. Okay. That’s very helpful. Thank you. And then, um, a follow up if I may, on the, uh, you know, chi, if China’s lifting as they’re lifting the Covid restrictions, I, I guess, you know, I would imagine that you would expect that ultimately at some point to translate into higher demand.

Um, and, and I’m, I’m wondering if, if you just kind of, um, share with us, with us your thoughts about how that might play out and, and could you remind us, um, you know, is, you know, to the extent that you can, um, help us understand the, the risk to the supply side for you. Um, in the event that, you know, the covid, uh, spreads rapidly as they, as they lift the, um, restrictions and, you know, impacts, you know, what you have on the supply side there, uh, Sure, mark.

So, uh, we’ve, um, we’ve done a very good job in our supply chain in terms of, uh, risk mitigation. So we have, um, you know, uh, we don’t believe that we have a significant risk as it relates to, you know, covid future, um, uh, outbreaks, if there are any. Um, as it relates to China recovery, um, I think we would benefit from a China recovery.

It’s very difficult to call. I mean, we’ve seen, um, you know, certainly in our data center business, uh, you know, we saw in the second half of the year and, uh, last year in the first half of this year that the China data center business has been weak for us. Um, if there was a recovery, I think we would benefit from that.

Uh, similarly, you know, some of the, um, the other, you know, consumer patterns as well, but it’s very difficult to call. So, um, you know, we, we put that in the bucket of macro uncertainty and we’ll see how it plays out. Operator, we’ll take, uh, two more questions from two callers please. , certainly. Our next question is coming from Chris Ainley from City or Line Is it Now Live?

Great. Uh, thanks ladies. Congrats on being the first all female ceo, CFO team in. That means it’s a long time coming. Um, hey, so your, uh, your gross margins held up pretty well, uh, for the Q1 guide despite, you know, high margin data center business going down. So, uh, if the data center business remains weak and has a rough quarter in q2, can we expect a similar, uh, gross margin resiliency?

Uh, yeah, definitely. I think, as I said earlier, the major impact on growth margin actually is the PC client side. The stabilizing stabilization and the bottoming of client, the business really help us with the growth margin at the current level. Second half, we should see the expansion of growth margin.

Sure. And as my follow up, um, on your PC client business, so it, uh, it, it, uh, had its correction a little bit later than some of the other folks in the semi industry and was, you know, obviously a little bit steeper. Can you talk about why that happened and you know, why we should, should, or should not expect that?

Or could that happen in the data center business as well? Um, I, I guess Chris, what I would say is, uh, I think the, you know, the PC market has been volatile and we did significantly, uh, you know, there, coming off the pandemic, there was, you know, very high demand during the pandemic. And I think, you know, we were all adjusting, um, as, uh, as we’re, you know, looking at, you know, sort of the demand environment post pandemic and with macro uncertainty.

Um, I think the data center business, uh, we. Um, you know, again, our, uh, we’re heavily weighted towards cloud and we have very, um, you know, good discussions with our, um, overall customer set in terms of what they need. Um, I think what’s going in our favor in the data center is, um, our workloads are expanding.

And so, you know, we’ve heard from all of our cloud customers that, um, you know, they’re adopting, uh, both Milan and Genoa in more workloads than, um, you know, previous. And so I think that gives us, um, you know, good confidence and, and frankly, the data center customers are also giving us, um, you know, good visibility into what they need for 2023.

So, you know, there is an adjustment in the first half and, um, I think that’s, uh, that’s something that we understand and, you know, we also expect that we’re going to have to ramp up production in the second half as, um, some of the demand resumes. And I think the. Factor of, um, you know, compute in the cloud, being, uh, you know, very important, long-term driver is, uh, is definitely there.

So, you know, we feel good about, um, you know, sort of where we’re positioned. Thank you. Our final question today is coming from Timothy Arcuri from ubs. Your line is now live. Hi. Thanks a lot Lisa. Um, I had a question on your client business. Um, I know that your competitor at times uses, you know, rebates and subsidies, but the numbers that are in their filings have gotten pretty big.

Um, so I take it from your answer to a prior question that you think that’s more on legacy parts. Um, I guess I’m just kind of wondering what, uh, changes or, you know, impact that’s had on your business. And, you know, I continue to hear these, uh, uh, you know, worries that it’s gonna have some lasting effect on your share.

And, you know, particularly on your. , thanks. Sure, Tim. So, um, maybe let me, lemme make a couple points. I think, you know, all of us as we participate in the PC industry, there are, you know, various, um, you know, parts of the, the ecosystem that, uh, that we work with. We work with our OEMs, we work with our retail partners, we work with our, you know, distribution and channel partners.

Um, and, you know, we’re all working together to, uh, work through, you know, sort of the elevated inventory levels. Um, as I said, I think we’ve made good progress, um, on that. And I think we have, um, much better visibility into, um, you know, the various pieces, uh, as it relates to. , you know, the, um, uh, the pricing environment.

Um, I do believe that the pricing environment is, uh, particularly when you’re clearing, um, older inventory or, um, you know, older generation, um, products, uh, is, um, a bit more competitive. And, you know, we, uh, we see that, um, as we look forward, um, the way we’re modeling, um, the client business is that we are modeling, uh, gross margins to be less than corporate average.

Um, that’s different than, um, our previous, uh, modeling. So previously, um, you know, client was more like, you know, at, um, at corporate average. And I think given the, the, you know, I think the nice thing is our business is, uh, quite a bit more diversified now. And so with our data center embedded businesses, um, you know, really being strong growth drivers, I think client continues to be a good market.

Um, overall. And as we work through this, uh, you know, we will, um, you know, see some of the normalization that Gene mentioned. Thanks. Well, Lisa, and then I guess just as the last thing you went through, some puts and takes, um, on, you know, On the different, uh, you know, pieces for the year. But I just, you know, wondered if I could just get you to kind of give a bias for, uh, you know, what you think that the, that, you know, uh, revenue for the year is, is the bias.

It sounds to me like the bias is more up than down, but I just wanted to give you a chance to maybe, uh, you know, confirm that or not. Thanks. Um, I think Tim, the answer is yes. Uh, but, uh, you know, again, let’s work through the, um, the next couple of quarters and, uh, you know, we feel good about, um, how our products are positioned and we just need to, you know, work through the macro and, and, um, you know, see how that, uh, plays out.

Great. Uh, thank you, um, that con that concludes today’s, um, earnings call. Again, welcome to Jean. Um, we’re delighted to have her on board and, um, much gratitude to the vendor for his 39 years of service and all his leadership. And we’ll look forward to touching base with all participants, uh, throughout the quarter.

Thank you. Thank you. That does conclude today’s teleconference, webcast me disconnect line at this time and have a wonderful day. We thank you for your participation today.

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