Advanced Micro Devices, Inc. (AMD) Q2 2023 Earnings Call Aug. 01, 2023

Lisa Su - Chair and Chief Executive Officer

• AMD's Q2 revenue was $5.4 billion, an 18% YoY decrease.
  The flat sales resulted from growth in Client and Datacenter segments being offset by declines in Gaming and Embedded Segments.

• Datacenter segment revenue was $1.3 billion, an 11% YoY decrease, but a 2% sequential increase.
  Gen 4 EPYC CPU adoption accelerated, doubling revenue sequentially as cloud providers expanded deployments.

• AMD launched multiple Genoa server instances with leading cloud providers, including AWS, Alibaba, Microsoft, and Oracle.
  Genoa provides up to 1.9x performance boost and 1.8x improved performance per watt compared to rivals.

• AMD expanded its Zen 4 server product portfolio with the launches of Bergamo and Genoa-X.
  This is being utilized by major players like Microsoft Azure and Meta across their global datacenter infrastructure.

• AMD expects EPYC revenue to grow by double-digit percentage sequentially in Q3, with the first EPYC processor optimized for Edge servers, Siena, set to launch in the same quarter.

• The company's AI strategy is three-fold:

  • delivering a broad portfolio of leadership GPUs, CPUs, and adaptive computing solutions,

  • expanding its established software platform, and

  • fostering deep partnerships across the ecosystem.

• Client segment revenue was $1 billion, a 54% YoY decrease but a 35% sequential increase due to growth in Ryzen 7000 series CPU sales.

• Gaming segment revenue declined 4% YoY to $1.6 billion due to lower gaming graphics sales, while Embedded segment revenue increased 16% YoY to $1.5 billion.

• AMD's Embedded segment expanded its adaptive computing product portfolio with Versal Premium VP1902 adaptive SoC and the Spartan UltraScale+ FPGA family.

• For the rest of the year

  • AMD expects seasonal growth in the PC market, a mixed environment in the datacenter market, and strong growth from 4th gen EPYC and Ryzen 7000 processors and initial shipments of Instinct MI300 accelerators.

• Outlook

  • The company predicts the market for AI accelerators will reach over $150 billion by 2027 and is increasing its AI-related investments to capture a significant share of this emerging market.

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

• AMDs second quarter results saw a revenue of $5.4 billion and a diluted earning per share of $0.58.

• Year-over-year revenue declined 18% as growth in the Embedded segment was more than offset by lower Client segment revenue.
  However, revenue was flat compared to Q1.

• Gross margin stood at 50%, down approximately four percentage points from a year ago, primarily due to lower Client segment performance.

• Operating expenses were $1.6 billion, a 3% increase year-over-year due to higher R&D investments.
  Operating income was $1.1 billion, down $114 million year-over-year.
  Operating margin was 20%.

• Interest expense, taxes and other was $120 million.
  Q2 diluted earning per share was $0.58, compared to $1.05 in the same period last year.
  EPS decline was mainly due to Client segment performance.

• Datacenter segment revenue was $1.3 billion, down 11% year-over-year, primarily due to lower sales of third generation EPYC processors.
  Operating income was $147 million or 11% of revenue.

• Client segment revenue was $998 million, down 54% year-over-year due to reduced processor shipment. However, revenue grew 35% sequentially.
  Client segment had an operating loss of $69 million.

• Gaming segment revenue was $1.6 billion, down 4% year-over-year.
  Operating income was $225 million or 14% of revenue.

• Embedded segment revenue was $1.5 billion, up 16% year-over-year, with an operating income of $757 million or 52% of revenue.

• Cash flow from operations was $379 million and free cash flow was $254 million.
  Inventory increased by $332 million to support the ramp of Advanced Technology products.

• Cash, cash equivalents and short-term investments were $6.3 billion at the end of the quarter.

• For Q3 2023

  • They expect revenue to be approximately $5.7 billion, a 2.5% increase year-over-year and 6.5% sequentially.

  • They expect the Client segment to be up, Datacenter segment to be flattish, and the Gaming and Embedded segments to decline.

  • They expect non-GAAP gross margin to be approximately 51%, non-GAAP operating expenses to be approximately $1.65 billion, non-GAAP effective tax rate to be 13%, and

  • The diluted share count is expected to be approximately 1.63 billion shares.

• Hu concluded by expressing satisfaction with Q2 results and optimism about their new product ramps driving sequential growth into the third quarter, and the company's position for long-term growth.

Anne Chapman

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