Advanced Micro Devices, Inc. (AMD) Q3 2023 Earnings Call Oct. 31, 2023

Here is a summary of the earnings call.

Lisa Su - Chair & CEO

Q3 Performance and Growth:

• Executed well in Q3 with strong top-line and bottom-line growth.

• Achieved significant milestones in AI hardware and software.

• Gained momentum with customers for AI solutions.

PC Segment:

• Over 50 notebook designs powered by Ryzen AI in the market.

• Collaborating with Microsoft on the next-gen Windows to leverage on-chip AI Engine.

• Expecting significant advancements in the Windows user experience.

Data Center Segment:

• Revenue grew 4% YoY and 8% sequentially to $5.8 billion.

• Strong growth driven by record server CPU revenue and Ryzen processor sales.

• 4th Gen EPYC CPU revenue grew over 50% sequentially.

• Gained server CPU revenue share, with 4th Gen EPYC CPUs representing a majority of revenue and unit shipments.

• EPYC CPU revenue grew significantly in cloud, with nearly 100 new AMD-powered cloud instances launched.

• Enterprise revenue increased by a double-digit percentage sequentially.

• Expanding the 4th Gen EPYC processor portfolio with Ciena processors.

• Turin server processors based on Zen 5 core in the labs and expected to launch in 2024.

Data Center GPU Business:

• Significant progress in the Data Center GPU business.

• Instinct MI300 accelerators gaining traction.

• Production shipments of Instinct MI300A APUs and MI300X GPU accelerators progressing as planned.

• Expanding AI software ecosystem and enhancing ROCm software.

• Strategic acquisitions of Mipsology and Nod.ai to strengthen AI software capabilities.

AI Roadmap:

• Multiyear Ryzen AI roadmap to deliver leadership compute capabilities.

• Focusing on AI PCs to redefine the computing experience.

Client Segment:

• Revenue increased 42% YoY and 46% sequentially to $1.5 billion.

• Strong demand for Ryzen 7000 processors and Ryzen 7000 Series notebook and desktop processors.

• Launch of Threadripper Pro workstation CPUs for professional design and rendering applications.

• Executing on a multiyear Ryzen AI roadmap for AI PCs.

Gaming Segment:

• Revenue declined 8% YoY and 5% sequentially to $1.5 billion.

• Strong demand for Microsoft and Sony consoles.

• Revenue growth in Gaming Graphics driven by increased channel demand.

Embedded Segment:

• Revenue decreased 5% YoY to $1.2 billion.

• Decline in revenue due to normalized lead times and reduced inventory levels.

• Expansion of Versal SoC portfolio for various applications, including fintech.

• Expecting sequential revenue decline as customers work through elevated inventory levels in H1 2024.

Outlook:

• Expecting strong growth in Data Center business, driven by EPYC and Instinct processors.

• PC market poised for profitable share gains.

• Focus on accelerating AI capabilities across the product portfolio.

• Expanding enterprise computing footprint.

• Upcoming "together we advance AI event" to share more AI progress details.

Jean Hu - EVP, CFO, & Treasurer

Q3 Financial Performance:

• Q3 revenue reached $5.8 billion, exceeding expectations.

• Revenue grew 4% YoY, driven by Client segment growth, despite lower Gaming and Embedded segment revenue.

• Sequentially, revenue increased 8%, supported by Client and Data Center segment growth.

Gross Margin:

• Gross margin was 51%, up approximately 1 percentage point YoY.

• Improved gross margin primarily attributed to stronger Client segment revenue and product mix.

Operating Expenses:

• Operating expenses amounted to $1.7 billion, a 12% YoY increase.

• Higher R&D investment to support AI growth opportunities drove the increase.

Operating Income:

• Operating income stood at $1.3 billion, representing a 22% operating margin.

• Taxes, interest expense, and other totaled $141 million.

Earnings per Share:

• Diluted earnings per share for Q3 reached $0.70, compared to $0.67 YoY.

Segment Performance:

• Data Center Segment:
  Revenue flat YoY at $1.6 billion but grew 21% sequentially, driven by strong 4th Gen EPYC processor sales.
  Operating income was $306 million or 19% of revenue.

• Client Segment:
  Revenue grew 42% YoY to $1.5 billion and 46% sequentially.
  Operating income was $140 million or 10% of revenue, marking a return to profitability.

• Gaming Segment:
  Revenue declined 8% YoY to $1.5 billion but aligned with expectations.
  Operating income was $208 million or 14% of revenue.

• Embedded Segment:
  Revenue decreased 5% YoY to $1.2 billion and declined 15% sequentially.
  Operating income was $612 million or 49% of revenue.

Cash Flow and Balance Sheet:

• Generated $421 million in cash from operations.

• Free cash flow reached $297 million.

• Ended the quarter with $5.8 billion in cash, cash equivalents, and short-term investments.

• Returned $511 million to shareholders through share repurchases.

Outlook for Q4 2023:

• Expected Q4 revenue approximately $6.1 billion, with a year-over-year increase of about 9% and a sequential growth of 5%.

• Strong double-digit percentage growth anticipated in Data Center and Client segments YoY.

• Gaming segment to decline due to console cycle, and Embedded segment to decline due to softening demand.

• Non-GAAP gross margin estimated at about 51.5%.

• Non-GAAP operating expenses projected to be around $1.74 billion.

• Non-GAAP effective tax rate expected to be 13%.

• Diluted share count estimated at approximately 1.63 billion shares.

Summary:

• Q3 results exceeded expectations with growth in revenue, gross margin, and earnings per share.

• Expecting strong Q4 performance driven by Data Center and Client segments.

• Focused investments in AI across segments position the company for long-term profitable growth.

Q&A followed.

Anne Chapman

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