The operator welcomes participants to the AMD Third Quarter 2023 Earnings Conference Call and introduces the speakers, Mitch Haws and Dr. Lisa Su. Non-GAAP financial measures will be referenced and can be found on the company's website. Upcoming events and conferences are mentioned, and the quiet period for the fourth quarter is expected to begin on December 15.

In the third quarter, the company delivered strong financial results and achieved milestones in their AI hardware and software roadmaps. They also saw growth in their PC and Data Center segments, with multiple large customers committing to their Instinct MI300 accelerators. Overall, revenue grew by 4% year-over-year and 8% sequentially, driven by record server CPU revenue and strong Ryzen processor sales. In the Data Center segment, revenue was flat year-over-year but grew by 21% sequentially, with record quarterly server processor revenue. The company gained server CPU revenue share and saw significant growth in 4th Gen EPYC CPU revenue, which now represents a majority of their server processor revenue and unit shipments.

In the cloud market, AMD's EPYC CPU revenue saw strong growth as more hyperscalers adopted the processors for their internal workloads and public instances. The company also saw growth in enterprise demand due to the performance and cost advantages of its Genoa processors. AMD expanded its EPYC portfolio with the launch of Ciena processors for edge and telco applications, and partnered with Dell, Lenovo, and Super Micro to address new markets. The company is also preparing to launch its next-gen Turin server processors in 2024, which have received positive feedback from customers and partners.

In the third quarter, AMD saw significant progress in their Data Center GPU business thanks to their investments in hardware and software. They have begun production shipments of their Instinct MI300A and MI300X accelerators, and have expanded their AI software ecosystem and improved the performance of their ROCm software. They also acquired Mipsology and Nod.ai to further strengthen their AI software capabilities.

Nod's compiler-based automation software is expected to accelerate the deployment of AI models for Instinct, Ryzen, EPYC, Versal, and Radian processors. Data Center GPU revenue is expected to reach $400 million in the fourth quarter and exceed $2 billion in 2024. The Client segment saw a 42% increase in revenue, driven by strong demand for Ryzen 7000 processors and the launch of Threadripper Pro workstation CPUs. AMD is focused on growing this margin-accretive portion of their client business. They are also working on a multiyear Ryzen AI roadmap to deliver leadership compute capabilities for AI PCs. The Gaming segment will be discussed next.

In the most recent quarter, AMD's revenue declined due to lower semi-custom sales, but was partially offset by increased demand for Radeon GPUs. The company also saw growth in their Gaming Graphics segment. In the Embedded segment, revenue decreased as expected due to normalized lead times and customer focus on reducing inventory levels. However, AMD continues to expand their leadership in this segment with new product launches, including adaptive SoCs and an enhanced AI Engine. Looking ahead, the company expects a sequential decline in Embedded segment revenue as customers work through elevated inventory levels.

The company sees strong growth opportunities for their Embedded business in the medium term, driven by design wins and a diverse portfolio. The third quarter results were driven by a significant increase in sales of Zen 4 server and client processors. The Data Center business is expected to continue to grow, while the Embedded business and semi-custom revenue may soften. The company is focused on expanding their AI capabilities and gaining share in the premium and commercial PC market. The third quarter results exceeded expectations with revenue of $5.8 billion and diluted earnings per share of $0.70. Year-over-year, revenue increased by 4%, and sequentially, it grew by 8%.

In the third quarter, AMD's gross margin increased by 1 percentage point, driven by stronger Client segment revenue and product mix. Operating expenses also increased by 12% due to higher R&D investment for AI growth. The Data Center segment saw flat revenue, but a 21% increase sequentially, driven by strong sales of 4th Gen EPYC processors. Operating income for this segment was lower due to increased R&D investment. The Client segment saw a 42% increase in revenue, driven by higher sales of Ryzen mobile processors. The segment returned to profitability with an operating income of $140 million. Gaming segment revenue decreased by 8% year-over-year, primarily due to a decrease in semi-custom revenue, but increased in Radeon GPU sales. Sequentially, Gaming segment revenue declined 5%.

In the third quarter, the gaming segment saw a significant increase in operating income due to higher Radeon GPU revenue. The embedded segment revenue decreased due to lower sales in the communication market and an inventory correction at customers. Cash flow was strong, with $421 million generated from operations and $297 million in free cash flow. In the fourth quarter, revenue is expected to increase by 9% year-over-year and 5% sequentially, with strong growth in the Data Center and Client segments, a decline in the Gaming segment, and further softening in the Embedded segment.

The speaker, Lisa Su, discusses the expected performance of the company in the third quarter, highlighting growth in revenue, gross margin, and earnings per share. They anticipate strong momentum in the Data Center and Client segments, driven by the MI300 AI accelerated ramp and the Zen 4 family of products. However, there may be lower sales in the Gaming segment and softening demand in the embedded market. The company's investment in AI across all segments positions them for long-term growth. In the Q&A session, the first question is about the Data Center GPU business, with a focus on the potential for revenue to exceed $2 billion in 2024. The speaker provides more details on the breakdown of this revenue, including the percentage from AI and the types of workloads being addressed.

The company is pleased with their technical milestones and customer progress. They expect revenue to ramp up in 2024, mostly driven by AI workloads. The MI300 is performing well for inference workloads and has broad customer adoption. On the server CPU side, Genoa is growing nicely and surpassing its predecessor in terms of units and volume. The growth is primarily driven by share growth, but there may be signs of stabilization or improvement in the traditional compute market.

AMD is pleased with its third quarter performance for EPYC, with the 4th Gen EPYC ramping nicely and reaching a crossover ahead of forecast. The growth in cloud and enterprise has been strong, with adoption across first-party and third-party workloads and new instances. The market recovery and share gain have contributed to this growth. For the second half, AMD expects its Data Center business to grow by approximately 50% compared to the first half.

AMD is seeing strong momentum in their Data Center business, with revenues in the 50% range. They are confident in their Q4 revenue and have a strong engagement with customers, with orders being placed. The adoption rate of their AI solutions gives them confidence in future revenue progression. They have planned for success in the supply chain and have adequate supply for their forecast of over $2 billion. They have engaged with a broad customer set for their Data Center GPUs.

The company has seen a significant increase in engagements for their MI300 product, with strong interest from large hyperscalers and enterprises. They expect the gross margins for their GPU business to be accretive to their corporate average, although it may take a few quarters to reach a normalized level. The company is confident in their team's execution and believes the Data Center GPU market is an exciting and growing one, with potential for significant market share in the future.

The speaker believes that the market for enterprise and business productivity applications is still in its early stages and has a potential compound annual growth rate of 50% over the next few years. They also believe that there will be multiple winners in this market and they want to be a significant player. The speaker is encouraged by the progress they have made on hardware and software and with their customer base. The speaker did not want to provide guidance for the next quarter but mentioned that Data Center GPU revenue will be flat and there will be a seasonal decline in Client, server, and gaming businesses.

Lisa Su discusses the seasonality of the company's business and the focus on execution. She mentions the strong growth of the Data Center business and potential headwinds from Embedded and the console cycle. In response to a question about the MI300, she believes that it can coexist with internal ASIC solutions for AI workloads, as the market is diverse and includes various types of AI workloads.

The speaker believes that their product, MI300, has a strong position in the market and that GPUs will be the preferred processing choice for LLMs. There may be other solutions, but GPUs are expected to dominate. The interplay between AI and traditional computing is complex, with server CPU makers holding the line on price per core while cloud players extend the depreciation and replacement cycle. The speaker expects growth in the server CPU market and believes that their product, with its high number of cores, will be in high demand.

The speaker believes that there may be more modest unit growth in the server CPU market, but ASP growth will contribute to overall growth due to core count and compute capability. They also mention that the communications end market is weak, while other end markets are relatively good. They attribute this to high inventory levels and normalization of lead times. The speaker remains confident in their strong portfolio and combination of Xilinx and Embedded processing capabilities.

Lisa Su, CEO of AMD, discusses the company's portfolio and design wins. She expects to return to growth in the second half of the year after a couple of quarters of inventory correction. In terms of the PC market, she believes inventory levels are normalized and the consumption is close to the selling. The company is focused on growing in high-end gaming, ultrathins, premium consumer, and commercial. When asked about AI, Su mentions that the company is not just focused on their GPU portfolio, but also on the broader AI market.

Lisa Su, CEO of AMD, discusses the company's strategy for the AI market and their partnerships with other companies. She mentions their acquisition of Pensando and their focus on developing a full system for AI, but notes that they will not be selling their own branded systems. She also mentions their improved gross margin for the fourth quarter.

The speaker, Jean Hu, is responding to a question about the company's gross margin and its performance over the past year. She explains that while there were some challenges in the Client segment, there were also positive developments in the Data Center segment that helped drive sequential growth in the third quarter. Looking ahead, the company expects to see continued improvement in the Client segment and significant growth in the Data Center segment in the second half of next year, which will lead to further gross margin improvement.

Lisa Su discusses the competitive advantages of the MI300 product, highlighting its strong compute and memory capacity for inference tasks. She also mentions the company's investments in software and partnerships to reduce barriers for adoption. On the financial side, Jean is asked about the company's OpEx and potential changes in the next few years.

The speaker, Jean Hu, discusses the company's plans for OpEx in 2024, stating that they will increase investments in AI and the Data Center to drive top line revenue growth. The goal is to expand earnings faster than revenue by leveraging the company's operating model. The next question from Harsh Kumar asks about the potential impact of competitors' manufacturing technology on AMD's market share in the server and data center space, and what value-added offerings AMD could provide to maintain and grow their market share.

Lisa Su, CEO of AMD, discusses the company's EPYC portfolio and how they are leading in process technology, packaging, and architecture and design. She emphasizes that price is only one aspect of the conversation, and that customers are looking for the best TCO and overall efficiency. She also mentions the importance of having a diverse portfolio of CPUs, GPUs, FPGAs, and DPUs to optimize for different workloads in the data center. When asked about the long-term growth prospects for the CPU business, Su believes that all types of compute are needed in the data center, and the diverse set of workloads will continue to drive growth for the next few years.

The speaker discusses the company's priorities for growth, including their focus on AI and gaining market share in the EPYC CPU business. They mention that they are currently underrepresented in the enterprise and cloud third-party workloads, but feel confident in their EPYC leadership and go-to-market efforts. The next question addresses the Q4 guidance and how it implies a decline in Gaming and Embedded, with the speaker clarifying that Data Center and Client are expected to grow while the other segments may decline. They also mention that Embedded may be weak in the first half of next year before stabilizing.

The speaker discusses the expected performance of the company's Embedded and Gaming segments in the near future, stating that both will see declines in the teens. They also mention that gross margins for the full year have been down, but they expect them to improve in 2023 due to an unusual down cycle in the PC market. The main driver of gross margin will be the mix, with Data Center being the largest contributor and Gaming and Embedded facing continued declines.

During the conference call, AMD discussed their expectations for gross margin in 2023 and their plans for ARM-based CPUs in the PC market. They also mentioned their focus on developing AI capabilities for their PC portfolio. In addition, they highlighted a recent fintech win with their FPGA product in the Data Center market.

Lisa Su discusses the potential for incorporating FPGAs into the MI300 tile and mentions that while FPGAs are currently a small revenue contributor in the data center market, there are design wins in the future that could increase their presence. She also emphasizes the value of having a diverse range of compute elements available for data center partners. The call then concludes.

This summary was generated with AI and may contain some inaccuracies.