The paragraph is an introduction to AMD's Third Quarter 2024 Conference Call led by Mitch Haws, Vice President of Investor Relations. It informs participants that the call will involve a listen-only mode followed by a Q&A session, and will focus on non-GAAP financial measures, with reconciliations available online. Key speakers include Dr. Lisa Su, CEO, and Jean Hu, CFO, with other executives participating in upcoming technology conferences. The discussion will contain forward-looking statements with inherent risks. The paragraph concludes by handing the call over to Dr. Lisa Su.

In the third quarter, AMD reported strong financial performance, with revenue increasing 18% year-over-year to a record $6.8 billion, driven by high sales in the Data Center and Client Processor segments, despite declines in Gaming and Embedded product sales. Data Center revenue grew by 122% to $3.5 billion, credited to increased adoption of EPYC CPUs by cloud providers and enterprise clients. Notably, companies like Meta deployed over 1.5 million EPYC CPUs, and Cloudflare utilized AMD's technology for enhanced server performance. Additionally, public cloud instances rose by 20% as major providers like Microsoft and AWS expanded their EPYC-powered offerings.

The paragraph discusses the growing adoption of EPYC instances among enterprise customers, with notable partners like Adobe, Boeing, and Siemens contributing to double-digit sales growth for the fifth consecutive quarter. The availability of EPYC platforms has increased by 50%, offering over 200 solutions optimized for various workloads. The recently launched Turin family delivers strong performance and cost efficiency, setting over 130 performance records across numerous applications. Over 130 fifth-generation EPYC platforms are being developed by leading server manufacturers. Additionally, Google and OCI plan to introduce fifth-gen EPYC instances, anticipating widespread adoption due to Turin’s performance and efficiency benefits.

The paragraph highlights Oracle's advancements in performance with Turin instances using EPYC CPUs, which offer higher performance per core, faster memory speeds, and increased networking bandwidth. Oracle is optimistic about continued growth due to its strong EPYC portfolio and established momentum with Cloud and Enterprise customers. Oracle also formed an ecosystem advisory group with Intel and other industry leaders to enhance x86 architecture for developers and customers. In the Data Center AI sector, revenue from Data Center GPUs grew as MI300X adoption increased among cloud, OEM, and AI customers. Microsoft and Meta expanded their use of MI300X accelerators for internal workloads, with Meta also using MI300X for its Llama 405B model. MI300X public cloud availability grew, with Microsoft, Oracle Cloud, and other providers offering high-performance instances.

The paragraph discusses the strong adoption of Instinct MI300 cloud instances by various start-ups and industry leaders, highlighting significant software advancements and performance improvements in the ROCm stack, particularly with the latest release, ROCm 6.2. These enhancements have significantly boosted the MI300's inferencing and trading performance. The company is collaborating with numerous marquee Cloud and Enterprise customers to optimize workloads, noting a 30% increase in performance over competitors. Expanding support for key open-source technologies and frameworks has strengthened the ROCm ecosystem, providing developers with a robust, open software option used at scale. Additionally, the company plans to enhance its AI systems capabilities through the acquisition of ZT Systems, a major provider of AI infrastructure.

The paragraph discusses the strategic benefits of the ZT acquisition for AMD, highlighting enhanced capabilities in delivering rack and cluster-level AI solutions. Positive customer feedback and regulatory progress, including passing the HSR waiting period in the U.S., are noted, with the acquisition expected to close in the first half of 2025. AMD plans to divest ZT's U.S.-based data center infrastructure business post-acquisition. The paragraph also mentions the launch of the next-gen MI325X GPU, which offers significant performance improvements, with shipments starting this quarter and broader availability in early 2025. Looking forward, AMD is committed to an accelerated product development pace, with the MI350-series set for release in late 2025 and the MI400 series expected in 2026.

The company has seen strong growth in its data center AI business, with increased deployments leading to an expected $5 billion in data center GPU revenue in 2024. The Client segment experienced a 29% year-over-year revenue increase, driven by high demand for Zen 5 processors and successful Ryzen 9000 series desktop sales. Mobile sales, specifically the Ryzen AI 300 Series, also increased significantly, aided by partnerships with brands like Acer and HP. The company is expanding in the commercial PC market, closing large deals and launching the Ryzen AI Pro 300 Series, anticipating significant future growth as businesses upgrade aging PCs. Conversely, the Gaming segment saw a 69% revenue decline due to reduced inventory from Microsoft and Sony.

Sony announced the PS5 Pro, featuring enhanced graphics, ray tracing, and AI-driven upscaling through a new AMD semi-custom SoC. Meanwhile, AMD is preparing for a transition to its next-gen RDNA 4 architecture GPUs, set for early 2025, which promise improved gaming and ray tracing performance alongside new AI capabilities. In the third quarter, AMD's Embedded segment saw a 25% revenue decline to $927 million, but demand is gradually recovering, particularly for its Versal adaptive SoCs. These are finding applications in the aerospace industry, notably with SpaceX's satellites, and AMD has introduced Telluride, a second-gen SoC. The company anticipates over 20% design win growth in 2024, with expectations to expand its embedded business faster than the market. In the third quarter, there was a notable business acceleration, and AMD projects significant growth in demand for its Instinct EPYC and Ryzen processors. Additionally, this month marks the 10th anniversary of AMD's CEO's tenure.

Over the past decade, AMD has built a solid financial and operational foundation, establishing itself as a leader in high-performance and adaptive computing. The company sees significant growth opportunities in its Data Center, Client, and Embedded businesses, driven by increasing demand for computing and the rapid adoption of AI. AMD anticipates that the AI accelerator market in Data Centers will grow annually by over 60%, reaching $500 billion by 2028, comparable to the semiconductor industry's total sales in 2023. The company is enhancing AI capabilities across its product range and partnering with a broad ecosystem to deliver distinct AI solutions, aiming to become an end-to-end AI leader. Jean Hu will now discuss AMD's strong third-quarter financial results and outlook for the fourth quarter of fiscal 2024.

In the third quarter of 2024, the company saw significant financial growth, with total revenue increasing by 18% year-over-year to $6.8 billion. The Data Center segment was a major driver, with revenue more than doubling to a record $3.5 billion, accounting for 52% of total revenue and boosting operating income to $1 billion. This growth was fueled by strong sales of AMD Instinct GPUs and EPYC CPUs. The Client segment also experienced a 29% year-over-year revenue increase, driven by demand for Zen 5 AMD Ryzen processors. Overall gross margin rose by 250 basis points, with a 31% rise in earnings per share. Despite a 15% increase in operating expenses due to investments, the company achieved a 25% operating margin.

The paragraph discusses the financial performance and outlook of a company across different segments. The Client segment saw an increase in operating income due to higher revenue, despite increased expenses. The Gaming segment experienced a significant revenue drop, affecting its operating income. The Embedded segment's revenue decreased year-over-year but showed sequential growth. The company generated $628 million in operating cash, with $496 million in free cash flow. Inventory increased to support the Data Center segment, and cash reserves were at $4.5 billion. The company repurchased shares worth $250 million. For the fourth quarter of 2024, revenue is expected to grow by 22% year-over-year and 10% sequentially, driven by the Data Center, Client, and Gaming segments, with an anticipated non-GAAP gross margin of 54%.

In the twelfth paragraph of the article, AMD reports that its non-GAAP operating expenses are projected to be approximately $2.05 billion, with $17 million in non-GAAP other net income and a non-GAAP effective tax rate of 13%. The diluted share count is expected to be about 1.64 billion shares. The company expresses satisfaction with its strong performance in the third quarter, highlighting record revenue, a significant year-over-year increase in gross margin, and growth in earnings per share. AMD is optimistic about achieving another record revenue quarter in the fourth quarter, fueled by the growth in its data center and client segments. The company is also making strategic investments to position itself as a leader in AI infrastructure for long-term profitable growth. In the Q&A session, Toshiya Hari from Goldman Sachs asks Dr. Lisa Su about the improved 2024 outlook for the Data Center GPU business and expectations for 2025. Dr. Lisa Su credits strong quarterly performance and progress with customer milestones for exceeding initial expectations.

In the paragraph, the speaker discusses the strong performance of Data Center GPUs in the third quarter, leading to a raised annual revenue guidance from over $4.5 billion to over $5 billion. They express confidence about the market and highlight significant investment in AI infrastructure. The product portfolio is also cited as strengthening, with new launches planned. Customer engagements are broadening with major cloud and enterprise customers optimizing their workloads on AMD Instinct. In a follow-up question, Toshiya Hari asks about flat gross margin guidance for Q4 and potential headwinds for 2025. Jean Hu acknowledges the question, suggesting optimism for continued Data Center growth and a potential recovery in the Embedded business, alongside the growth of Enterprise within the server CPU segment as factors influencing gross margins.

The paragraph discusses the company's strong Q3 gross margin performance of 53.6% and their guidance for approximately 54% in Q4. For 2024, the improvement in gross margin is attributed primarily to the strong growth of the Data Center business, which contributes over 50% of the revenue mix and includes both CPU and GPU segments. The Enterprise Server business is also expanding, providing a tailwind for gross margins. Additionally, the recovering Embedded business will aid in margin improvements. The Client business, currently focused on the consumer side, presents a challenge as it is below the corporate average. The company is focusing on improving operational efficiency and expects to benefit from economies of scale in the coming year, further enhancing gross margins. The paragraph ends with the operator introducing a question from Aaron Rakers of Wells Fargo, asking about supply chain developments related to GPUs like MI300 and MI325 for 2025, to which Dr. Lisa Su responds.

In the paragraph, Dr. Lisa Su discusses the company's supply chain improvements and how they've contributed to higher revenues in their Instinct business. Despite the tight supply environment, they've ensured capacity across the supply chain and anticipate continued growth into 2025. In response to Aaron Rakers' question, Dr. Su confirms that the Data Center business is the largest contributor to their sequential revenue growth, making up over 50% of their business in Q3 and expected to grow further in Q4. The Client segment is also expected to perform well due to successful product launches. The Gaming and Embedded segments are expected to see more modest growth. Ross Seymore of Deutsche Bank then inquires about the Embedded business, noting it as a muted recovery and asking for clarification on its performance in the fourth quarter guidance.

In the discussion about the future outlook for 2025, Dr. Lisa Su highlights improvements in AMD's Embedded and Data Center CPU businesses. The Embedded business shows modest growth expectations, with strong performance in test and emulation, aerospace, and defense, while communications and industrial segments remain softer. For the Data Center CPU business, AMD is pleased with its progress, noting improved market conditions with large cloud customers increasing data center capacity and enterprises beginning modernization. The CPU business, particularly the EPYC line, continues to perform well despite competition with AMD's own Instinct GPUs.

In the third quarter, the Zen 4 portfolio, including Genoa and Bergamo, showed strong performance, with the Zen 5 Turin capabilities beginning to ramp up. There was continued demand for the Zen 3 Milan family due to its favorable price-to-performance ratio. The company has a strong product lineup and is benefiting from growth in the server market and AI opportunities. Dr. Lisa Su addressed a question regarding the perception of GPUs cannibalizing servers, stating that Turin is well-optimized for server workloads and AI content on CPUs, making it a crucial part of GPU configurations. The company is expanding its workloads with cloud customers and making progress in the enterprise sector, where sales processes are typically longer.

In the paragraph, Dr. Lisa Su discusses the state of the PC market, emphasizing that their business is more consumer-oriented, which typically sees stronger sales in the second half of the year. This year, the company has experienced a boost due to new product launches, including the Zen 5 desktop products, the Ryzen 9000 series, and the AI PC next-generation Ryzen AI 300 products, leading to a robust second half. Anticipating typical seasonal declines in the first half of the next year, Dr. Su remains optimistic about the PC market's growth prospects in 2025, expecting mid-single-digit growth spurred by AI advancements and the discontinuation of Windows 10 support. She highlights the strength of their current PC portfolio and anticipates some seasonal variability moving forward.

In the paragraph, Dr. Lisa Su addresses the progress in the Data Center GPU business, highlighting significant advancements since the launch of the MI300 at the start of the year. She mentions that the company has completed several customer milestones, such as achieving scale in data centers, fulfilling reliability requirements, and optimizing for specific workloads. Despite desires for a faster pace, she expresses confidence in the business's trajectory, indicating an expectation to exceed $5 billion in revenue in 2024. Looking ahead to 2025, she emphasizes a strong market outlook and an increasingly robust product portfolio, strengthened by insights gained from the MI300 ramp.

The paragraph discusses AMD's growth opportunities, particularly in the software side where they've enhanced customer support and engagements to ensure scale and performance. The company sees opportunities to expand workloads with existing customers like Meta and Microsoft, who are using AMD for both inference and some training workloads. Joshua Buchalter congratulates AMD for their achievements over the decade. In a Q&A session, Timothy Arcuri from UBS queries about AMD's Data Center GPU revenues for September and December, suggesting figures around $1.5 to $2 billion. Dr. Lisa Su responds that the GPU business exceeded initial expectations and is nearing the scale of the CPU business. Arcuri then questions the potential revenue growth for the next year, given the market with big customers, and asks about the potential for further growth or the risk of a pause in the following year.

In the paragraph, Dr. Lisa Su discusses the dynamics and projections for AMD's business, emphasizing the growth potential into 2025 despite the unpredictability of customer acquisitions and buildout timing. She addresses concerns over the transition to rack scale infrastructure, noting varying customer preferences for cooling environments and data center needs. Dr. Su also talks about AMD's $5 billion AI revenue goals, mentioning that the majority of early traction has come from inference due to the MI300's strengths in memory capacity and bandwidth, while training adoption is also starting to grow.

In this paragraph, Vivek Arya from Bank of America Securities questions Dr. Lisa Su, CEO of AMD, about the company's position in the AI market, specifically regarding their MI products compared to competitors like Nvidia's Hopper and upcoming Blackwell series. Lisa Su responds by stating that AMD has made significant progress in closing the gap with its competitors, with the MI325 and MI350 products expected to be highly competitive. She emphasizes that the market is generally constrained, and it takes time to progress from initial shipments to volume production. Su also highlights that AMD's product offerings are advantageous for data center retrofits due to easier infrastructure integration. Additionally, she mentions strong feedback from customers on AMD's roadmap and addresses a question about growth in the PC market, noting sequential growth and expectations for Q4.

Dr. Lisa Su discusses the performance and outlook of their client business, highlighting their strong position in the desktop channel and noting high sell-through rates in Q3. She mentions that while the notebook segment is more consumer-weighted, there's promising momentum around AI PCs, with positive activation rates for their new Ryzen AI300 processors. Looking ahead, both unit growth and average selling prices (ASPs) will depend on the mix between consumer, enterprise, desktops, and notebooks. There’s potential for growth in the underrepresented client segment, particularly in consumer and enterprise markets. In the subsequent question from Harlan Sur of JPMorgan, the discussion shifts to the recovery and growing share of their core EPYC business in the Enterprise sector.

In the paragraph, Dr. Lisa Su and Jean Hu discuss the positive growth momentum in AMD's Enterprise and Cloud sectors during the third quarter, highlighting broader adoption and increased migrations to AMD, both from on-prem to cloud and from older to newer cloud instances. They anticipate continued quarter-on-quarter growth in the fourth quarter for their Server business and expect to strengthen their presence in the Enterprise market, which is currently underrepresented, especially with their updated Zen 4 and Zen 5 portfolios. Jean Hu also notes that AMD is underrepresented in China's service market, presenting an opportunity to gain market share there. Subsequently, Stacy Rasgon from Bernstein Research asks about the Data Center GPU segment's size, suggesting it is approaching the size of AMD's compute business, estimated at under $1.7 billion.

The discussion is about revenue expectations and growth for a business segment within a company. Dr. Lisa Su clarifies that their Data Center segment includes elements beyond CPUs and GPUs, such as FPGAs. Although the company hasn't provided an exact revenue figure for their data center GPUs, they've stated that it will exceed $5 billion. There's also a question of potential revenue "lumpiness" or irregularity in 2024, especially concerning large customers and the ramping of the MI300 product. Dr. Lisa Su attributes such irregularities to customer-driven demand variations rather than inherent seasonality in the Data Center GPU business.

In the paragraph, Harsh Kumar from Piper Sandler congratulates Dr. Lisa Su on her 10-year anniversary and company achievements, then asks about AMD's challenges in capturing market share in the AI GPU sector compared to a major competitor expected to dominate in 2025. Dr. Lisa Su acknowledges the competition but frames these challenges as opportunities, highlighting AMD's successful history with the EPYC product line and emphasizing the importance of building trust and familiarity with their GPU products over time. She remains optimistic about AMD's growth prospects, emphasizing the fast ramp-up of their current products and expressing confidence in the future, especially with their upcoming MI400 series.

The paragraph discusses AMD's efforts to earn the trust and partnership of large customers, emphasizing the openness of customers to AMD's offerings. Harsh Kumar asks about the lower gross margins of AMD's MI300 and MI325 products compared to corporate averages and seeks a framework to understand how these margins might improve. Jean Hu responds that while the Data Center GPU business currently has lower margins, the focus is on addressing customer demand and increasing market presence to drive revenue growth. Although it will take time, she expects gross margins to improve in the longer term, potentially exceeding corporate averages. The Data Center segment has seen significant growth, more than doubling revenue and tripling operating income year-over-year.

In the Q&A session, Thomas O'Malley from Barclays asked Dr. Lisa Su about the impact of the MI300 and MI325 platforms in Q4 and the outlook for Xilinx's Embedded markets next year. Dr. Su responded that the MI300 would dominate the mix in Q4 as the MI325 ramps up production later in the quarter with more significant impacts expected in Q1. She noted a gradual recovery across some markets, highlighting strength in Test and Emulation and aerospace and defense, as well as some recovery in automotive, while awaiting more visibility on the communications and industrial sectors. The session concluded with Mitch Haws thanking attendees.

The teleconference has ended, and participants are thanked and instructed to disconnect their lines.

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