Advanced Micro Devices, Inc. (AMD) Earnings Call Transcript & Summary

Thanks for joining. I'm Blayne Curtis, semiconductor analyst at Barclays. For our next presentation, very happy to be with us AMD. From the company, it's Ruth Cotter. She held -- carries many [ heads ]. She's SVP of Marketing, Human Resources and IR. I'm sure you all know her. Thanks for joining.

I always like to start kind of a broader question. And obviously, it's been a fantastic year for AMD. You're growing 65% share gains in client CPUs, robust growth in servers in semi-custom. You accelerated through the year. Your original guidance was 37%. So maybe just kind of a starting point, just perspective on what went right for you this year. Has anything surprised you negatively? Obviously, a challenging backdrop, but you've done quite well. And then just a perspective on kind of the drivers for growth going forward?

Sure. Thanks, Blayne. Delighted to be here, and thanks to Barclays for hosting us today. And yes, it's -- 2021 has been a great year for us on many fronts, whether that's revenue growth, as you pointed to. We're tracking towards above 60% revenue growth this year compared to up 40% plus last year and obviously continue to expand gross margin and generate significant free cash flow. So it's been a good year for us in terms of really seeing all our businesses firing on all cylinders and the prowess of our product road map really coming through. And as you see sort of customer preference for AMD products, I think that was exemplified and this year. So if you just look at sort of the PC market, obviously, with the Ryzen portfolio, very good traction in desktop and notebooks, a focus on sort of revenue share gains. As we think about the depth and breadth of platform availability across our leading OEMs, have been incredible partners for us. On the graphics side, the, Radeon brand. We launched new offerings there earlier this year, bringing back competitiveness as we think about building out the full stack of products there. And obviously, gaming has had a nice lift over the last year plus, which has been something that we've been able to capitalize on. And then the data center, which is probably very exciting, and I know a lot of people focus on as we think about the transition of our EPYC road map to now being our third generation of products out there. And very nice balance between cloud and enterprise business. We've been deepening those relationships with the latest generation of offerings. And then on the GPU side, in the data center, we obviously have our CDNA 2 architecture. And you're sort of seeing us in the exascale space as well as other sort of more general-purpose type wins with our data center GPUs. And then on top of all of that, we have our semi-custom business. Working consoles have been doing very well. And again, very deep multiyear, a multigenerational road map partnership with Sony and Microsoft and that we're obviously very proud to partner with such marquee brands. And so it's come together, I would say, on many fronts. And it's also a year that was not just about 1 product or 1 market or 1 business. I think the way that we've been able to lead in terms of consistent execution across each of our businesses, that has sort of stemmed from the discipline that we put into our multigenerational road map while also sort of strengthening and deepening customer relationships. You've definitely seen that showcase this year.

Maybe starting on the client CPU side. I mean you did give some visibility on growth for next year. You see growth in servers and semi-custom. But you also said you could maybe grow in PCs. Obviously, we don't know what the market is going to do.

Right.

But you felt confident that you have continued share gains. So if you look at '21, I would say, '20 gained a lot of share. In '21, I think Intel kind of pounced back probably a lot of the learn from home and Chromebooks and such. I think as you look into next year, people are expecting enterprise to be the bigger component. So do you feel like you can still gain share in that backdrop? And I think maybe just think about why did the share gains slow a little bit? And kind of what's your confidence in continuing to grow client share?

Yes, sure. So we love PCs. I think over the last many, many quarters, our focus has been sort of straddling with the desktop and the notebook market. Our Ryzen portfolio is very nicely proliferated with -- as we head into next year, targeting over 200 different platforms. This year, we're coming in at about 150. We've consistently grown revenue share as you just look over the last 12 months. And as it relates to unit share, particularly in notebooks, we've seen a very nice lift consistently every quarter throughout the year. Obviously, there's been some supply pressures in the PC market, I would say, in particular, for some of the OEMs as they think about where they want to prioritize some of the match sets, and we've partnered with them on that front. And that's aligned very nicely with our focus for the PC business, which is moving into more of the premium segments of the market, whether that's sort of premium consumer enterprise or gaming. And we've done very nicely there in terms of the broad proliferation and depth of platforms that we continue to increase across each of the OEMs. Obviously, with the pandemic, I think we've all transitioned to working and playing and living in a virtual world. I think that transition certainly supported and helped PCs, and we were able to capitalize on that because it was always our plan and strategy to move into the higher portions of the market. And there is a higher demand for higher performance because of that, particularly as you think about working from home, and also consumer requirements are beyond just 1 or 2 tasks. It's a multi-task environment where high performance is needed as well as additional graphics capability. And AMD is very uniquely and well positioned in that space with both our CPU and GPU architecture as we think about being able to service that market. So we're pleased. As we look into 2022, who knows, to your point, exactly how the market will shape up, but we expect it to be somewhere in and around 350 million units, plus or minus. And that's not a shabby place to be as we think about the market overall. And as we bring on additional platforms and move into ongoing richer premium segments of the market, we think we're very well positioned to continue to gain share and momentum as we think about our opportunities next year. And this will be, again, as we stand between the consumer business and enterprise, we're very pleased with sort of the level of platforms we have in the enterprise portions of the market. We like it sort of longer design win cycles. And we've really invested in not only relationships with our OEMs but making sure that we have the overall sort of system capability that's required to meet customer needs. And then the third place, we've also focused on is building out the feet on the street. So from an enterprise sales and marketing model, we've also leaned in there to make sure that we're keeping a pace of the needs and requirements of Fortune 1000 customers, and that will continue to be a focus next year for us.

A couple of things to dig into, but maybe just start with the last one you mentioned. I mean, Intel had the Intel Inside campaign and clearly, you think developed or multi-decade perception of quality and performance. It's interesting now that you have many products that exceed their performance. And I mean you run marketing, I guess, in terms of ASUS before. But for the audience, in terms of getting the next 20 points of share, I think you're going to need to have some serious penetration, both on consumer and enterprise side. So what are the -- what's the strategy to kind of raise the brand awareness? And as you get into more material share, you need to have greater traction both the enterprise, but also with the consumer who may not be aware of AMD's progress the last couple of years.

Yes. So I'm very proud of the marketing team. And our CMO and the leadership that the team have driven there, particularly over the last 24 months really enhancing the Ryzen brand. And preference for AMD products has continued to increase. It's obviously a multi quarter-in, quarter-out journey as we continue to build out, but it's multifaceted, right? First of all, you have to invest in the customer relationships. You must have the road map to support moving into these premium segments of the market and making the right investments, to your point, in our brand and making sure that it's always been very strong in the consumer portion of the market. And any way you look at the Ryzen brand, in particular, it benchmarks very, very well in terms of its sort of consumer recognition. In the enterprise space, there has been obviously some more work that needed to be done understandably as we've begun to lean into that portion of the market. We've done our own focus, whether that's brand investment, but also investment in feet in the street and direct engagement and holding the hands of the OEM to go directly to the enterprise customers has been very helpful. And then not just looking at our PC brand as a PC brand but the overall AMD corporate brand, but also leveraging our traction in other segments of the market. So what has been helpful in commercial PCs has been the traction of EPYC. And the data center and CIO is becoming also more familiar with that from that perspective. And then obviously, with amongst gamers, our Radeon brand has had a lot of presence. So again, we feel good. We've had some good momentum and progress, but it is really a multifaceted as we think about making sure that we're well positioned to continue to gain share.

Wanted to ask you on the ARM discussion. It's made a bit of a comeback. Apple launched their M1 processor. Qualcomm at their Analyst Day said it's an inevitability. They've been shipping to Microsoft for a while, and it hasn't gained a lot of traction. But you're hearing a lot of chatter about after Apple launched their product, maybe the OEMs want to have an option as well. How do you view that ARM threat? Do you think they can differentiate on performance, cost power and displace x86?

Yes. So we obviously believe in sort of a very open environment. We also -- I think you've heard consistently from us, we also view [ ARM ] as a partner, and we have used ARM technology here over the years. And I think you're seeing, in some areas as it relates to levels of customization in the data center, people are looking at different opportunities or flavor of ARM. There's been some progress there as it relates to very specific workloads that are being addressed as it relates to ARM. And then on the client space, certainly in the lower segment of the market, you obviously do see that, that technology make some headway. From our perspective, though, we continue to obviously lean in, in terms of x86. We're all about high-performance computing. We think the demand and the voracious appetite for performance as it relates to compute, coupled with significant workload optimization as it relates to compute demands over the next 4 to 5 years, is where it will be as it relates to x86, and we're all in there.

Let me ask you on client GPU, it's had a great year, but it does seem like a bit of a -- the markets had a nice tailwind as well, if you look at your semi-custom business is up as well. So you don't hear the AMD versus video share discussion too much. They've also had a great year. So maybe just comment on the market as a tailwind and then -- and how do you think about that share portion kind of going forward here? Could AMD continue to claw back some client GPU share?

Yes. So earlier this year, we launched our RDNA 2 architecture, and we're bringing that on water falling it down through our Radeon product of -- set of products. We're obviously doing well in the enthusiast portion of the market and now leaning into the mainstream, which is really where the volume is for that market. As a trend, gaming has been quite significant over the last 18 months. There's no doubt about it. And since this summer, we feel well positioned with the long-term road map that our tremendous hardware and software engineers have put in place. And we believe you've seen us pick up a little bit of share, and we'll continue to focus on gaining that here over the next several quarters. We're also very competitive as we think about now our position in the marketplace, and we'll obviously complement and build that road map out with our RDNA 3 architecture in terms of the next generation out in time. We do expect gaming to continue to be very strong as a trend into next year, and we look forward to continuing to now be in sort of share regain mode with our current road map and set of products, which is very good. And then obviously, not just thinking about discrete GPUs in the gaming market, but also broader proliferation, whether that's taking our graphics capability, to your point, into the semi-custom business, but also very complementary in our client PC business and then obviously further beyond with the Instinct product range in the data center.

You talked about trickling down RDNA 2. And maybe you can just address the data center GPU portion. You had some spikes with some online gaming and now you have a pretty substantial ramp on the HPC side. So could you talk about the drivers there? Clearly, that's become a massive business for NVIDIA. And you're still very early days, but can you talk about the traction you're seeing on both the HPC side, but also kind of more of the traditional AI and the cloud as well?

Yes. So you're right. It's kind of early days as we think about the potential of that business. But we're very pleased that a few weeks ago, we were able to launch our CDNA 2 architecture with our MI200 family of products, which are now populating the Frontier exascale computer that we're in partnership, which is very exciting. And obviously, our focus is all about high-performance computing. So it's a very natural intersection point for us to have significant advantage as it pertains to sort of competitive benchmarking, in particular, in the HPC space. So those products are doing well. I think, for sure, the showcase is in HPC, but you'll see us in more general type wins as well, which we have been securing over and above the exascale opportunity. We are very focused, obviously, on whether it's machine learning, artificial intelligence or just HPC workloads in general and how we can continue to lean in there while leveraging our leadership architecture and also bringing together the opportunities that we offer in terms of bringing together both our CPUs and our GPUs, our interconnect capability and making sure that those combined resources are as efficient as they possibly can as we continue to drive significant exascale level performance. And then over time, obviously, expecting that it will become more mainstream as exascale waterfalls into HPC and over time comes down more into high-performance mainstream computing. But in the meantime, we continue to very much lean in. And it's not just about hardware. Obviously, we've been making significant investments in software to make sure that we have the right applications and libraries to support where our customers want to go. We've obviously initially sort of leaned in and led not only in the exascale side, obviously, with some of the national labs, which we're very proud of the partnership that we fostered there. But also sort of in the cloud environment, they are obviously very early adopters, but also with their sort of optimized in-house software, we've had a lot of learnings and been able to partner there as we think about building out our CDNA architecture and making sure it's appropriately optimized to solve some of the problems of the future and the high-performance requirements the customers will have.

Let me ask you on servers. The target was 10%. You hit that this year. There's lots of third-party tests that shows Milan is a clear advantage risk, Cascade and Ice Lake. But Intel is launching Sapphire Rapids. I think you'll have Genoa sometime, next year is what you've said. Can you talk about that landscape competitively, Milan versus Sapphire Rapids? And then in terms of your ability to gain share beyond this 10%, there are multiple segments in the server market. And I think you'll say you'll address all of them, but I think you're very early days in some of them. So maybe you could just talk about your positioning beyond the cloud?

Yes, sure. Thanks. We're obviously very excited and continue to be very excited about the server market. Our EPYC portfolio has had tremendous traction and customer preference, so much so we've been able to drive record revenue in that segment of the market for the last 6 consecutive -- 6 quarters consecutively. So obviously, doing very well there in terms of the platform capability with leadership OEMs, whether that's Dell, HPE and Lenovo. We're really deeply partnering with them and also understanding the needs of their customers so that, that is appropriately reflected across our EPYC portfolio. As we think about sort of competitive standing, obviously, we're on our third generation of EPYC. It is doing very well. To your point, we'll have Genoas as the next generation, which is on track for next year. So we're excited about that. We also talked about Milan-X, which was recently launched; our 3D Chiplet and 3D Cash design, which is for highly technical computing workloads in the data center. So that's great positioning there, and we're enhancing our road map. And then we'll have Bergamo coming in the first half of 2023, which will be our next sort of EPYC processor that's specifically optimized for cloud-native workloads. And again, as we just think about breakthrough performance and overall power efficiency, we believe we're very, very well positioned there. We are increasingly seeing the data center become more compute intensive. And as you bring together specialized approaches, whether that's on hardware or software, interconnect, packaging, process technologies or sort of new technologies as we think about the opportunities to bring CPUs and GPUs together, AMD is the supplier of choice, as you think about being able to lead in that segment of the market. And we think that will continue to allow us to drive share gains, but also increase our platform availability and capability with our partners in the enterprise space and also scale more broadly across the Fortune 1000 customers. Obviously, the early adopters are in the cloud space, and that's where we leaned in initially. And sort of as you think about the overall mix of our business, it is cloud biased or cloud weighted from that perspective. But in the third quarter, I think as you sort of saw very naturally enterprise follow cloud as they have a lot more platforms that they need to be qualified as well as sort of their end customers need to be qualified, again, we've seen that come through very nicely in the third quarter. And we expect to be able to continue that trajectory in both cloud and enterprise into next year.

And I see you mentioned custom, and I think you, guys, were very early the chiplet strategy that should lend itself to more customization. Prior, I think when Intel talked about customization, it was like a different cloud speed. I think there's a lot of indications in the market, particularly the cloud customers want to move to more kind of optimized compute, whether it's ARM or x86, I think the point is they want to have more workload-tailored approach. Can you talk about that trend and kind of AMD, the building blocks that they have, you have to kind of address if this becomes a bigger churn?

Yes. We feel very, very well positioned, as I sort of mentioned earlier. You are seeing that trend very much in the data center. Whether that's in general purpose computing or beyond, it is becoming quite workload-centric and how you can deeply partner with suppliers of choice to address and make sure you're optimizing for very specific workloads in particular, as you think about the hyperscalers. We're very proud that we've continued to build out our customer set. Most recently, we were able to announce adding Meta to our portfolio. So we're now in all of the top 10. And it's been a journey. It's taken time to make sure that we have methodically partnered with them across each generation of our road map to get us to where we are today with both the third generation of EPYC and our CDNA 2 architecture for MI200 products and that they become increasingly familiar with those products, but also that we're appropriately building and wrapping around the ecosystem around not just our hardware but, to your point, what are the other pieces. Well, we've continued to enhance and invest in our software capability. That's very important and the harmonization of our hardware and software and that of our customers and making sure that we are deeply embedded within them to be able to service the levels of customizations that they require. Obviously, historically, we've all had sort of process technology and making sure that we're staying on the leading edge of that curve. Our Infinity Fabric interconnect has also been very important as we think about the shared resources and how to make those even more efficient when you're using AMD CPUs and GPUs. And then obviously, sort of our overall chiplet strategy that has allowed us to sort of scale our offerings as efficiently as possible. As you just think about the overall trends as it relates to Moore's Law has worked very, very well for us. And then obviously, sort of these leading-edge packaging capability, even beyond that is something that we're very focused on. And you're seeing it coming through with our recent Milan-X announcement as well.

Mentioned winning Meta as a customer, and that name change sparked a lot of interest in the metaverse. And I think it's found its way into most people's scripts at this point. What is the metaverse opportunity for AMD?

Yes. So obviously, this is sort of the next frontier and the next wave of performance and compute requirements. I think that we're all getting very, very excited about it. As we think about it for AMD, obviously, we see a lot of opportunity, and we haven't touched on sort of even building out our portfolio beyond just CPUs and GPUs. But to your earlier point of sort of even expectations as it relates to customization by a lot of the hyperscalers is also whether that's FPGAs and ASICs. So we're actually very excited about the Xilinx acquisition, which we're targeting to close here before the end of the year, and what that brings to building out our portfolio and being able to address even a greater portion and more broadly of the data center market in order to sort of service any go-forward metaverse opportunities. In particular, I would say, the focus being on the data center side and really partnering with the hyperscalers to address the voracious appetite that is going to come as it relates to high-performance compute requirements.

It's hard to pin down if you were talking VR goggles, maybe online gaming. It could also -- people talk about kind of more kind of game consoles as being the way that a lot of people may interact in these worlds when you look at things like Minecraft and Roblox and such. Semi-custom, I think you said would -- it's had a great growth year. I think you're still kind of in the earlier in that cycle. Can you walk us through -- I think you were worried that it was kind of getting a little overheated? But I think you guys still feel like there's kind of at least growth in that business. Can you walk us through why do you feel that way? And kind of does that also play into this kind of metaverse trend?

Yes. So the current generation of game consoles from Sony and Microsoft have been tremendously popular, and demand has been significant. We're very proud of our multiyear partnership with both Microsoft and Sony, and you've seen that come through in terms of the evolution of the high performance of the -- and the complexity and sophistication of our CPU and GPU capability within those game consoles. Typically, for our business, you tend to see the fourth year being the peak year for that console business. So we do expect that to continue to be the trend. So we are -- because of the depth of demand that you're seeing in the market today, we are expecting more muted seasonality than you would typically see here in the fourth quarter and into next year. And then we are expecting that next year will continue to be a growth year for us. And then to your point, whether it's metaverse or just in general gaming, the level of sophistication in terms of features that both of our partners have been bringing, has no doubt, spurred enhanced excitement across the gaming community, and we look forward to how that will continue to advance over the next years.

You mentioned your excitement of adding the Xilinx portion into the fold. The FTC is filing suit over NVIDIA and ARM. Do you think that's more of a one-off? And is that going to see a lot more scrutiny than other deals and including yours? Kind of what gives you that confidence?

Yes. We're very pleased with how the acquisition and integration planning overall is tracking. I'm actually helping lead our integration planning. So I breathe this every day and have had the privilege over the last 12 months to partner deeply with the Xilinx team as we've prepared for day 1. The good news is we've obviously gone through a lot of the regulatory approvals globally. So we've secured sort of 3 of the big 4 for want to a better expression, and we continue to track well as it relates to China. So we feel everything is moving along and meeting expectations on that front. And then more broadly, I mean, just the overall promise of the acquisition and our vision as we think about adding not only Xilinx's leadership, technology and capability as it relates to hardware into our portfolio, they also have some software capability that, in particular, in the AI space, we're quite excited about as we think about some of their additional IP there and what that can bring to our overall portfolio, but also opening up the aperture in terms of additional markets that Xilinx obviously have access to that we might not traditionally lean into whether that's sort of the communication space of the market or aerospace and other sort of leadership markets where we have opportunities to lean in, either with AMD products or obviously, longer term, once we close the acquisition being able to really develop a joint road map. We're using both companies' IPs and bringing that to bear out in time.

Ruth, always a pleasure. Thanks for the time.

Yes. Thank you, Blayne. Take care.