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

Vivek Arya from BofA's semiconductor semi-cap equipment research team. I'm absolutely delighted to have Dan McNamara, Senior Vice President and General Manager of AMD's server business. And we will go through a list of Q&A that I've prepared. But if you have any questions, please feel free to raise your hand, and I'll be sure to get you in. So a very warm welcome to you, Dan. Really appreciate you taking some time to chat with.

Thank you, Vivek. Very happy to be here, and thanks, everyone, for joining this session.

Excellent. So I guess you are in the thick of it. So maybe let's just start with the state of the union in terms of the overall demand environment, cloud versus enterprise. What are you seeing right now versus what the assumptions were, say, at the start of the year?

Yes. So in the overall data center, what we're seeing is a mixed demand profile. In the cloud, there's definitely some inventory and different optimizations depending on the different cloud provider. And then in the enterprise is clearly still a bit of macro concerns overall and a lot of cost optimization going on. So that's kind of the overall view we have. And where we're focused though is to get in these periods get, very, very focused on our customers and continuously drive with them in terms of what we're doing from a product portfolio standpoint. Our goal is to be the most strategic supplier to the largest data centers in the world. And we believe we have the product portfolio across a number of different vectors to be that. So that's the current view we have across the data center.

Got it. What's the mix kind of between cloud and enterprise now versus what it was last year?

Yes, the mix -- so Lisa and [indiscernible] talked about this, I think, from -- in Q1 that the mix was a little bit higher in Q1 to cloud based on this macro situation for the enterprise. So it was in the 70% range to cloud. What we see going forward is continued -- not acceleration, but continued growth in terms of Genoa when we look at what our cloud customers are doing with Genoa, we're pretty excited, right? Because there's expanding internal property usage and then obviously the public third party infrastructure as a service solutions going out there and we have Genoa in all of the top cloud providers, data centers running right now. And things are going very, very well. And then from an enterprise standpoint, here's the other part. With enterprise, there's a tremendous amount of evaluation going on and excitement around the performance and energy efficiency that we're delivering with Genoa. With Milan, if you think about Milan, when we introduced that back in '21, it was an inflection point for the enterprise. We brought a pretty dramatic IPC uplift and a very nice 25% performance per watt game. And we started getting a lot of traction with Milan. In Genoa, we've done the same. We brought in more performance, more energy efficiency. And what we're seeing is across the top Fortune 500, a lot of evaluations and a lot of good plans to move forward with Genoa going forward. And if you have a cost-conscious workload, if you will, there's also the opportunity to use Milan because Milan is also a better performance than Sapphire Rapids in a large number of workloads. So we see this sort of one-two punch in the enterprise, and we believe that we're very well-positioned here going forward.

Got it. When we look at the second half of the year, Dan, there is a very steep, right, expectations ramp and right, almost 50% half and half. What needs to happen, right? So first of all, how is the confidence, visibility in achieving, right, that kind of objective? And then what needs to happen from a -- is it a supply issue? Is it an execution issue? Like what needs to happen from your perspective to achieve that milestone?

So I started -- I just talked about Genoa and that's sort of the point of the sphere with confidence going forward within the data center. We follow up very quickly, and you're going to hear about this next week with Bergamo, which is a cloud-native optimized device with high-density and very good performance per watt in energy efficiency for cloud-native computing. And then we also are announcing or launching Genoa-X, which is tuned for technical computing. So workloads like computational fluid dynamics and EDA, and all sorts of advanced physics modeling. So we feel like those 2 products will get a nice adoption across both cloud and the enterprise. And then we follow up with that with Siena, which is not another yet optimized Zen 4, part of the Zen 4 portfolio. It's optimized for telco edge and storage, and that brings very high-density compute at a very low cost and low power package. So from a server road map through the balance of this year, we're executing and enabling our customers to deploy these 3 new products, in addition to Genoa. And then lastly, with the Instinct product line with MI300, that starts to ramp in Q4, and we see that with supercomputing and some new AI wins that we have. So we feel that's why we're confident. We have confidence in the back half. And our customer feedback today on the evaluation of all of these products is very, very strong in terms of the value we're bringing. And again, it's all about optimizing by the workload. So for each different workload, we're delivering a different optimization point for whether it's performance or performance per watt or even cost. And that's really been the strategy across server. And then obviously, with the MI 300, we're very excited about the pipeline that we have there and the execution pace we're on.

Got it. And just one thing that has come up and would be great if you could clarify. Just the support for different memory configurations by Genoa. Is there any kind of workload that it is not able to meet, right, versus what you thought when the original specifications were laid out. Is there anything in terms of the 1 solution versus the [ 2D ] solution? So I think it'd be just useful to get a clarification there.

Sure. So let me start with -- Genoa is completely on track. We believe that it would be a bit slower than Milan. Milan was a drop into Rome SP3 platform. And this was a pretty big platform change, right? We added PCI Express Gen 5. We added DDR5. The other thing we added was CXL for memory expansion. So there's a lot of things happening not just with the server but also our customers are doing different things with this next generation of server. So we're completely on track right now. And we also believe and have said previously that we will see Milan coexist with Genoa through the course of 2023. From a DDR5 standpoint, we believe that 1 DIMM per channel covers 98-ish percent to 99% of the workloads out there. We do have a number of platforms out there were 2 DIMM per channel also have any configurations or lack of coverage from a workload standpoint at all. And again, we are very, very excited about what both our cloud and the end enterprise customers are saying about what they're seeing from a performance and energy efficiency and obviously the overall TCO equation that we're very, very focused on.

Got it. How much of the growth in the back half then you think is more unit versus ASPs because there is a sense that there's obviously a lot more value that these new products, right, whether it's Genoa or Bergamo providing. But is the back half, that 50% growth, is that predicated a lot more on ASPs rather than units? Or how is that balanced?

Yes, this is a really good question because when you -- with every new generation for us, we're bringing more value to the customer. And it could be in the form of more cores, more features like I just talked about in terms of DDR5 and CXL memory expansion. and our goal is to cover more workloads but our -- the main goal is to deliver more value to the customer in terms of TCO. And TCO, the equation, you could think of as performance/features per dollar. So every generation we build, it's a close look at what are we bringing to the customer? What's the value to the customer such that they deploy as quickly as possible when we have the products available? And we believe we hit that very, very well with Genoa. We believe we're going to hit that with Bergamo and the entire Zen 4 family. So with -- when you go from Milan to Genoa to Bergamo, you're going from 64 cores to 96 cores to 128 cores. So naturally, there's going to be an ASP uplift. So we will be seeing a good ASP uplift. However, we are very focused on the value that is coming to the customers. Even with that ASP uplift, our customers are getting dramatic value, and that's the feedback they're giving us that the TCO win across both the cloud and the end enterprise, top verticals in the end enterprise and the Fortune 500 class, are really talking about the TCO value that they're seeing. So for us, ASPs will increase. And of course, there's a unit growth expectation also.

Got it. So your main competitor, right, is launching their Sapphire Rapids product. I think they have said that they already shipped, I think, 1 million of those or so forth, right, until their Q1. Do you think this head-to-head competition in this generation is different, better or worse versus the prior generation? Like are they getting any closer to kind of slowing down your very torrid pace of share gains in the data center?

We have a lot of cycles and performance modeling on Genoa as well as our customers. And I can tell you this from our customers -- from what we see today and from what our customers are saying, there is a clear performance, energy efficiency and TCO leadership today, very strong leadership. And we continue to see that in the feedback from the customers. So from an overall standpoint, in terms of performance, we believe we are extremely well-positioned with Genoa, and we will be with Bergamo. And the other point I already raised, but Milan holds up extremely well to Sapphire across many, many workloads, it's higher performance, and it obviously comes at a better price because it's Gen 4 PSE Express and is DDR4. So I call it this [ 1-2 ] value punch of for the extreme performance workloads, customers will use Genoa, but for some other workloads like storage and maybe some other virtualization environments, they can use Milan and get every bit of the performance better than Sapphire and get a better price advantage. So we believe that we are extremely well positioned and poised for more share growth.

Got it. Do you think if your competitor is able to achieve process parity that can they leap ahead in any way? Because -- and I know it's a little premature to talk about, right, products that are out in '24, '25. We have not seen any performance yet, right? But when you look at the road map of Emerald or branded Rapids, right, platforms, and their contention that they will be able to achieve process leadership, right, or at least parity. Do you think that changes the way you look at your road map? Or you think that the competitive environment could be different going forward?

Well look, we always look at what our competition is doing. But for us, it is a maniacal focus on what we need to go execute. And there's really 3 reasons why we believe we will continue on our execution cadence. First and foremost, our partnership adjacency. Mark Papermaster who runs technology and engineering for us, always talks about the relationship in terms of a co-optimization mode. We are out with -- Zen 4 is based on 5-nanometer. Zen 5 will be based on 4-nanometer and 3-nanometer. And we continuously work with TSMC engineers to get as much possible out of that process. And we've done that, obviously, across both 5-nanometer and 4- and 3- based on what we have back for NextGen. The other piece is design innovation. Our team is very, very focused on architecture and design innovation to continuously push the process. Whatever we get out of the process, we push harder on architecture. And then lastly, we are a leader in chiplet integration. We basically started with Naples on chiplet integration and our advanced packaging around 2.5D and 3D stacking with Genoa-X will keep us continuously advancing. Now Moore's Law certainly has slowed, but we think those 3 things: co-optimization, design innovation, and advanced packaging leadership, will keep us ahead and keep us on the path that our road map dictates.

Got it. Is there, Dan, any natural limit to how much share AMD can have in cloud servers? So for example, when we look at on a blended basis, we think it's over 30% as an example. But in certain cases, it could be 50%-plus. So is there any natural limit to how much AMD's share can be? Or do you think that once it kind of gets towards that 50% range, then it starts to mature? Or there is no such limit?

It's an interesting question. We don't typically talk publicly about our share goals or anything like that. But for me, when I look at the defining a product road map and then execution of it, we are driving for maximum share. And we certainly believe that if we continue to deliver the value and the TCO to the customer that we can continue to gain share. Cloud, we are very well-entrenched. In enterprise, we are very focused on continuously driving more share gain because as Lisa has mentioned many times, we're underrepresented there. And things are going extremely well there. So there's some upside there for us. But we're not giving out any new share gain targets, but we believe that our road map is set up such that we'll continue share gains.

Got it. What is AMD's AI strategy? And I ask that from -- the external perception is that, look, there is this really large and focused, right, GPU player, right? It's general purpose, right? They have the scale advantages and general purpose advantages. And then you have ASIC solutions, right, from the Broadcom and Marvell or the world. So given that the market seems to be bifurcated in those 2 extremes right now, what is AMD's lane to really differentiate? And so essentially, how do you define your AI strategy?

Sure. So next week, I hope everyone will tune in to our data center event because the...

Looking for a preview of that.

So there's -- we will go through a little bit of more details on the AI strategy, but let me just talk at high levels. So what we just did, we've been very focused on AI for quite some time, right? We have instinct family that's out there, MI250s in the market today in supercomputing and doing a lot of large language model training with the LUMI Supercomputer. We are developing the MI300, which is when you look at it, CPU, GPU, integrated HBM, delivering unmatched memory bandwidth and memory capacity. We're very, very excited about that portfolio and the pipeline we have, and we'll see that come online and ramp in Q4 across both supercomputing and AI. But overall, when you look at it, we just combined a number of different groups within the company under Victor Peng's leadership to drive a hardware, software library optimization model across all of our products. So when you think about how we look at AI, it's really client to the edge to the cloud, integrated AI capability with overarching software stacks, rock them for training and then our UIF for inference. So we're very excited about the progress we're making. We're very excited about bringing the MI300 to market. But we also are leveraging the Xilinx AIE engine, which is -- think about it as a scalable hard IP that we've integrated into the Ryzen client device and the Alveo V70 inference accelerator card. So again, this is filling out the portfolio from client through the edge to the cloud. And again, we're very excited about the progress. We're very excited about the customer feedback and the engagement on the software side also. It's not just silicon as we know. So under Victor's leadership, you'll hear more about this next week, but the pipeline, and as everyone knows, the pipeline and the opportunity here has grown pretty significantly over the last 6 months, and we feel like we're in a pretty good position.

Got it. Conceptually, do you think that whether it is your MI300 or Grace/Hopper or other solution, right, do you think these converged CPU, GPU platforms will gain a big share of the market? Or do you think that the market will kind of stay majority discrete, right, whether it's your CPU or your competitor CPU? And a discrete accelerator solution, whether it's yours or somebody else's?

Yes, it's a good question. So when we looked at the MI300, we -- and this is the way we go to market all the time. With the MI300, we sat with our customers and said, "What problems are we trying to solve at the system level for both super computing and AI?" And that's how we came up with the integrated Zen 4 cores with the Instinct CDNA cores and then the HBM memory. So we believe that's going to be a very good solution. But like I said, for both supercomputing and AI. And we also know that Genoa can deliver and will continue to deliver very strong post node support for training and smaller model inference. Maybe smaller recommendation engines, image recognition and things like that. So our position is, is we bring maximum flexibility to our customer. If they want to leverage the MI300, we're very excited about that and we can provide that solution. And then if they're going to do a separate accelerator, we can win that also with the general product.

How big of an obstacle is software because the incumbent will say that, "Look, I've been investing in software, right, on GPUs and accelerators for like 10 or 15 years." So how do you suddenly catch up to that kind of a lead in the industry?

Yes, it's definitely very, very important, and that's why we made the organizational change, and we are making a lot of very, very rapid progress. And we're targeting and engaging with the top hyperscalers that have software capability, too. So we're very, very focused on winning in some of these large language models for both inference and training. And we have a torrid pace with this group and the group has a lot of the ex-Xilinx folks in it, and we're pretty excited about the progress right now. And -- but we are -- it will take some time, but we are definitely making a lot of progress, especially where we're focused, which is the top hyperscalers.

Got it. And then one last one, Dan, on -- what's the importance of kind of bundling the compute and the switching side, right? Again, because, right, we saw AMD succeed extremely well on the CPU side, right? Just amazing execution there. In the AI market, do you think having that combination of both the compute and the switching, whether it's InfiniBand or Ethernet, does that become a part of the solution? Or do you think customers are still going to buy best-of-breed so they are perfectly capable of mixing and matching somebody else's switched with your compute?

Vivek, I think it will be a mix, right? And that's partly why we bought Pensando a year ago. In fact, we just closed the Pensando acquisition -- I'm sorry, we just closed the 1 year anniversary of the Pensando acquisition. And we're very, very excited because they bring DPU technology. And technology is critical to exactly what we just talked about, just the acceleration of the network or security or storage. And they are just a tremendous team because I think the industry has learned over the last 5 to 7 years that it's one thing to build a really good chip and they've done that. But the software architecture and the system solution is super critical. And this is where this team excels. So they have a full stack that can be either customized for any particular customer or just offered off the shelf. And that is part of the broader view we have across the data center where I keep talking -- I mentioned, we want to be the most strategic supplier. We have CPUs, we have GPUs, we have DPUs and we have adaptive SoCs from Xilinx. So we believe we can solve these solutions with customers, but I do believe it will be a mix in terms of how customers decide to solve it.

Got it. How do you allocate resources, Dan? So there are advantages and disadvantages of having just one. And I imagine there are probably pros and cons of having multiple, right, solutions. So how do you allocate resources, right? When you have so many different options available or is it very workload or customer-dependent?

It's exactly that. It's very workload and customer-dependent in terms of where we invest. But at this point, our focus, as I just talked about, is sort of delivering the server through Zen 4 and of course, next year with Zen 5. And then with the MI300, getting that to market with the top hyperscalers. And the DPU business is growing and they're on their second-generation DPU. And that's across multiple hyperscalers today. So we come to -- we show up at our customer with a complete solution and allow them to mix and match and then we'll optimize based on their demand.

All right. One of the recent point of kind of industry discussion has been that overall budgets are not growing, right? But AI and accelerators are taking so much more of the budget. So do you think there are -- how do you see that aspect impacting AMD? Like if you look at your data center business, are there parts that could be left behind because then they have to be sacrificed to make room for the AI part of the budget.

Well, there's no question that there is an explosion of AI interest across virtually every enterprise. Every enterprise is trying to figure out how to leverage AI to become more efficient. No question about it. But for us, we see it that from a CPU standpoint. CPU still have a very big play in this AI conversation, right, like I talked about. There's a host node for training opportunity. There's CPU inference that will stay. And then there's the broad swath of complete applications that the CPUs have been serving for 30 years. That is not going away. So we do believe that there'll be a good complement of CPUs continuing forward. And then with the MI300, we'll provide a lot of value there also.

Got it. On process node, right, back to -- so AMD has managed to keep a very strong cadence, right? Every 2 years, I believe you have managed to -- should we expect that to continue? Like I imagine you're already looking at, right, whether it's 3-nanometer or things beyond that. And the reason I ask that question is because generally, I think the consumer industry has driven new manufacturing nodes. But as the consumer industry slows down, does that impact the cost right? The availability, the reliability of more advanced -- like does the slowdown in the consumer industry impact your ability to take advantage of leading edge nodes?

I don't think it does. What we see -- our road maps are driving to lower geometries, and we will continue, as I mentioned earlier, to partner with TSMC on this co-optimization piece. So we are -- we have a clear roadmap, and we're executing to it. And there's -- I don't believe there's any stopping going forward here in terms of next node. Moore's Law is slowing. So you do need to have those other 2 parts to it, right, in terms of advanced packaging and this design innovation and constantly looking at the architecture to optimize for the process node, but we do not see it slowing in terms of our execution cadence.

Got it. The ASP improvement, right, in your products, is there any natural limit to that? Or like how do customers look at that ASP increase, right, whether it's 15%, 20%, whatever it has been generation-on-generation. Is there a limit to how much the customers will be willing to bear CPU ASP increases? Again, because if more of the workload is going to the accelerator, then does it not mean that the value of the CPU is adding comes down over time?

Yes, I'm going to go back to what I mentioned earlier. It's all about the performance per dollar on a gen-to-gen basis. To perform a certain task, what is the customer getting in terms of performance features per their dollar spent? And we spend a great deal of time with that across workloads. This is not just a broad spec-in conversation. This is a how do we provide the most value for that next generation? Because at the end of the day, when we put out a new product, we want to enable our customers to adopt it as quickly as possible, to get that TCO advantage. So that's really where we're focused on. And it does -- it is workload-dependent and actually segment-dependent, too. But we believe we're going to continue to deliver that TCO for the customer on a gen-to-gen basis.

Got it. And then when it comes to the acquisition of Xilinx that was completed, right, I think almost a year-plus ago. What has been the synergies that you have seen so far? Because AMD has very strong,right, footprint now in the cloud, right, improving in enterprise. What about telco and embedded areas? How is that part of your portfolio?

So telco and embedded are great areas for Xilinx. And my history dates back to this business. And the embedded business for us, as you've seen, has been very, very strong, and we're very excited about it. And the cross-selling opportunities have been great. Their Xilinx or the former Xilinx relationships are very strong across automotive, telco and some edge applications. And they've brought not only epic type opportunities, but the client opportunities with Ryzen also. So there's been a very good cross-selling and integration of the sales teams at all of these broader segments. And if you think about the embedded business at number of different verticals. It's automotive, it's industrial. It's a number of separate verticals, I.t's imaging, it's video and their relationships are very strong because at the end of the day, they're helping customers actually design chips. So that relationship is very tight, and the cross-selling has gone extremely well. And conversely, our engagements with some of the top hyperscalers have helped them also. So I think it's gone as good as we could have expected in terms of the cross-selling and the synergies between the different groups within Xilinx and within AMD.

Got it. On enterprise, I know we spoke a lot about the cloud. How is AMD's position in the enterprise? And that's been historically an area that AMD has been less represented in. So what are you doing to -- is it a case of the [ end ] CIOs making the decision? Or is it that you have to make the case to the OEM, so they can make the case for you? How is that go-to-market different versus cloud?

Yes, it's a great question, Vivek. I'm very excited about our enterprise traction. And I mentioned it earlier that we -- the inflection point was Milan. We continued that with Genoa delivering. Again, increased performance and a better TCO and energy efficiency. The testing that we're seeing and the adoption is going very well. We've added a lot more feet on the street. And even within my own -- in the business unit side of things, we've added a lot of different skills for the top verticals across the end enterprise in the Fortune 500. So we feel very, very good. We're expanding our portfolio of platforms. All of the top OEM players have products, Genoa-based products in production, but we're also projecting a very large growth in the number of platforms that we'll have, so that we'll be able to address more of the actual enterprise market as we go forward with Genoa. Couple that within Genoa-X that is very focused on a different part of the enterprise market. So we feel very good about the products we're bringing to market. We are getting to the end customer, and we are definitely -- so your question originally was, is it one or the other. It's really both. We work hand-in-hand with the OEMs in the entire channel. And then we also go to the end customer in addition.

Terrific. Thank you so much, Dan. Pleasure to host you. Really appreciate your time.

Thank you, Vivek.

Thanks, everyone.