Advanced Micro Devices Inc Q2 2023 Earnings Conference Call Insights

Key highlights from Advanced Micro Devices Inc (AMD) Q2 2023 Earnings Concall

Management Update:

• [00:02:41] AMD said its AI segment revenue grew by more than 7 times sequentially, driven by the launch of the Instinct MI300X GPU.

• [00:13:29] AMD is executing well against its strategic priorities and expects the PC market to grow seasonally in 2H23.

• [00:20:30] AMD expects the client segment to return to profitability in 3Q.

Q&A Highlights:

• [00:22:53] Matt Ramsay of TD Cowen asked how is AMD planning to achieve its goal of growing its Data Center business by 50% in 2H23, and the drivers of growth. Lisa Su CEO said AMD is seeing strong demand for AI-related products in the data center, but there is also some softness in cloud spend outside of AI. The company expects a large ramp in 2H23, with growth weighted towards 4Q.

• [00:25:18] Matt Ramsay from TD Cowen asked for an update on the MI300 program, including customer feedback on the hardware performance and how the software work with lead customers will translate into other customer deployments. Lisa Su CEO replied that AMD has made significant progress with its ROCm software stack and is getting positive feedback from customers on the performance of its MI250 and MI300 AI accelerators.

• [00:27:42] Aaron Rakers at Wells Fargo enquired if the Data Center business is still expected to grow double digits for the full year, and if the implied revenue for 4Q is a 50% sequential increase. Jean Hu CFO replied that the data center market is dynamic, with strong momentum for AMD’s product portfolio but continued softness in the enterprise market. AMD expects high single-digit YoY growth in the data center market, with strong sequential growth in both 3Q and 4Q.

• [00:29:03] Aaron Rakers with Wells Fargo queried how AMD has managed the supply chain to meet the expected demand ramp in the data center market, and how AMD sees the supply chain for the rest of the year. Lisa Su CEO said that AMD has been working with its entire supply chain to ensure ample supply for a ramp-up in 4Q and into 2024, including wafers, backend capacity, and specific components for MI300.

• [00:30:26] Toshiya Hari of Goldman Sachs asked for an estimate of the percentage of AMD’s implied Data Center growth in 4Q that is attributable to supercomputing, and whether the Instinct series is contributing to growth outside of supercomputing. Lisa Su CEO said AMD expects double-digit sequential growth in Data Center revenue in 3Q, driven by the ramp of Zen 4 server CPUs and large supercomputer wins. The company expects significant growth in 4Q, driven by the ramp of MI300 and MI250 accelerators.

• [00:32:38] Toshiya Hari with Goldman Sachs asked for an update on the competitive landscape in the Client business, and whether there is a path back to 20-30% operating margins. Lisa Su CEO answered that AMD’s Client business is growing due to its Ryzen 7000 series processors and steps to improve profitability, such as optimizing its R&D footprint. The company has made its operating expenses in the Client segment more efficient while investing in AI and Data Center for higher returns, and expects to return to 20% operating margins in the future.

• [00:35:26] Harlan Sur from JPMorgan enquired if the enterprise segment, is expected to contribute to the strong 2H growth profile of the Data Center business despite a continued muted environment in enterprise. Lisa Su CEO clarified that AMD is investing in its enterprise business to capitalize on the growth opportunities in the market. The company is increasing its go-to-market activities and investing in more business development resources to reach more enterprise customers.

• [00:36:20] Harlan Sur at JPMorgan also asked if AMD has considered developing China-specific SKUs for its accelerated compute products, given the significant unmet demand in the region. Lisa Su CEO said AMD is committed to complying with US export controls, but the company sees an opportunity to develop AI solutions for customers in China.

• [00:37:42] Vivek Arya of Bank of America enquired if AMD’s GPU accelerator sales are about $500 million this year, does that mean its server CPU sales are effectively flattish YoY. Lisa Su CEO replied that AMD’s GPU sales in 1H23 were very low, but the company expects to see significant growth in 2H23, driven by the ramp of MI300.

• [00:39:04] Vivek Arya at Bank of America asked about AMD’s specific edge in the commercial AI accelerator market, and the sustainability of it. Lisa Su CEO answered that AMD believes that its AI portfolio is unique and capable, with a strong hardware roadmap and a focus on software optimization. The company sees multiple winners in the AI market, and is committed to being one of them.

• [00:43:00] Stacy Rasgon with Bernstein Research enquired how much of AMD’s Q4 Data Center revenue growth is expected to come from MI300 versus CPU, and what does that imply for seasonality into 1Q. Lisa Su CEO replied that AMD expects MI300 to ramp in Q4 2023, with significant revenue contribution from supercomputing and AI. The company expects early deployments in the first half of 2024, followed by more volume in 2H23.

• [00:46:43] Joe Moore of Morgan Stanley asked how much will AMD’s embedded business decline in 2H23, and is this decline due to the common infrastructure market or other factors. Lisa Su CEO said that AMD’s embedded business is expected to decline by double-digits sequentially in 3Q, due to weakness in the communications market and inventory optimization. The core markets of the business are holding up well.

• [00:48:56] Timothy Arcuri with UBS asked about the company’s expectations for inventory days in 4Q23, given the ramp of new products and the company’s goal of normalizing inventory days to 90-100 days. Jean Hu CFO said AMD expects inventory days to come down in 3Q and 4Q, but it will likely remain elevated at around 110-120 days due to the long manufacturing cycle for advanced process technologies.

• [00:50:19] Timothy Arcuri with UBS enquired if supply of MI300X is likely to be a bottleneck for AMD next year, given the high customer interest and Cohost’s capacity constraints. Lisa Su CEO replied that AMD has been working to secure significant capacity for MI300 across the entire supply chain, despite the tight market conditions. The company is committed to making MI300 a significant growth driver.