AMD - Q1 2024

Transcript

Operator (participant)

Greetings, and welcome to the AMD First Quarter 2024 conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mitch Haws, Vice President, Investor Relations. Thank you, Mitch. You may begin.

Mitch Haws (Executive)

Thank you, and welcome to AMD's first quarter 2024 financial results conference call. By now, you should have had the opportunity to review a copy of our earnings press release and the accompanying slides. If you have not had the chance to review these materials, they can be found on the investor relations page of amd.com. We will refer primarily to non-GAAP financial measures during today's call, and the full non-GAAP to GAAP reconciliations are available in today's press release and the slides posted on our website. Participants on today's call are Dr. Lisa Su, our Chair and Chief Executive Officer, and Jean Hu, our Executive Vice President, Chief Financial Officer, and Treasurer. This is a live call and will be replayed via webcast on our website.

Before we begin, I would like to note that Mark Papermaster, Executive Vice President and Chief Technology Officer, will attend the TD Cowen Technology, Media, and Telecom Conference on May 29, and Jean Hu, Executive Vice President, Chief Financial Officer, and Treasurer, will attend the J.P. Morgan Global Media and Communications Conference on Tuesday, May 21, the Bank of America Global Technology Conference on Wednesday, June 5, and the Jefferies Nasdaq Investor Conference on Tuesday, June 11. Today's discussion contains forward-looking statements based on current beliefs, assumptions, and expectations. We speak only as of today, and as such, involve risks and uncertainties that could cause actual results to differ materially from our current expectations. Please refer to the cautionary statement in our press release for more information on the factors that could cause actual results to differ materially. With that, I'll hand the call over to Lisa.

Lisa Su (CEO)

Thank you, Mitch, and good afternoon to all those listening today. This is an incredibly exciting time for the industry, as the widespread deployment of AI is driving demand for significantly more compute across a broad range of markets. Under this backdrop, we are executing very well as we ramp our data center business and enable AI capabilities across our product portfolio. Looking at the first quarter, revenue increased to $5.5 billion. We expanded gross margin by more than 2 percentage points and increased profitability as data center and client segment sales each grew by more than 80% year-over-year. Data center segment revenue grew 80% year-over-year and 2% sequentially to a record $2.3 billion. The substantial year-over-year growth was driven by the strong ramp of AMD Instinct MI300X GPU shipments and a double-digit percentage increase in server CPU sales.

We believe we gained server CPU revenue share in the seasonally down first quarter, led by growth in enterprise adoption and expanded cloud deployments. In cloud, while the overall demand environment remained mixed, hyperscalers continued adopting fourth gen EPYC processors to power more of their internal workloads and public instances. There are now nearly 900 AMD-powered public instances available globally as Amazon, Microsoft, and Google all increased their fourth gen EPYC processor offerings with new instances and regional deployments. In the enterprise, we have seen signs of improving demand as CIOs need to add more general purpose and AI compute capacity while maintaining the physical footprint and power needs of their current infrastructure. This scenario aligns perfectly with the value proposition of our EPYC processors.

Given our high core count and energy efficiency, we can deliver the same amount of compute with 45% fewer servers compared to the competition, cutting initial CapEx by up to half and lowering annual OpEx by more than 40%. As a result, enterprise adoption of EPYC CPUs is accelerating, highlighted by deployments with large enterprises, including American Airlines, DBS, Emirates Bank, Shell, and STMicro. We're also building momentum with AMD-powered solutions powering the most popular ERP and database applications. As one example, the latest generation of Oracle Exadata, the leading database solution used by 76 of the Fortune 100, is now powered exclusively by fourth-gen EPYC processors. Looking ahead, we're very excited about our next-gen Turin family of EPYC processors, featuring our Zen 5 core. We're widely sampling Turin, and the silicon is looking great.

In the cloud, the significant performance and efficiency increases of Turin position us well to capture an even larger share of both first and third-party workloads. In addition, there are 30% more Turin platforms in development from our server partners compared to fourth gen EPYC platforms, increasing our enterprise SAM with new solutions optimized for additional workloads. Turin remains on track to launch later this year. Turning to our broader data center portfolio, we delivered our second straight quarter of record data center GPU revenue, as MI300 became the fastest ramping product in AMD history, passing $1 billion in total sales in less than two quarters. In cloud, MI300X production deployments expanded at Microsoft, Meta, and Oracle to power generative AI training and inferencing for both internal workloads and a broad set of public offerings.

For the enterprise, we're working very closely with Dell, HPE, Lenovo, Supermicro, and others as multiple MI300X platforms enter volume production this quarter. In addition, we have more than 100 enterprise and AI customers actively developing or deploying MI300X. On the AI software front, we made excellent progress, adding upstream support for AMD hardware in the OpenAI Triton compiler, making it even easier to develop highly performing AI software for AMD platforms. We also released a major update to our ROCm software stack that expands support for open source libraries, including vLLM and frameworks, including JAX. Adds new features like video decode, and significantly increases generative AI performance by integrating advanced attention algorithm support for sparsity and FP8. Our partners are seeing very strong performance in their AI workloads.

As we jointly optimize for their models, MI300X GPUs are delivering leadership inferencing performance and substantial TCO advantages compared to H100. For instance, several of our partners are seeing significant increases in tokens per second when running their flagship LLMs on MI300X compared to H100. We're also continuing to enable the broad ecosystem required to power the next generation of AI systems, including as a founding member of the Ultra Ethernet Consortium, working to optimize the widely adopted Ethernet protocol to run AI workloads at data center scale. MI300 demand continues to strengthen, and based on our expanding customer engagements, we now expect data center GPU revenue to exceed $4 billion in 2024, up from the $3.5 billion we guided in January.

Longer term, we are increasingly working closer with our cloud and enterprise customers as we expand and accelerate our AI hardware and software roadmaps and grow our data center GPU footprint. Turning to our client segment, revenue was $1.4 billion, an increase of 85% year-over-year, driven by strong demand for our latest generation Ryzen mobile and desktop processors with OEMs and in the channel. Client segment revenue declined 6% sequentially. We saw strong demand for our latest generation Ryzen processors in the first quarter. Ryzen desktop CPU sales grew by a strong double-digit percentage year-over-year, and Ryzen mobile CPU sales nearly doubled year-over-year, as new Ryzen 8040 notebook designs from Acer, ASUS, HP, Lenovo, and others ramped. We expanded our portfolio of leadership enterprise PC offerings with the launch of our Ryzen Pro 8000 processors earlier this month.

Ryzen Pro 8040 mobile CPUs deliver industry-leading performance and battery life for commercial notebooks, and our Ryzen Pro 8000 series desktop CPUs are the first processor to offer dedicated on-chip AI accelerators in commercial desktop PCs. We see clear opportunities to gain additional commercial PC share based on the performance and efficiency advantages of our Ryzen Pro portfolio and an expanded set of AMD-powered commercial PCs from our OEM partners. Looking forward, we believe the market is on track to return to annual growth in 2024, driven by the start of an enterprise refresh cycle and AI PC adoption. We see AI as the biggest inflection point in PCs since the internet, with the ability to deliver unprecedented productivity and usability gains.

We're working very closely with Microsoft and a broad ecosystem of partners to enable the next generation of AI experiences powered by Ryzen processors, with more than 150 ISVs on track to be developing for AMD AI PCs by the end of the year. We will also take the next major step in our AI PC roadmap later this year with the launch of our next generation Ryzen mobile processors, code-named Strix. Customer interest in Strix is very high based on the significant performance and energy efficiency uplifts we are delivering. Design win momentum for premium notebooks is outpacing prior generations, as Strix enables next-generation AI experiences in laptops that are thinner, lighter, and faster than ever before. We're excited about the growth opportunities for the PC market, and based on the strength of our Ryzen CPU portfolio, we expect to grow revenue share this year.

Now turning to our gaming segment. Revenue declined 48% year-over-year and 33% sequentially to $922 million. First quarter semi-custom SoC sales declined in line with our projections, as we are now in the 5th year of the console cycle. In gaming graphics, revenue declined year-over-year and sequentially. We expanded our Radeon 7000 Series family with the global launch of our Radeon RX 7900 GRE, and also introduced our driver-based AMD Fluid Motion Frames technology that can provide large performance increases in thousands of games. Turning to our embedded segment, revenue decreased 46% year-over-year and 20% sequentially to $846 million, as customers remained focused on normalizing their inventory levels.

We launched our Spartan UltraScale+ FPGA family with high I/O counts, power efficiency, and state-of-the-art security features, and we're seeing a strong pipeline of growth for our cost-optimized embedded portfolio across multiple markets. Given the current embedded market conditions, we're now expecting second quarter embedded segment revenue to be flat sequentially, with a gradual recovery in the second half of the year. Longer term, we see AI at the edge as a large growth opportunity that will drive increased demand for compute across a wide range of devices. To address this demand, we announced our second generation of Versal adaptive SoCs that deliver a 3x increase in AI TOPS per watt and a 10x greater scalar compute performance compared to our prior generation of industry-leading adaptive SoCs.

Versal Gen 2 adaptive SoCs are the only solution that combine multiple compute engines to handle AI preprocessing, inferencing, and post-processing on a single chip, enabling customers to rapidly add highly performant and efficient AI capabilities to a broad range of products. We were pleased to be joined at our launch by Subaru, who announced they adopted Versal AI Edge series Gen 2 devices to power the next generation of their EyeSight ADAS system. Embedded design win momentum remains very strong as customers adopt our full portfolio of FPGAs, CPUs, GPUs, and adaptive SoCs to address a larger portion of their compute needs. In summary, we executed well in the first quarter, setting us up to deliver strong annual revenue growth and expanded gross margin, driven by growing adoption of our Instinct, EPYC, and Ryzen product portfolios.

Our priorities for 2024 are very clear: accelerate our data center growth by ramping Instinct GPU production and gaining share with our EPYC processors, launch our next generation Zen 5 PC and server processors that extend our leadership performance, and expand our adaptive computing portfolio with differentiated solutions. Looking further ahead, AI represents an unprecedented opportunity for AMD. While there has been significant growth in AI infrastructure build-outs, we are still in the very early stages of what we believe is going to be a period of sustained growth, driven by an insatiable demand for both high-performance AI and general-purpose compute.

We have expanded our investments across the company to capture this large growth opportunity, from rapidly expanding our AI software stack, to accelerating our AI hardware roadmaps, increasing our go-to-market activities, and partnering closely with the largest AI companies to co-optimize solutions for their most important workloads. We are very excited about the trajectory of the business and the significant growth opportunities ahead. Now, I'd like to turn the call over to Jean to provide some additional color on our first quarter results. Jean?

Jean Hu (CFO)

Thank you, Lisa, and good afternoon, everyone. I'll start with a review of our financial results, and then provide our current outlook for the second quarter of fiscal 2024. We delivered a strong year-over-year revenue growth in our data center and client segments in the first quarter, and it drove 230 basis points of gross margin expansion. For the first quarter of 2024, revenue was $5.5 billion, up 2% year-over-year, as revenue growth in the data center and the client segment was partially offset by lower revenue in our gaming and embedded segments. Revenue declined 11% sequentially, as higher data center revenue resulting from the ramp of our AMD Instinct GPUs was offset by lower gaming and embedded segment revenues.

Gross margin was 52%, up 230 basis points year-over-year, driven by higher revenue contribution from the data center and the client segment, partially offset by lower embedded and the gaming segment revenue contribution. Operating expenses were $1.7 billion, an increase of 10% year-over-year, as we continued investing aggressively in R&D and marketing activities to address the significant AI growth opportunities ahead of us. Operating income was $1.1 billion, representing a 21% operating margin. Taxes, interest expense, and other was $120 million. For the fourth quarter of 2024, diluted earnings per share was $0.62, an increase of 3% year-over-year. Now, turning to our reportable segments, starting with the data center. Data center delivered record quarterly segment revenue of $2.3 billion, up 80%, a $1 billion increase year-over-year.

Data center accounted for more than 40% of total revenue, primarily led by the ramp of AMD Instinct GPUs from both cloud and enterprise customers, and a strong double-digit percentage growth in our server processor revenue as a result of growth across our Zen 4 products. On a sequential basis, revenue increased 2%, driven by the ramp of our AMD Instinct GPUs, partially offset by seasonal decline in server CPU sales. Data center segment operating income was $541 million, or 23% of revenue, compared to $148 million, or 11% a year ago. Operating income was up 266% year-over-year due to operating leverage, even as we significantly increased our investment in R&D. Client segment revenue was $1.4 billion, up 85% year-over-year, driven primarily by Ryzen 8000 series processors.

On a sequential basis, client revenue declined 6%. Client segment operating income was $86 million, or 6% of revenue, compared to an operating loss of $172 million a year ago, driven by higher revenue. Gaming segment revenue was $922 million, down 48% year-over-year, and down 33% sequentially, due to a decrease in semi-custom and the Radeon GPU sales.... Gaming segment operating income was $151 million, or 16% of revenue, compared to $314 million, or 18% a year ago. Embedded segment revenue was $846 million, down 46% year-over-year, 20% sequentially, as customers continue to manage their inventory levels.

Embedded segment operating income was $342 million, or 41% of revenue, compared to $798 million, or 51% a year ago. Turning to the balance sheet and the cash flow. During the quarter, we generated $521 million in cash from operations, and the free cash flow was $379 million. Inventory increases sequentially by $301 million to $4.7 billion, primarily to support the continued ramp of data center and the client products in advanced process nodes. At the end of the quarter, cash, cash equivalents, and short-term investment was $6 billion. As a reminder, we have $750 million of debt maturing this June. Given our ample liquidity, we plan to retire the debt utilizing existing cash. Now, turning to our second quarter, 2024 outlook.

We expect revenue to be approximately $5.7 billion ± $300 million. Sequentially, we expect data center segment revenue to increase by double-digit percentage, primarily driven by the data center GPU ramp. Client segment revenue to increase, embedded segment revenue to be flat. In the gaming segment, based on current demand signals, revenue to decline by significant double-digit percentage. Year-over-year, we expect our data center and client segment revenue to be up significantly, driven by the strength of our product portfolio. The embedded and the gaming segment revenue to decline by a significant double-digit percentage. In addition, we expect second quarter non-GAAP gross margin to be approximately 53%. Non-GAAP operating expenses to be approximately $1.8 billion. Non-GAAP effective tax rate to be 13%, and the diluted share count is expected to be approximately 1.64 billion shares.

In closing, we started the year strong. We made significant progress on our strategic priorities, delivered year-over-year revenue growth in our Data Center and the Client segment, and expanded the gross margin. Looking ahead, we believe the investment we are making will position us very well to address the large AI opportunities ahead. With that, I'll turn it back to Mitch for the Q&A session.

Mitch Haws (Executive)

Thank you, Jean. Paul, we're happy to poll the audience for questions.

Operator (participant)

Thank you. We'll now be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from Toshiya Hari with Goldman Sachs. Please proceed with your question.

Toshiya Hari (Managing Director and Senior Equity Research Analyst)

Hi, thank you so much for taking the question. Lisa, my first question is on the MI300. You're taking up the full year outlook from $3.5 billion to $4 billion. I'm curious, what's driving that incremental $500 million in revenue? Is it new customers? Is it additional, you know, bookings from existing customers? Is it more cloud? Is it more enterprise? If you can sort of, you know, provide color there, that would be helpful. And then on the supply side, there's been headlines or chatter that, you know, CoWoS and/or HBM could be a pretty severe constraining factor for you guys. If you can speak to how you're handling the supply side of the equation, that'd be helpful, too. And then I have a quick follow-up.

Lisa Su (CEO)

Great. Thank you, Toshiya, for the question. Look, you know, the MI300 ramp is going really well. If we look at just what's happened over the last 90 days, we've been working very closely with our customers to qualify MI300 in their production data centers, both from a hardware standpoint, software standpoint. You know, so far, things are going quite well, and what we see now is just greater visibility to both current customers as well as new customers committing to MI300. So that gives us the confidence to go from $3.5 billion-$4 billion. And, you know, I view this as, you know, very much... It's a very dynamic market, and there are lots of customers.

We said in the prepared remarks that we have over, you know, 100 customers that we're engaged with in both, you know, development as well as deployment. So, overall, the ramp is going really well. As it relates to the supply chain, actually, I would say I'm very pleased with how supply has ramped. You know, it is absolutely the fastest product ramp, you know, that we have done. It's a very complex product, you know, chiplets, you know, CoWoS, you know, 3D integration, HBM, and so far, it's gone extremely well.

We've gotten great support from our partners, and so, you know, I would say even in the quarter that we just finished, we actually did a little bit better than expected when we first started the quarter. I think, you know, Q2 will be another significant ramp, and we're gonna ramp supply every quarter this year. So I think the supply chain is going well. You know, we are tight on supply, so, you know, there's no question in the near term that if we had more supply, you know, we have demand for that product. And, you know, we're gonna continue to work on those those elements as we go through the year.

But I think both on the demand side and the supply side, I'm very pleased with how the ramp is going.

Toshiya Hari (Managing Director and Senior Equity Research Analyst)

... Thank you for all the details. And then as my follow-up, I was hoping you could speak to your data center GPU roadmap, beyond the MI300. The other, you know, concern that we hear is, you know, your nearest competitor has been pretty transparent with their roadmap, and, you know, that extends into 2025 and oftentimes 2026. So maybe this isn't the right venue for you to, you know, give too much. But, beyond the MI300, how should we think about your roadmap and your ability to compete in data center? Thank you.

Lisa Su (CEO)

Yeah, sure. So look, you know, Toshiya, when we start with the roadmap, I mean, we always think about it as a multi-year, multi-generational roadmap. So we have, you know, the follow-ons to MI300, as well as the next generations, you know, well in development. I think what is true is we're getting much closer to our top AI customers. They're actually giving us significant feedback on the roadmap and what we need to meet their needs. Our triplet architecture is actually very flexible, and so that allows us to actually, you know, actually make changes to the roadmap as necessary. So we're very confident in our ability to continue to be very competitive. Frankly, I think we're gonna get more competitive.

You know, right now, I think MI300X is in a sweet spot for inference. Very, very strong inference performance. I see, as we bring in additional products, you know, later this year into 2025, that, that will continue to be a strong spot for us. And then we're also enhancing our training performance and our software roadmap to go along with it. So more details to come, in the coming months, but, you know, we have a strong roadmap that goes through the next couple of years, and it is informed by just, you know, a lot of learning in working with our top customers.

Toshiya Hari (Managing Director and Senior Equity Research Analyst)

Appreciate it. Thank you.

Lisa Su (CEO)

Sure.

Operator (participant)

Our next question is from Ross Seymore with Deutsche Bank. Please proceed with your question.

Ross Seymore (Managing Director and Senior Equity Research Analyst)

Hi. Thanks for letting me ask a question. The non-AI side of the data center business, it sounds like the enterprise side had some good traction, even though the sequential drop happened seasonally, Lisa. But I was just wondering what's implied in your second quarter guidance for the data center CPU side of things? And generally speaking, how are you seeing that whole kind of GPU versus CPU crowding out dynamic playing out for the rest of 2024?

Lisa Su (CEO)

Yeah, sure, Ross, thanks for the question. You know, I think our EPYC business has actually performed pretty well. You know, the market is a bit mixed. I think some of the cloud guys are still, you know, working through, you know, sort of their optimizations. I think it's different by customer. We did see here in the first quarter, actually, some very, you know, nice early signs in the enterprise space, you know, sort of large customers starting refresh programs. You know, the value proposition of Genoa is very, very strong, and we're seeing that pull through across the enterprise. In the second quarter, you know, we expect overall data center to be up, you know, strong double digits.

And then within that, we expect server to be up, as well. And as we go into the second half of the year, you know, I think there are a couple of drivers for us. You know, we do expect some improvement in the overall market conditions for the server business, but we also have our Turin launch in the second half of the year that will also, you know, we believe, extend our leadership position within the server market. So, you know, overall, I think the business is performing well, and we believe that we're continuing to be very well positioned to gain share throughout the year.

Ross Seymore (Managing Director and Senior Equity Research Analyst)

Thanks for that. And I guess as my follow-up, just switching over to the client side, I noted you guided it up sequentially. Any sort of magnitudes around that for the second quarter, and perhaps more importantly, when you talk about the whole AI PC side of things, do you believe that's more of a unit driver for you, an ASP driver, or will it be both?

Lisa Su (CEO)

Yeah. So I think, again, I think we're, we're pretty excited about the AI PC, you know, both opportunity in, you know, let's call it the near term and even more so in the medium term. You know, I think the client business is performing well, both on the channel and on the, MNC side. We expect client to be, up sequentially, in the second quarter. And as we go into the second half of the year, to your question about units, you know, versus ASPs, I think we expect, some increase in units as well as ASPs.

You know, the AI PC products, when we look at the Strix products, it's—they're really well suited for the premium segments of the market, and I think that's where you're going to see, you know, some of the AI PC content strongest in the beginning. And then as we go into 2025, you would see it more across the rest of the portfolio.

Ross Seymore (Managing Director and Senior Equity Research Analyst)

Thank you.

Lisa Su (CEO)

Thanks, Ross.

Operator (participant)

Thank you. Our next question is from Matt Ramsey with TD Cowen. Please proceed with your question.

Matthew Ramsay (Managing Director and Senior Equity Research Analyst)

Yes. Thank you very much. Good afternoon, everybody. Lisa, I have sort of a longer-term question than a shorter-term follow-up one. I guess one of the questions that I've been getting from folks a lot is, obviously, your primary competitor has announced, I guess, a multi-year roadmap, and we continue to hear more and more from other folks about internal ASIC programs at some of your primary customers, whether they be for inference or training or both.

I guess it'd be really helpful if you could to talk to us about how your conversations go with those customers, how committed they are to your long-term roadmap, multi-generation, as you described it, how they juxtapose doing investments of their internal silicon versus using a merchant supplier like yourselves, and maybe what advantages the experience across a large footprint of customers can give your company that those guys doing internal ASICs might not get? Thanks.

Lisa Su (CEO)

Yeah, sure, Matt. Thanks for the question. So look, I think, you know, one of the things that, you know, we see and we've said, is that, you know, the, the TAM for AI compute is growing extremely quickly. And, you know, we see that continuing to be the case in all conversations. You know, we had highlighted a TAM of, let's call it, $400 billion in 2027. I think, you know, some people thought that was aggressive at the time, but, you know, the, the overall AI compute needs, as we talk to customers, is very, very strong. And you've seen that in some of the announcements, you know, even recently with some of the largest cloud guys. You know, from my view, there are several aspects of it.

First of all, we have great relationships with all of, you know, sort of the top AI companies, and the idea there is we want to innovate together. When you look at, you know, these large language models and everything that you need for, you know, training and inferencing, although there will be many solutions, I don't think there's just one solution that will fit all. The GPU is still the preferred architecture, especially as the algorithms and the models are continuing to evolve over time. And that favors our architecture and also our ability to really optimize, you know, CPU with GPU. So, you know, from my standpoint, I think, you know, we're very happy with the partnerships that we have.

I think this is a huge opportunity for all of us to really innovate together. You know, we see that, you know, there's a very strong, you know, commitment to working together over multiple years, you know, going forward. That's, you know, that's, I think, a testament to some of the work that we've done in the past, and that very much is what happened with the EPYC roadmap, as well.

Matthew Ramsay (Managing Director and Senior Equity Research Analyst)

Appreciate that, Lisa. As my follow-up, a little bit shorter term, and I guess, having followed the company super closely for a long time, I think there's always been noise in the system from whether the stock price is $2 a share or $200. There's been kind of always consistent noise one way or the other. But the last month and a half has been extreme in that sense. And so I wanted to just, I've got random reports in my inbox about changes in demand from some of your MI300 customers or planned demand for consuming your product. I think you answered earlier about the supply situation and how you're working with your partners there.

But has there been any change from the customers that you're in ramp with now or that you soon will be, of what their intention is for demand? Or is, are the or in fact, has that maybe strengthened rather than gone down in recent periods? Because I keep getting questions about it. Thanks.

Lisa Su (CEO)

Sure, Matt. Look, I think I might have said it earlier, but maybe I'll repeat it again. I think the demand side is actually really strong. And, you know, what we see with our customers and, you know, what we are tracking very closely is, you know, customers moving from, let's call it, initial POCs to pilots, to full-scale production, to deployment across multiple workloads. And we're moving through that sequence, you know, very well. I feel very good about the deployments and ramps that we have ongoing right now, and I also feel very good about, you know, new customers who are, you know, sort of earlier on in that process. So from a demand standpoint, you know, we continue to build backlog as well as build engagements going forward.

Similarly, on the supply standpoint, we're continuing to build supply momentum. But from a speed of ramp standpoint, I'm actually, you know, really pleased with the progress.

Matthew Ramsay (Managing Director and Senior Equity Research Analyst)

All right. Thank you very much.

Operator (participant)

Thank you. Our next question is from Aaron Rakers with Wells Fargo. Please proceed with your question.

Aaron Rakers (Managing Director and Senior Equity Analyst)

Yeah, thanks for taking the question, and I apologize if, you know, if I missed this earlier. But I know last quarter you talked about, you know, having a securing enough capacity to support significant upside to the ramp of the MI300. I know that you upped your guide now to $4 billion. I'm curious to how you would characterize the supply relative to that context offered last quarter as we think about that new kind of target of four. Would you characterize it as still having, you know, supply capacity, upside potential? Thank you.

Lisa Su (CEO)

Yes, Aaron. So, you know, we, we've said before that, you know, our goal is to ensure that we have supply that exceeds, the current, you know, guidance, and that is true. So as we've upped our guidance from $3.5 billion-$4 billion, we still, we have, you know, supply, visibility, you know, significantly beyond that.

Aaron Rakers (Managing Director and Senior Equity Analyst)

Yep. Okay. Thank you. And then, as a quick follow-up, going back to an earlier question on server demand, more traditional server. You know, as you see, you know, the ramp of maybe share opportunities in more traditional enterprise, I'm curious how you would characterize the growth that you expect to see in more traditional server CPU market as we move through 2024 or even longer term, how you'd characterize that growth trend?

Lisa Su (CEO)

Yeah, I think, Aaron, what I would say is there are, you know, the need for refresh of let's call it older equipment is certainly there, so we see a refresh cycle coming. We also see, you know, AI head nodes as another place where we see growth in, let's call it, the more traditional CPU market. You know, our sweet spot is really in the, you know, highest performance, you know, sort of high core count, you know, energy efficiency space, and, you know, that is playing out well.

you know, we're also, you know, we've traditionally been very strong in, let's call it, you know, cloud first-party workloads, and that is now extending to cloud third-party workloads, where, you know, we see enterprises who are, let's call it, in more of a hybrid environment, adopting AMD, both, you know, in the cloud and, and on-prem. So I think overall, we see it as, you know, a continued, you know, good progression for us, with the server business going through 2024 and, and beyond.

Aaron Rakers (Managing Director and Senior Equity Analyst)

Yep. Thank you.

Lisa Su (CEO)

Thanks.

Operator (participant)

Thank you. Our next question is from Vivek Arya with Bank of America Securities. Please proceed with your question.

Vivek Arya (Managing Director and Senior Equity Research Analyst)

Thanks for taking my question. Lisa, I just wanted to go back to the supply question and the $4 billion outlook for this year. I think at some point there was a suggestion that the $4 billion number, right, that there are still supply constraints, but I think at a different point, you said that you have supply visibility significantly beyond that. Given that we are almost at the middle of the year, you know, I would have thought that you would have much better visibility about the back half. So is the $4 billion number a supply-constrained number, or is it a demand-constrained number? Or, you know, alternatively, if you could give us some sense of what the exit rate of your GPU sales could be.

I think on the last call, you know, $1.5 billion was suggested. You know, could it be a lot more than that in terms of your exit date of MI for this year?

Lisa Su (CEO)

Yeah. Vivek, let me try to make sure that we answer this question clearly. From a full year standpoint, our $4 billion number is not supply capped. I'm sorry, yes, it's not supply capped. It is, yeah, we do have supply capability above that. It is more back half weighted. So if you're looking at, you know, sort of the near term, I would say, you know, for example, in the second quarter, you know, we do have more demand than we have supply right now, and we're continuing to work on pulling in some of that supply. By the way, I think this is an overall industry issue. This is not at all, you know, related to AMD.

I think overall, AI demand has exceeded anyone's expectations in 2024. So you've heard it from the memory guys. You've heard it from the foundry guys. We're all ramping capacity as we go through the year. And as it relates to visibility, you know, we do have good visibility into what's happening. As I said, we have great customer engagements that are going forward. You know, my goal is to make sure that, you know, we pass all of the milestones as we're ramping products. And as we pass those milestones, you know, we put that into the overall full year guidance for AI. But in terms of, you know, how customer progression things are going, they're actually going quite well.

And, you know, we continue to bring new customers on, and we continue to expand workloads with our, you know, current customers. And so, you know, hopefully that, that clarifies the question, Vivek.

Vivek Arya (Managing Director and Senior Equity Research Analyst)

Thank you, Lisa. Maybe one not on MI, but maybe on the embedded business. I think you, you know, sound a bit more measured about Q2 and the second half rebound, which is similar to what we have heard from a lot of the auto industrial peers. But where are you in the inventory clearing cycle? And if embedded has a somewhat more measured rebound in the back half, what implication does that have on a gross margin expansion? Can we continue to expect, I don't know, 100 basis points a quarter in terms of gross margin expansion because of the data center mix? Or just any puts and takes of, you know, embedded, and then what it means for gross margins in the back half. Thank you.

Jean Hu (CFO)

Hi, Vivek. Thank you for the question. I think the embedded business declined a little bit more than expected, really due to the weaker demand in some of the markets. Very specifically, communication has been weak and some pockets of industrial and automotive, as you mentioned, it's actually quite consistent with peers. Second half, we do think the first half is the bottom of the embedded business, and we'll start to see gradual recovery in the second half. And going back to your gross margin question is, when you look at our gross margin expansion in both Q1 and the guide of the Q2, the primary driver is the strong performance on the data center side. The data center will continue to ramp in second half.

I think that will continue to be the major driver of gross margin expansion in second half. Of course, if embedded is doing better, we'll have a more tailwind in second half.

Vivek Arya (Managing Director and Senior Equity Research Analyst)

Thank you.

Operator (participant)

Thank you. Our next question is from Timothy Arcuri with UBS. Please proceed with your question.

Timothy Arcuri (Managing Director)

Thanks very much. I also wanted to ask about your data center GPU roadmap. The, you know, customers that we talk to say that they're engaged, not just because of MI300, but really because of what's coming. And it seems like there's a big demand shift to, you know, rack scale systems that try to optimize performance per square foot, given some of the data center and, you know, power constraints. So can, can you just talk about how important systems are gonna be in your roadmap? And do you have all the pieces you need as the market shifts to, you know, rack scale systems?

Lisa Su (CEO)

... Yeah, sure, Timothy, thanks for the question. You know, for sure, look, our customers are engaged in the multigenerational conversation. So you know, we've you know, definitely going you know, out over the next you know, couple of years. And as it relates to the overall, you know, system integration, it is quite important. It is something that you know, we're working very closely with our customers and partners on. You know, that's a you know, significant investment in networking, working with a number of networking partners, as well, to make sure that you know, the scale-out capability is there. And to your question of do we have the pieces, we do absolutely have the pieces.

I think the work that we've always done with our Infinity Fabric, as well as, you know, with, our Pensando acquisition, that's brought in a lot of networking expertise. And then we're working across the networking ecosystem with, key partners like, you know, Broadcom and Cisco and Arista, who are with us, at our AI data center event, in December. So, our work right now in future generations is not just specifying a GPU, it is specifying, let's call it, you know, full system reference designs, and, you know, that's something that will be quite important, going forward.

Timothy Arcuri (Managing Director)

Thanks a lot. Then just as a quick follow-up, I know, you know, this year looks like it's gonna be pretty back-half loaded in your server CPU business, just like it was last year. And I know you kinda held our hands at about this time last year, sort of on what the full year could look like and how back-end loaded it could be. So I kinda wonder, could you give us some milestones in terms of how much server CPU could grow this year? How, you know, back-end loaded it could be? Is it, is, like, up 30% this year for your server CPU business, you know, year-over-year? Is that a reasonable bogey? I just wonder if you can kinda give us any guidance on that piece of the business. Thanks.

Lisa Su (CEO)

Yeah, I mean, I think, Tim, I think the best way to say it is our data center segment is on a very, very strong ramp as we go through the back half of the year. You know, server CPUs, certainly, you know, data center GPUs, you know, for sure. So, you know, I don't know that we're gonna get into specifics, but I could say, you know, in general, you should expect overall, at the segment level to be, you know, very strong double digits.

Timothy Arcuri (Managing Director)

Thank you, Lisa.

Lisa Su (CEO)

Thank you.

Operator (participant)

Thank you. Our next question is from Joe Moore with Morgan Stanley. Please proceed with your question.

Joseph Moore (Managing Director)

Great, thank you. I wonder if you could address the profitability of MI300. I know you said a couple of quarters ago that it would eventually be above corporate average, but it would take you a few quarters to get there. Can you talk about where you are in that?

Jean Hu (CFO)

Yeah. Thank you, Joe. Our team has done an incredible job to ramp MI300. As you probably know, it's a very complex product, and we are still at the first year of the ramp, both from, you know, yield, testing time, and the process improvement. Those things are still ongoing. We do think over time, the gross margin should be accretive to corporate average.

Joseph Moore (Managing Director)

Great, thank you. And then a separate follow-up. On the Turin transition on server, I know when you had transitioned in Genoa, you said it could take a little while, that there were significant platform shifts and things like that. Turin seems to be much more kind of ecosystem compatible. How, how quickly do you think you might see that product ramp within your server portfolio?

Lisa Su (CEO)

Yeah, Joe, I think, from what we see. Look, I think Turin is the same platform, so that does make it an easier ramp. I do think that Genoa and Turin will coexist for some amount of time 'cause customers are deciding when they're gonna bring out, you know, their new platforms. We expect Turin to give us access to a broader set of workloads. So our, our SAM actually expands with Turin both in enterprise and cloud. And, you know, from our, from our experience, I think you'll see a faster transition than, for example, when we went from, you know, Milan to Genoa.

Joseph Moore (Managing Director)

Great. Thank you.

Operator (participant)

Thank you. Our next question is from Stacy Rasgon with Bernstein Research. Please proceed with your question.

Stacy Rasgon (Managing Director and Senior Analyst)

Hi, guys. Thanks for taking my questions. For my first one, I wanted to address the MI300 ramp into Q2. So you said you've done $1 billion, give or take, in cumulative sales, which puts it at maybe, I don't know, maybe $600 million in Q1. You're guiding total revenues up about $225 million into Q2, but you've got client up, you've got traditional data center up, you've got embedded flat. Gaming's gonna be down, but I'd hazard a guess that the client and traditional data center, like, offset it, if not more. Does the MI300 ramp into Q2, is it more or less than the total corporate ramp that you've got built in the guidance right now? That you're expecting.

Jean Hu (CFO)

Hi, Stacy. Thanks for the question. You always ask math question. So I think in general, it is more, the data center GPU ramp. It will be more than the overall company's $200-some million ramp.

Stacy Rasgon (Managing Director and Senior Analyst)

Okay, so that means gaming must be down, like, a lot, right? If client-

Jean Hu (CFO)

Yeah

Stacy Rasgon (Managing Director and Senior Analyst)

... and traditional data center also goes up.

Jean Hu (CFO)

Yeah.

Stacy Rasgon (Managing Director and Senior Analyst)

Okay.

Jean Hu (CFO)

Yeah, you're right. Gaming is down similar zip code, like, like Q1.

Stacy Rasgon (Managing Director and Senior Analyst)

Got it. Got it. Well, that's helpful.

Jean Hu (CFO)

So maybe, yeah, let me give you some color about the gaming business, right?

Stacy Rasgon (Managing Director and Senior Analyst)

Yeah.

Jean Hu (CFO)

It's, you know, if you look at the gaming, the demand has been quite weak. That's quite very well known, and also their inventory levels. So based on the visibility we have, the first half, we, you know, both Q1 and Q2, we guided it down sequentially more than 30%. We actually think the second half will be lower than first half.... That's basically how we're looking at this year for the gaming business. And, at the same time, gaming's gross margin is lower than our company average. So overall, you know, will help the mix on the gross margin side. That's just some color on the gaming side. But you're right, Q2 gaming is down a lot.

Stacy Rasgon (Managing Director and Senior Analyst)

Got it. That's helpful. Thank you. For my second question, I wanted to look at the near-term data center profitability. So operating profit was down 19% sequentially on 2% revenue growth. Is that just the margins of the GPUs filtering in relative to the CPUs? And I know you said GPUs would eventually be above corporate average. Are they below the CPU average? I mean, they clearly are, I guess, in the near term, but are they gonna stay that way?

Jean Hu (CFO)

Yeah, I think, you're right. The GPU gross margin right now is below the data center gross margin level. I think there are two reasons, actually, the major reason is we actually increased the investment quite significantly, to, as Lisa mentioned, to expand and accelerating our roadmap in the AI side. That's one of the major drivers of the operating income coming down slightly. On the gross margin side, going back to your question, is, we said in the past, and we continue to believe the case, is data center GPU gross margin, over time, will be accretive to corporate average, but, it will take a while to get to the server level of gross margin.

Stacy Rasgon (Managing Director and Senior Analyst)

Got it. That's helpful. Thank you.

Operator (participant)

Thank you. Our next question is from Harlan Sur with J.P. Morgan. Please proceed with your question.

Harlan Sur (Managing Director and Senior Equity Research Analyst)

Good afternoon, thanks for taking my question. On your data center GPU segment and the faster time to production shipments giving you just up to your full year GPU outlook, how much of it is faster bring up of your customers' frameworks driven by your latest ROCm software platform and maybe stronger collaboration with your customers' engineers just to get them to qual faster? And how much of it is just a more aggressive build-out plan by customers versus their prior expectations, given, you know, what appears to be pretty strong urgency for them to move forward with their important AI initiatives?

Lisa Su (CEO)

Yeah, Harlan, thank you for the question. You know, what it really is, is, you know, both, you know, us and our, our customers, you know, feeling, you know, confident in, broadening the ramp. Because if, you know, if you think about it, first of all, the ROCm stack has done really well. And, you know, the work that we're doing is hand-in-hand with our customers to optimize, you know, their, their key models. And, you know, it, it was important to get, you know, sort of verification and validation that, you know, everything would run well, and, and we've now passed, you know, some important milestones in that area.

And then I think the other thing is, as you said, you know, there's a huge demand for more AI compute, and so, you know, our ability to participate in that and, you know, help customers, you know, get that up and running is great. So I think overall, as we look at it, you know, this ramp has been, you know, very, very aggressive if you think about, you know, where we were just a quarter ago. Each of these, you know, each of these are pretty complex bring ups, and, you know, I'm very happy with, you know, how they've gone. And by the way, we're, you know, we're only sitting here in April, so there's still,

Harlan Sur (Managing Director and Senior Equity Research Analyst)

Mm-hmm

Lisa Su (CEO)

... a lot of 2024 to go, and there's, you know, a great customer momentum in the process.

Harlan Sur (Managing Director and Senior Equity Research Analyst)

Yep. Yeah, absolutely. Just going back, just kind of rewinding back to the March quarter. So similar to the PC client business, right, which declined at the low end of the seasonal range, if I make certain assumptions around your data center GPU business, I extract out of data center, it looks like your server CPU business was also down at the lower end of the seasonal range. By my math, it was down, like, 5-6% sequentially. Is that right? And that's less than half the decline of your competitor. And if so, like, what drove the less than seasonal declines? I assume some of it was share gains. Sounds like enterprise was also better. Looks like you guys did drive a little bit more cloud instance adoption, but anything else that drove the slightly better seasonal pattern in March for data center server?

Jean Hu (CFO)

Yeah, yeah, Harlan, this is Jean. I think the server business has been performing really well. Year-over-year, it actually increased very strong double-digit. I think sequentially it is more seasonal, but we feel pretty good about continuing gaining share there.

Lisa Su (CEO)

Yeah, and if I just add-

Harlan Sur (Managing Director and Senior Equity Research Analyst)

Thank you. Mm-hmm.

Lisa Su (CEO)

AMD, Harlan, to your question. You know, we did see strength in enterprise in the first quarter, and I think that has, you know, offset perhaps some of the normal seasonality.

Harlan Sur (Managing Director and Senior Equity Research Analyst)

Yeah.

Operator (participant)

Paul, we have time for two more questions. Thank you. Our next question is from Tom O'Malley with Barclays. Please proceed with your question.

Thomas O'Malley (Director and Equity Research Analyst)

Hey, thanks for taking my question. I just wanted to ask on the competitive environment. Obviously, on the CPU side, you had a, you know, a competitor talk about launching a high core count product, in the coming quarter, kind of ramping now and more so into Q3. You've seen really good pricing tailwinds as a function of the higher core count, but can you talk about what you're seeing in that market? Do you think that there's any risk, for more aggressive pricing, which would impact your ASP ramp for the rest of the year?

Lisa Su (CEO)

Yeah, when we look at our, you know, server CPU, sort of ASPs, they're actually very stable. You know, I think we again we tend to be indexed towards the higher core counts. You know, overall, I would say the pricing environment is stable. You know, this is about, you know, sort of TCO for, you know, sort of the customer environments and, you know, sort of our performance and our performance per watt, our leadership, and, you know, that usually translates into TCO advantage for our customers.

Thomas O'Malley (Director and Equity Research Analyst)

... helpful. Then just a broader question to follow up here. So I think it got asked earlier about the importance of systems. But on your end, how important is the Ultra Ethernet Consortium to you being able to move boards to systems? I know that today you obviously have some internal assets, and then you can partner with others. But is there a way that you could be competitive before there is an industry standard on the Ethernet side? And can you talk about when you think the timing of that kind of consortium comes to market and enables you to maybe accelerate that roadmap? Thanks a lot.

Lisa Su (CEO)

Yeah, I think it's very important to say we are very supportive of the open ecosystem. We're very supportive of the Ultra Ethernet Consortium, but, you know, I don't believe that that is a limiter to our ability to build, you know, large scale, you know, systems. I think, you know, Ethernet is something that many in the industry feel will be the long-term answer for networking in these systems. And, you know, we have a lot of work that we're doing, you know, with internally as well as, you know, with our customers and partners to enable that.

Mitch Haws (Executive)

I'll-

Operator (participant)

Thank you.

Mitch Haws (Executive)

We're ready for our final question.

Operator (participant)

Our last question is from Harsh Kumar with Piper Sandler. Please proceed with your question.

Harsh Kumar (Managing Director and Senior Research Analyst)

Yeah, hey. Hey, thank you for letting me ask a question. Lisa, I had two. One is for you and one perhaps for Jean. So we recently hosted a very large custom GPU company for a call, and they talked about kind of mega data centers coming up in the near to midterm. You know, talking about nodes potentially in the 100,000+ range and maybe up to a million. So as we look out at these kinds of data centers, from an architectural standpoint, is that a situation where winner takes all, where if somebody gets in, you know, they kind of get all the sockets? Or will there be lines where your chip perhaps or your board can be placed right next to somebody else's board, maybe on a separate line?

Just help us understand how something like that would play out if there's a chance for more than one competitor to play in such a large data center?

Lisa Su (CEO)

Yeah. So, you know, I'll talk maybe a little bit more at the strategic level. I think as we look at, you know, sort of how AI shapes up over the next few years, there are, you know, customers who would be looking at very large, you know, training environments, and perhaps that's what you're talking about. I think, you know, our view of that is, number one, you know, we view that as a very attractive area for AMD. It's an area where, you know, we believe we have the technology to be, you know, very competitive there. And, you know, I think the desire would be to, you know, have optionality in terms of how you build those out.

So, you know, obviously, a lot has to happen between here and there, but I think your overarching question of, you know, is it winner takes all? I don't think so. That being the case, you know, we believe that, you know, AMD is very well positioned to play in those, you know, let's call it, a very large scale, systems.

Harsh Kumar (Managing Director and Senior Research Analyst)

That's wonderful. Thank you. And then, and maybe a quick one for Jean. So, Jean, I put everything into the model that you talked about for June. I get about a more or less a $400 million rise in the June quarter over March. You mentioned that both MI300 and EPYC will grow. Curious if you could help us think about the relative sizing of those two segments within the growth. I'm getting—the point I'm trying to make is I'm getting roughly about a $900 million number for MI300 for June. Is that... Am I in the ballpark or am I way off here?

Jean Hu (CFO)

Harsh, we're not going to guide a specific segment below the segment revenue. I think the most important thing is that we did say data center is going to grow double digits sequentially. I will leave it over there. We, we sub-segment, there are a lot of details.

Harsh Kumar (Managing Director and Senior Research Analyst)

Fair enough. I had to try. Thank you, guys. Thank you so much.

Jean Hu (CFO)

Yeah, yeah, yeah. Thank you.

Operator (participant)

Thank you. There are no further questions at this time. I'd like to hand the floor back over to management for any closing comments.

Mitch Haws (Executive)

Great. That concludes today's call. Thanks to all of you for joining us today.

Jean Hu (CFO)

Okay.

Operator (participant)

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.