Advanced Micro Devices Q1 2024 Earnings Call Transcript

Presentation

[Operator]

Greetings and welcome to the AMD First Quarter 2024 Conference Call. [Operator Instruction] It is now my pleasure to introduce your host, Mitch Haws, Vice president, Investor relations. Thank you, Mitch. You may begin.

[Mitchell Haws, Vice President of Investor Relations at Advanced Micro Devices]

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. 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 JP 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. 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 on our press release for more information on the factors that could cause actual results to differ materially.

With that, I will hand the call over to Lisa.

[Lisa Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

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 two 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 4th 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 4th 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 4th Gen EPYC processors.

Looking ahead, we're very excited about our next-gen Turin family of EPYC processors, featuring our Zen 5 core. We are 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 4th Gen EPYC platforms, increasing our enterprise and 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 a billion dollars 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 performant 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 algorithms support for sparsity and FPA.

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 road maps and grow our data center GPU footprint.

Turning to our clients 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 road map later this year with the launch of our next generation Ryzen mobile processors, codenamed Strix. Customer interest in Strix is very high based on the significant performance and energy efficiency uplifts we are delivering. Design wins 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 milion. First-quarter semi-custom SOC sales declined in line with our projections as we are now in the fifth 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 remain focused on normalizing their inventory levels.

We launched our Spartan UltraScale plus 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 pre-processing, 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 road maps, 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, Executive Vice President, Chief Financial Officer and Treasurer at Advanced Micro Devices]

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 fourth-quarter and drew 230 basis point over 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 point year-over-year, driven by higher revenue contribution from the data center and the client segment, partially offset by lower embedded and gaming segment revenue contribution.

Operating expenses were $1.7 billion, an increase of 10% year-over-year as we continued investing aggressively in RND 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 earning per share was $0.62, an increase of 3% year-over-year.

Now, turning to our reportable segment, starting with the data center. Data center delivered record quarterly segmented 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 process 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 a 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 increase our investment in RND.

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 cash flow. During the quarter, we generated the $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 processor nodes.

At the end of the quarter, cash equivalent and short-term investment was $6 billion. As a reminder, we have a $750 million of debt maturing this June. Given our ample liquidity, we plan to retire the debt by utilizing existing cash.

Now, turning to our second-quarter 2024 outlook. We expect revenue to be approximately $5.7 billion, plus or minus, $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 segmented revenue to be flat. And 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 growth 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 QA session.

[Mitchell Haws, Vice President of Investor Relations at Advanced Micro Devices]

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

Questions and Answers

[Operator]

Thank you. [Operator Instructions] Our first question is from Toshiya Hari with Goldman Sachs. Please proceed with your question.

[Toshiya Hari, Analyst at The Goldman Sachs Group]

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 bookings from existing customers? Is it more cloud? Is it more enterprise? If you can sort of provide color there, that would be helpful.

And then, on the supply side, there's been headlines or chatter that 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 would be helpful too. And then, I have a quick follow up.

[Lisa Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

Great. Thank you, Toshiya, for the question. Look. 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. 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 to $4 billion. And I view this as very much -- it's a very dynamic market and there are lots of customers. We said on the -- in the prepared remarks that we have over 100 customers that we're engaged with in both 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. It is absolutely the fastest product ramp that we have done. It's a very complex product, chiplets, CoWoS, 3D integration, HBM, and so far it's gone extremely well. We've gotten great support from our partners. And so, 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, Q2 will be another significant ramp and we're going to ramp supply every quarter this year. So, I think the supply chain is going well. We are tight on supply, so there's no question in the near term that if we had more supply, we have demand for that product, and we're going to continue to work on 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, Analyst at The Goldman Sachs Group]

Thank you for all the details. And then, as my follow up, I was hoping you could speak to your data center GPU road map beyond the MI300. The other concern that we hear is your nearest competitor has been pretty transparent with their roadmap and that extends into '25, and oftentimes '26. So, maybe this isn't the right venue for you to 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 Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

Yes, sure. So, look, Toshiya, when we start with the road map, I mean, we always think about it as a multiyear, multi-generational road map. So, we have the follow-ons to MI300, as well as the next, next generations 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 road map and what we need to meet their needs. Our chiplet architectural -- architecture is actually very flexible, and so that allows us to actually make changes to the road map as necessary. So, we're very confident in our ability to continue to be very competitive.

Frankly, I think we're going to get more competitive right now. I think that MI300X is in a sweet spot for inference. Very, very strong inference performance. I see, as we bring in additional products 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 road map to go along with it. So, more details to come in the coming months, but we have a strong road map that goes through the next couple of years, and it is informed by just a lot of learning in working with our top customers.

[Toshiya Hari, Analyst at The Goldman Sachs Group]

Appreciate it. Thank you.

[Lisa Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

Sure.

[Operator]

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

[Ross Seymore, Analyst at Deutsche Bank Aktiengesellschaft]

Hi. Thanks for letting me ask a question. The non-AI side of the data center business, it sounds like the enterprise side has 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 Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

Yes, sure, Ross. Thanks for the question. I think our EPYC business has actually performed pretty well. The market is a bit mixed, I think, some of the cloud guys are still working through sort of their optimizations. I think it's different by customer. We did see here in the first quarter actually some very nice early signs in the enterprise space, sort of large customers starting refresh programs. The value proposition of Genoa is very, very strong, and we're seeing that pull through across the enterprise.

In the second-quarter, we expect overall data center to be up 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, I think there are a couple of drivers for us. 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, we believe, extend our leadership position within the server market. So, 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, Analyst at Deutsche Bank Aktiengesellschaft]

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 Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

Yes. So, I think -- again, I think we're pretty excited about the AI PC, both opportunity in, let's call it, the near term, and even more so, in the medium term. 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 versus ASPs, I think we expect some increase in units, as well as ASPs. The AI PC products, when we look at the Strix products, they're really well suited for the premium segments of the market. And I think that's where you're going to see 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, Analyst at Deutsche Bank Aktiengesellschaft]

Thank you.

[Lisa Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

Thanks, Ross.

[Operator]

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

[Matthew Ramsay, Analyst at TD Cowen]

Yes. Thank you very much. Good afternoon, everybody. Lisa, I have sort of a longer-term question and then 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 multiyear road map. 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 would 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 road map, multi-generation as you described it? How they juxtaposed 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 Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

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

From my view, there are several aspects of it. First of all, we have great relationships with all of sort of the top AI companies, and the idea there is we want to innovate together. When you look at these large language models and everything that you need for training and inferencing there, 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 CPU with GPU.

So, from my standpoint, I think 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. And we see that there's a very strong commitment to working together over multiple years going forward. And 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 road map as well.

[Matthew Ramsay, Analyst at TD Cowen]

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 been -- 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 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 in fact has that maybe strengthened rather than gone down in recent periods? Because I keep getting questions about it. Thanks.

[Lisa Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

Sure, Matt. Look, I think I might have said it earlier, but maybe I'll repeat it again, I think that the demand side is actually really strong. And what we see with our customers and what we are tracking very closely is 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 very well. I feel very good about the deployments and ramps that we have ongoing right now. And I also feel very good about new customers who are sort of earlier on in that process.

So, from a demand standpoint, we continue to build backlog, as well as build engagements going forward. And similarly, on the supply standpoint, we're continuing to build supply momentum. But from a speed of ramp standpoint, I'm actually really pleased with the progress.

[Matthew Ramsay, Analyst at TD Cowen]

All right. Thank you very much.

[Operator]

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

[Aaron Rakers, Analyst at Wells Fargo & Company]

Yes. Thanks for taking the question and I apologize if I missed this earlier. But I know last quarter you talked about having -- 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 $4 billion? Would you characterize it as still having supply capacity upside potential? Thank you.

[Lisa Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

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

[Aaron Rakers, Analyst at Wells Fargo & Company]

Yes. Okay. Thank you. And then as a quick follow up, going back to that earlier question on server demand, more traditional server. As you see the ramp of maybe share opportunities in more traditional enterprise. I'm curious to how you would characterize the growth that you expect to see in more traditional server CPU market as we move through '24 or even longer term, how you characterize that growth trend?

[Lisa Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

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

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

[Aaron Rakers, Analyst at Wells Fargo & Company]

Yes. Thank you.

[Lisa Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

Thanks.

[Operator]

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

[Vivek Arya, Analyst at Bank of America Securities]

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, I would have thought that you would have much better visibility about the back half. So, is the $4 billion number a supply constraint number? Or is it a demand constraint number? Or 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, $1.5 billion was suggested. Could it be a lot more than that in terms of your exit rate of MI for this year?

[Lisa Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

Yes, Vivek, let me try to make sure that we answered 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 -- we do have supply capability above that, it is more back half weighted. So, if you're looking at sort of the near term, the near term, I would say, for example, in the second quarter, 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 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, we do have good visibility into what's happening. As I said, we have great customer engagements that are going forward. My goal is to make sure that we pass all of the milestones as we're ramping products. And as we pass those milestones, we put that into the overall full year guidance for AI. But in terms of how customer progression things are going, they're actually going quite well. And we continue to bring new customers on and we continue to expand workloads with our current customers. And so, hopefully, that clarifies the question, Vivek.

[Vivek Arya, Analyst at Bank of America Securities]

Thank you, Lisa. Maybe one not on MI, but maybe on the embedded business. I think you 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 embedded? And then, what it means for gross margins in the back half? Thank you.

[Jean Hu, Executive Vice President, Chief Financial Officer and Treasurer at Advanced Micro Devices]

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 the peers. Second half -- we do think in the first half, you see the bottom of the impacted business, and will 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 guided 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 a gross margin expansion in second half. Of course, if embedded is doing better, we'll have a more tailwind in second half.

[Vivek Arya, Analyst at Bank of America Securities]

Thank you.

[Operator]

Our next question is from Timothy Arcury with UBS. Please proceed with your question.

[Timothy Arcuri, Analyst at UBS Group]

Thanks very much. I also wanted to ask about your data center GPU roadmap. The 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 rack scale systems that try to optimize performance per square foot, given some of the data center and power constraints. So, can you just talk about how important systems are going to be in your roadmap? And do you have all the pieces you need as the market shifts to rack scale systems?

[Lisa Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

Yes, sure, Timothy. Thanks for the question. For sure, look, our customers are engaged in the multi-generational conversation. So, we're definitely going out over the next couple of years. And as it relates to the overall system integration, it is quite important. It is something that we're working very closely with our customers and partners on. That's a significant investment in networking. Working with a number of networking partners as well to make sure that 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 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 Broadcom and Cisco and Arista who were 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, full system reference designs, and that's something that will be quite important going forward.

[Timothy Arcuri, Analyst at UBS Group]

Thanks a lot. And then, just as a quick follow up, I know this year looks like it's going to be pretty back half loaded in your server CPU business, just like it was last year. And I know you kind of 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 kind of wonder, could you give us some milestones in terms of how much server CPU could grow this year? How back-end loaded it could be? Is it, like, up 30% this year for your service CPU business year-over-year? Is that a reasonable bogey? I just wonder if you can kind of give us any guidance on that piece of the business? Thanks.

[Lisa Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

Yes. 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. Server CPUs, certainly. Data center GPUs, for sure. So, I don't know that we're going to get into specifics, but I could say, in general, you should expect, overall, at the segment level, to be very strong double-digits.

[Timothy Arcuri, Analyst at UBS Group]

Thank you, Lisa.

[Lisa Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

Thank you.

[Operator]

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

[Joseph Moore, Analyst at Morgan Stanley]

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, Executive Vice President, Chief Financial Officer and Treasurer at Advanced Micro Devices]

Yes. Thank you, Joe. Our team has done an incredible job to ramp MI300. As you probably know, it's very complex product and we are still at the first year of the ramp, both from EO [Phonetic], the 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, Analyst at Morgan Stanley]

Great. Thank you. And then, as a separate follow up, on the Turin transition on server, I know when you had transitioned in to 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 quickly do you think you might see that product ramp within your server portfolio?

[Lisa Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

Yes, 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 because customers are deciding when they're going to bring out their new platforms. We expect Turin to give us access to a broader set of workloads. So, our SAM actually expands with Turin, both in enterprise and cloud. And from our experience, I think you'll see a faster transition than, for example, when we went from Milan to Genoa.

[Joseph Moore, Analyst at Morgan Stanley]

Great. Thank you.

[Operator]

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

[Stacy Rasgon, Analyst at Bernstein Research]

Hi, guys. Thanks for taking my questions. For my first one, I wanted to address the MI300 ramped 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 is going to be down, but I'd hazard a guess that the client and traditional data center 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 into guidance right now that you're expecting?

[Jean Hu, Executive Vice President, Chief Financial Officer and Treasurer at Advanced Micro Devices]

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, Analyst at Bernstein Research]

Okay. So, that means gaming must be down, like, a lot, right? If client and traditional data center [Speech Overlap]?

[Jean Hu, Executive Vice President, Chief Financial Officer and Treasurer at Advanced Micro Devices]

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

[Stacy Rasgon, Analyst at Bernstein Research]

Got it. That's helpful.

[Jean Hu, Executive Vice President, Chief Financial Officer and Treasurer at Advanced Micro Devices]

So, maybe, let me give you some color about the gaming business, right? If you look at the gaming, the demand has been quite weak. That's quite very well known, and also their inventory level. So, based on the visibility we have, the first half, both. Q1, Q2, we guided down sequentially, more than 30%. We actually think the second half will be lower than first half. That's basically how we 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, 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, Analyst at Bernstein Research]

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 going to stay that way?

[Jean Hu, Executive Vice President, Chief Financial Officer and Treasurer at Advanced Micro Devices]

Yes. I think you're right. It's 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 road map in the AI side. That's one of the major drivers for the operating income coming down slightly. On the gross margin side, going back to your question, 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 for gross margin.

[Stacy Rasgon, Analyst at Bernstein Research]

Got it. That's helpful. Thank you.

[Operator]

Thank you. Our next question is from Harlan Sur, with JP Morgan. Please proceed with your question.

[Harlan Sur, Analyst at JP Morgan Cazenove]

Good afternoon. Thanks for taking my question. On your data center GPU segment and the faster time to production shipments, given you just upped your full year GPU. 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 call faster? And how much of it is just a more aggressive build-out plan by customers versus their prior expectations given what appears to be a pretty strong urgency for them to move forward with their important AI initiatives?

[Lisa Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

Yes. Harlan, thank you for the question. What it really is, is both us and our customers feeling confident in broadening the ramp, because if you think about it, first of all, the ROCm stack has done really well. And the work that we're doing is hand-in-hand with our customers to optimize their key models. And it was important to get sort of verification and validation that everything would run well and we've now passed some important milestones in that area. And then, I think the other thing is, as you said, there is a huge demand for more AI compute. And so, our ability to participate in that and help customers get that up and running is great.

So, I think overall, as we look at it, this ramp has been very, very aggressive as you think about where we were just a quarter ago. Each of these are pretty complex bring ups. And I'm very happy with how they've gone. And by the way, we're only sitting here in April. So there's still a lot of 2024 to go, and there's a great customer momentum in the process.

[Harlan Sur, Analyst at JP Morgan Cazenove]

Yes, 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 ex that 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. It sounds like enterprise was also better. Looks like you guys did drive a little bit more cloud instance adoption. But anything else that drove to a slightly better seasonal pattern in March for data center server?

[Jean Hu, Executive Vice President, Chief Financial Officer and Treasurer at Advanced Micro Devices]

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

[Lisa Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

And if I'd just add, Harlan, to your question, we did see strength in enterprise in the first quarter. And I think that has -- that offset perhaps some of the normal seasonality.

[Harlan Sur, Analyst at JP Morgan Cazenove]

Okay.

[Mitchell Haws, Vice President of Investor Relations at Advanced Micro Devices]

And we have time for two more questions.

[Operator]

Thank you. Our next question is from Tom O'Malley with Barclays. Please proceed with your question.

[Tom O'Malley, Analyst at Barclays]

Hey, thanks for taking my question. I just wanted to ask on the competitive environment. Obviously, on the CPU side, you had 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 capital. 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 Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

Yes. When we look at our server CPU sort of ASPs, they're actually very stable. I think we -- again, we tend to be indexed towards the higher core counts. Overall, I would say the pricing environment is stable. This is about sort of TCO for sort of the customer environment and sort of our performance and our performance per watt, our leadership, and that usually translates into CCO advantage for our customers.

[Tom O'Malley, Analyst at Barclays]

Helpful. And then just a broader question to follow-up here. So I think you got asked earlier about the importance of systems. But on your end, how important is the Open Ethernet Consortium to you being able to move forward 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 road map? Thanks a lot.

[Lisa Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

Yes. 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 I don't believe that that is a limiter to our ability to build large-scale systems. I think Ethernet is something that many in the industry feel will be the long-term answer for networking in these systems, and we have a lot of work that we're doing with internally, as well as with our customers and partners to enable that.

[Mitchell Haws, Vice President of Investor Relations at Advanced Micro Devices]

Paul, we're ready for our final question.

[Operator]

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

[Harsh Kumar, Analyst at Piper Sandler Companies]

Yes. 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 mid-term, talking about nodes potentially in the 100,000 plus range and maybe up to 1 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 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 Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

Yes. So, I'll talk maybe a little bit more at the strategic level. I think as we look at sort of how AI shapes up over the next few years, there are customers who would be looking at very large training environments and perhaps that's what you're talking about.

I think our view of that is, number one, we view that as a very attractive area for AMD. It's an area where we believe we have the technology to be very competitive there. And I think the desire would be to have optionality in terms of how you build those out.

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

[Harsh Kumar, Analyst at Piper Sandler Companies]

That's wonderful. Thank you. And then, maybe a quick one for Jean. So Jean, I put everything into the model that you talked about for June. I get about, 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, Executive Vice President, Chief Financial Officer and Treasurer at Advanced Micro Devices]

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-digit sequentially. I will leave it over there. With sub-segment, there are a lot of details.

[Harsh Kumar, Analyst at Piper Sandler Companies]

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

[Jean Hu, Executive Vice President, Chief Financial Officer and Treasurer at Advanced Micro Devices]

Yes, thank you.

[Operator]

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.

[Mitchell Haws, Vice President of Investor Relations at Advanced Micro Devices]

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

[Lisa Tzwu-Fang Su, Chair and Chief Executive Officer at Advanced Micro Devices]

Great.

[Operator]

[Operators Closing Remarks]

Participants

Corporate Executives

• Mitchell Haws, Vice President of Investor Relations
• Lisa Tzwu-Fang Su, Chair and Chief Executive Officer
• Jean Hu, Executive Vice President, Chief Financial Officer and Treasurer

Analysts

• Toshiya Hari, The Goldman Sachs Group, Inc.
• Ross Seymore, Deutsche Bank Aktiengesellschaft
• Matthew Ramsay, TD Cowen
• Aaron Rakers, Wells Fargo & Company
• Vivek Arya, Bank of America Securities
• Timothy Arcuri, UBS Group AG
• Joseph Moore, Morgan Stanley
• Stacy Rasgon, Bernstein Research
• Harlan Sur, JP Morgan Cazenove
• Tom O'Malley, Barclays PLC
• Harsh Kumar, Piper Sandler Companies