Semiconductor Giants Qualcomm and AMD Report Strong Earnings Amid AI Boom

Qualcomm (QCOM) Q3 2024 Earnings Call Transcript | The Motley Fool

Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm third quarter fiscal 2024 earnings conference call. [Operator instructions] As a reminder, this conference is being recorded, July 31, 2024. The playback number for today's call is (877) 660-6853. International callers, please dial (201) 612-7415. The playback reservation number is 13747430. I would now like to turn the call over to Mauricio Lopez-Hodoyan, vice president of investor relations. Mr. Thank you, and good afternoon, everyone. Today's call will include prepared remarks by Cristiano Amon and Akash Palkhiwala. In addition, Alex Rogers will join the question-and-answer session. You can access our earnings release and a slide presentation that accompany this call on our investor relations website. In addition, this call is being webcast on qualcomm.com, and a replay will be available on our website later today. During the call today, we will use non-GAAP financial measures as defined in Regulation G, and you can find the related reconciliations to GAAP on our website. We will also make forward-looking statements, including projections and estimates of future events, business or industry trends or business or financial results. Actual events or results could differ materially from those projected in our forward-looking statements. Please refer to our SEC filings, including our most recent 10-K, which contain important factors that could cause actual results to differ materially from the forward-looking statements. And now, to comments from Qualcomm's president and chief executive officer, Cristiano Amon. Cristiano R. Amon -- President and Chief Executive Officer Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. In fiscal Q3, we delivered non-GAAP revenues of $9.4 billion and non-GAAP earnings per share of $2.33, which was above the midpoint of our guidance range. Revenues from our chipset business of $8.1 billion reflect a sequential growth in automotive and IoT and continued traction of our Snapdragon mobile platforms across leading smartphones. Our automotive and IoT revenues were the result of ongoing execution of our diversification strategy. Licensing business revenues were $1.3 billion. Now I would like to share some key highlights from the business. In automotive, we secured more than 10 new design wins with global automakers during the quarter. These include next-generation digital cockpit connectivity and/or ADAS and autonomy. Our Snapdragon Digital Chassis continue to scale across virtually all OEMs and is now a key asset for the automotive industry. As we look forward, we're focused on extending our industry-leading on-device AI solutions to the Snapdragon Digital Chassis to enable automotive-centric Gen AI use cases and applications. It's important to note that our architecture with capabilities across all domains is uniquely positioned to enable sensor data to be utilized simultaneously for ADAS autonomy workloads and user-centric Gen AI experiences in the digital cockpit. A great example is our Snapdragon Ride Flex solution, which combines digital cockpit and ADAS on a single SoC. Future drivers for automotive growth include Gen AI experiences the software-defined vehicle transition, central computing replacing microcontrollers, expansion into two-wheelers and car to cloud services. In handsets, we are pleased that all Galaxy Z Fold6 and Flip6 are powered by the Snapdragon 8 Gen 3 for Galaxy, delivering extraordinary AI capabilities, premium level performance, and power efficiency for foldable devices. Together with Samsung and our other partners, we continue to push the boundaries of own device Gen AI on mobile devices. To that end, we're pleased with the growth and trajectory of AI use cases on smartphones. This continued expansion of AI features is a precursor to next-generation smartphones which we believe will become AI-centric with pervasive on-device AI working across applications in the cloud. Qualcomm is very well-positioned to help drive this transformation across the industry in the coming years. At our upcoming Snapdragon Summit in October, we will reveal details of our next-generation Snapdragon 8 flagship mobile platform, the first to be powered by our custom Oryon CPU. This platform, combined with new and unparalleled NPU AI capabilities is already exceeding both our and our customers' performance expectations. In compute, we're very pleased that Copilot+ PCs powered exclusively by Snapdragon X Series platforms became available for purchase on June 18. This marks the start of one of the most significant transitions in personal computing since the launch of Windows 95 and is restoring performance leadership back to the Windows ecosystem. 20 Copilot+ PCs from Microsoft, Dell, HP, Lenovo, Acer, ASUS and Samsung are now available across 20 countries and 47 retailers. It's important to highlight the unique Copilot+ and Snapdragon X Elite dedicated retail spaces in Best Buy, Costco, Currys, Harvey Norman and many more. We are very pleased with the initial response with several models sold out at retailers and online. Our retail presence is expected to expand to more than 60 retailers across 25 countries in the coming months. We're also working closely with more than 50 global commercial customers to drive Snapdragon readiness in their respective environments. Additionally, we added the Snapdragon X Series platforms to the Qualcomm AI hub, allowing developers to easily take advantage of optimized AI models to create responsive power-efficient and compelling on-device generative AI applications for Copilot+ PCs. As we look forward to 2025, we are already working with OEMs on the next wave of Copilot+ PCs. In addition to new design wins, our X Series product road map will expand to address PCs with retail prices as low as $700 without compromising NPU performance. Longer term, we believe the benefits of Snapdragon X Series platforms make it clear that the PC ecosystem has begun the transition to an ARM-compatible architecture. As we look forward, we're forecasting that at least 50% of PCs will be AI capable by 2027. Given our clear technology leadership and competitive road map we expect to be positioned as one of the top silicon suppliers for these devices. We also remain excited about the continued positive momentum in XR, particularly the success of Meta's Ray-Ban smart glasses. Sales are exceeding our expectations due in part to the integration of Llama into the experience. We foresee an acceleration in demand for extended and mixed reality devices as new use cases enabled by Gen AI gain scale. Snapdragon XR remains the industry platform of choice, and we are engaged with major ecosystem players, including Meta, Google, Microsoft, and others. Most recently, at the Augmented World Expo will showcase two of the latest XR devices, NTT's augmented reality glasses and Sony's upcoming head-mounted mixed reality device. In industrial IoT, we're pleased to report that we're now collaborating with Aramco on connectivity, AI and advanced computing solutions for industrial and enterprise use cases in Saudi Arabia. This also includes accelerating development of the industrial 4G, 5G and non-terrestrial networks ecosystem, including the first significant wide area private cellular network for IoT. As the industrial sector is transformed by AI, we expect an increase in demand for more complex on-device processing. This trend aligns well with our core capabilities, especially the computing and AI road map we have built for Auto and PC. As high-performance processing and intelligence at the edge becomes critical for the next phase of enterprise digital transformation, we see a unique opportunity to build a leadership position in this space. In the next few months, we will announce our new dedicated product road map for industrial IoT including support for multiple operating systems, ability to run multibillion parameter AI models in a comprehensive development platform. Finally, we're very pleased to share that we recently signed a key long-term licensing agreement with Honor, a leading Chinese smartphone OEM. We continue to be pleased with the company's diversification beyond mobile, and we're particularly proud of what we have accomplished to date in automotive and PC. We will provide additional updates on our diversification strategy at our investor day in New York on November 19th. Thank you, Cristiano, and good afternoon, everyone. I'll start with our third fiscal quarter earnings. We are pleased to announce strong non-GAAP results with revenue of $9.4 billion and EPS of $2.33, both of which were above the midpoint of our guidance. QTL revenues of $1.3 billion and EBT margin of 70% were in line with our expectations. QCT delivered revenues of $8.1 billion and EBITDA margin of 27%, which was at the high end of our guidance range, driven by upside in both IoT and automotive. QCT handset revenues of $5.9 billion were in line with expectations, reflecting our scale in premium Android handsets and greater than 50% year-over-year growth in revenues from Chinese OEMs. QCT IoT revenues increased 9% sequentially to $1.4 billion as we continue to see a gradual recovery in the industry environment. We delivered our fourth consecutive quarter of record QCT automotive revenues of $811 million, with sequential growth of 34%. Our revenue acceleration reflects content growth in new vehicle launches as we become the leading supplier of advanced computing and connectivity solutions to the automotive industry. Lastly, we returned $2.3 billion to stockholders during the quarter, including $1.3 billion in stock repurchases and $949 million in dividends. Before turning to guidance, I would like to outline three factors included in our forecast. First, consistent with our long-term financial planning assumption of largely flat handset units, we continue to estimate global 3G, 4G, 5G units in calendar '24 to be flat to slightly up on a year-over-year basis. Second, our license to export products to Huawei, which was set to expire in late calendar '24 was revoked on May 7th. This change will impact our revenues in both the current quarter and the first quarter of fiscal '25. Lastly, our fourth fiscal quarter includes an additional week as we align our fiscal reporting period with the calendar quarter end every I've to six years. Now turning to fourth fiscal quarter guidance. We are forecasting revenues of $9.5 billion to $10.3 billion and non-GAAP EPS of $2.45 to $2.65. In QTL, we estimate revenues of $1.35 billion to $1.55 billion and EBT margins of 70% to 74%, reflecting normal seasonality for handset units. In QCT, we expect revenues of $8.1 billion to $8.7 billion and EBT margins of 27% to 29%. We expect QCT handset revenues to grow by low single-digit percentage sequentially. This forecast reflects an increase in purchases from a modem-only handset customer partially offset by seasonally lower Android revenue ahead of our new Snapdragon premium chipset launch in the first quarter of fiscal '25. We expect QCT IoT revenues will increase by low double-digit percentage sequentially, driven by growth across consumer, networking and industrial. Following our outperformance in the third quarter, we expect QCT automotive revenues to remain flat in the fourth fiscal quarter. We are on track to deliver approximately 50% year-over-year revenue growth in fiscal '24, providing confidence in our ability to execute to our long-term targets. Lastly, we expect non-GAAP operating expenses to be approximately $2.2 billion. In closing, we are pleased with our execution and financial performance in fiscal '24. Based on the midpoint of our guidance, we are on track to deliver strong non-GAAP EPS growth of approximately 20% relative to fiscal '23. Over the last quarter, industry support for our vision for on-device AI has accelerated and been validated by several key players. Beyond handsets and PCs, we expect on-device AI to drive competitive differentiation for us in industrial, networking, automotive and XR. Our leading technology and product portfolio has positioned us to continue to execute on our diversification strategy. And in the months ahead, we look forward to introducing new industry-leading products across all our end markets. Finally, as Cristiano outlined, we'll be hosting our investor day on November 19th, where we'll provide an update on our IoT and automotive diversification strategy. This concludes our prepared remarks. Back to you, Mauricio. Mauricio Lopez-Hodoyan -- Vice President, Investor Relations Thank you, Akash. Operator, we are now ready for questions. Operator [Operator instructions] First question will come from the line of Matt Ramsay with TD Cowen. Please go ahead with your question. Matt Ramsay -- Analyst Thank you very much. Good afternoon everybody. I have a couple of questions, guys, really highlighting some of the diversification the company is now starting to deliver on in the revenue. I guess, the first one is in the automotive business, some pretty big upside there. And maybe you could talk a little bit about like you're seeing some of this revenue come through now in OEM programs that no doubt you won two or three years ago. Do you think that continues as we roll through the next several quarters? I mean, what kind of momentum could we see as some of these units start to roll out from, I guess, the programs you won a long time back? And then, Cristiano, on the second one, people keep asking lots of questions about AI PCs. As you know, you're getting really close here to when the holiday ramp period would start for you to sell in units. So maybe you could give us your current take on your expectations of what the PC market could bring in terms of units or revenue for your company as we look forward into the next fiscal year. Very good. Thank you, Matt. Thanks for asking the questions. Let me start with automotive. Look, we're very pleased with automotive performance. And I want to start by saying this is you continue to see signs of the pipeline translating into revenue. There are a couple of things we really like it. The first one is, our automotive revenue is all about share of new cars being launched with our content, also is independent whether the industry is about internal combustion or EV because it's all about digital, would be the Snapdragon Digital Chassis really became a key asset for the automotive industry. And just within the quarter, we have not only the launch of 10 new models with our technology, but also we actually have 10 new design wins, which continue to add to the pipeline, so we're very excited about that. We will continue to see as new cars get launched with our technology from the pipeline, the revenue to grow. And as Akash said in the script, we're actually on track to the metric we provided for $4 billion in 2026. One side comment on your question. An upside is what Gen AI is doing in automotive. Gen AI use cases, especially using large language models for audio. It was a great user interface from where behind the wheel. We're starting to see a lot of interesting use case being developed. That upside to our model, it could be an upgrade of content in the digital cockpits that we are having. The second comment which is about PCs. I will start by saying we are very pleased, is exceeding our expectations. We -- it's a new version of Windows, the Copilot+ is a new architecture with an Arm compatible. We expect that that will ramp over a period of time. But what we have seen in the market right now with the 20 models that get launched is exceeding our internal targets. Some models, as I mentioned in my prepared remarks, had sold out. And I think we should expect that that will continue to be a crescendo, slow and steady as the market transitions. We will have new product announcements coming up at EFA, and you're going to continue to see more Copilot+ features coming from Microsoft, we're very happy about that as the same thing we did with auto, we expect PC to be the next biggest driver of diversification for the company, and we'll continue to track every quarter. Operator Our next question is from the line of Samik Chatterjee with J.P. Morgan. Please proceed with your questions. Samik Chatterjee -- Analyst Hi. Thank you for taking the questions, and congrats on the strong print here. I guess, Cristiano, if I start you off with those smartphone questions here related to AI smartphones. One, can you share if you're seeing any appreciable difference in the demand for smartphones with AI features in them from consumers already. And as you look to the pipeline in terms of design wins for next year, how are you thinking about proliferation of those hefty AI features and capabilities into more mid-tier or outside of the flagship to your phones that you work with, with your customers? And I have a follow-up. Thank you. Cristiano R. Amon -- President and Chief Executive Officer Thank you for your question, Samik. So on smartphones, I would start by saying one thing that we really like. And I think it was reflected by some of the metrics provided by Akash he talks about in his remarks, 50% growth within China with Chinese OEMs, so AI has expanded the size of the premium tier. So even in a market which it's kind of flattish to low single digits in growth, the premium tier is actually growing faster, and we've seen that. We're seeing a larger premium tier enabled by AI. And to your specific question, we are happy with the trajectory of AI features. We used to have a few. Now we have tens of AI features. And eventually, when they get to 100, we're going to start to see a change that a smartphone with AI feature will become an AI smartphone. We don't have any heroic assumptions in our model, but we actually like the direction this is going that could create an interesting upside if we have an AI-driven upgrade cycle. It's still early in the process, but the use cases are becoming more interesting. I pointed to the increase of use cases in the Galaxy Flip6 and Fold6. China has a number of use cases. They're going to be launched in the next flagship. And I know you asked about bringing AI to the mass tier. We intend to do that. The same thing we are doing with the PC which is as we expand the road map, we're not compromising on AI capabilities. We're going to see us doing that within our mobile road map. But on the premium tier, I'm actually very excited given the upcoming launch of our next Snapdragon that has our custom CPU. And you're going to see the same shift in performance that we have done in the PC ecosystem restoring the performance back to the Windows ecosystem, you're going to see doing us something similar in phones. Thank you. Got it. And a quick one for Akash. Akash, the guide for September revenues, that looks pretty similar to what you were sort of soft guiding us to back sort of 90 days ago, although you now have incremental headwinds with the license to export to Huawei. How should we think about sort of where you're finding the offsets? Where is the upside to help you offset that incremental headwind? Thank you. Akash Palkhiwala -- Chief Financial Officer and Chief Operating Officer Yes. Thanks, Samik. Samik, we're pretty happy with the way the quarter has played out, right? If you look at our handset business, we are growing. We are guiding that we will grow low single-digit percentage on a quarter-over-quarter basis. IoT, we're guiding low double-digit growth, and we're seeing strength across industrial edge networking and consumer and then auto coming off of an extremely strong quarter in June, we're guiding flat revenue in the September quarter. And so, all of these, both IoT and automotive are incremental to our previous expectations, and you're seeing that benefit show up in our guidance. Operator Our next question is from the line of Chris Caso with Wolfe Research. Please proceed with your questions. Chris Caso -- Analyst Yes. Hi. I guess, first question is just a clarification on the extra week in the quarter that you referred to. Can you speak about what impact you might expect it to have on both revenue and cost? And if there's any implications on that, the absence of the extra week, as you go into the following quarter, which is, obviously, a seasonally strong quarter. Akash Palkhiwala -- Chief Financial Officer and Chief Operating Officer Yeah. Sure, Chris. If you think about the two factors I outlined for the guidance, which is the extra week on one hand and then offset by the Huawei reduction, revenue reduction on the other side. Those two largely offset each other. And so, the net impact on our overall guidance is pretty limited when you consider the impact of both factors. Specifically on the extra week, as you know, not all weeks are created equal as you think about the different parts of our business. So what we've factored in is incremental revenue on the QCT side, incremental opex on the opex side. And then, within -- sorry, incremental revenue on the QTL side. And then, within QCT, revenue forecast and the benefit that we have from a flagship phone launch that doesn't really change based on the number of weeks, so that remains largely consistent and these factors are already included in. But kind of the big message is, when you step back and look at the two key factors I outlined, they're pretty much cancel out against each other. Chris Caso -- Analyst OK. Understood. And then, moving over to QTL. The guidance for the fourth quarter is -- it's outside of the range that you have been talking about before. You haven't changed your expectation for global handset units. So can you speak to the reason for the QTL guidance and if that's sustainable going forward because typically the first quarter is a stronger quarter for that segment. Akash Palkhiwala -- Chief Financial Officer and Chief Operating Officer Yeah, sure. So the QTL guidance is relatively straightforward. If you look at June to September, we typically see very small growth on a quarter-over-quarter basis, so we factored that in. And then, we have the extra week on top of it as well, which is also factored into our numbers, so that's how we got to the number we are guiding for QTL. Operator Our next question is from the line of Stacy Rasgon with Bernstein Research. Please proceed with your questions. Stacy Rasgon -- Analyst Hi, guys. Thanks for taking my question. I want to ask the second half of Chris' question again that you didn't quite get to. The extra week, how should I think about the implication for December quarter seasonality coming off of that. What are you guys thinking for December? If you could help us shape that a little bit? Akash Palkhiwala -- Chief Financial Officer and Chief Operating Officer Sure, Stacy. So as you know, well, we typically grow into the first quarter into the December quarter, and we're expecting that it's a seasonally strongest quarter of the year going forward. And as we think about the quarter, there are a couple of factors we consider. First is the launch of our new Android premium tier chip, which is going to be a tailwind for us. We do go back from the 16 weeks -- 14 weeks back to 13 weeks within the quarter. And then, relative to last year, we'll not have Huawei product revenue going forward, which we did have last year. So net of all of this, when you look at a year-over-year basis, we expect revenue to be largely -- revenue growth to be largely consistent with the year-over-year growth we saw in December quarter last year. Stacy Rasgon -- Analyst Got it. That's helpful. If you could also just give us any sort of incremental color. How much of the guide actually includes -- how much of the guide is PC revenue at this point for next quarter? I know you said the consumer piece sounds like it's growing in IoT, that's where it is, but how much of it actually is PCs? Akash Palkhiwala -- Chief Financial Officer and Chief Operating Officer Yeah, I mean, Stacy in all candor we are a few weeks into our launch. And so, it's too early to kind of have either a bullish assumption or a specific assumption on PC. We do have indications from our customers and we've tried our best to factor it in as we usually do. But as Cristiano said, to us, this is about kind of the longer-term growth opportunity and being very specific on sell-through in the short term is not really something that we have insight into. But we will, as we get to investor day, we're going to give a lot more disclosure on our specific plans on revenue ramp. Operator Our next question comes from the line of Joe Moore with Morgan Stanley. Please proceed with your questions. Joe Moore -- Analyst Great. Thank you. I wanted to come back to the 50% growth in China handset. And it sounds like you talked about growth in the premium tier there. Can you kind of give us a sense of how much of that is price versus units? And is that -- is the market expanding? And then, maybe market share commentary because your numbers seem better than your competitor. Akash Palkhiwala -- Chief Financial Officer and Chief Operating Officer Yeah. So if you look at the total handset market, our general assumption is that from '23 to '24, it's flat to slightly up, so the market is not growing. But within that, the premium tier, the trend has been very positive. We've gone from greater than $400 representing 21% of the market now to representing 31% of the market. And so that's very significant growth that we are benefiting from. And as you know, we are very strong at the premium tier. And as that market expands, we get to participate in that, not just from a revenue perspective, but content increase perspective as well. Our next question is from the line of Christopher Rolland with Susquehanna. Please proceed with your questions. Christopher Rolland -- Analyst Hey, guys, thanks for the question. I guess, in your latest Q, you talked about a bunch of new licenses coming up. I think, they expire early fiscal '25, including Huawei. I guess, first of all, the 4G at Huawei would this might affect these negotiations? Do you expect everyone else to sign in those negotiations as well? And then, lastly, do we think about Huawei that impact is roughly $150 million a quarter. Is that a fair number on the 4G stuff from Huawei? Alexander H. Rogers -- President, Qualcomm Technology Licensing and Global Affairs Hey, Chris, this is Alex. Thanks for the question. So if you look at the licensing progress basically over the last year or so, we set out to execute on a number of renewals and extensions. And we've done actually a really good job doing that. The most recent was getting on or signed up to a long-term agreement. And then, as you know, Apple extended through '27. But we also noted recently that we have two major Chinese OEM signed long term. Well, we haven't named them, but they are significant handset manufacturers. And then, we're working through negotiations with others that we still have optimistic expectations in terms of getting them signed up. We also recently announced that we signed up tranching to a 5G license, and we're still negotiating with them. There's some litigation ongoing, but I think the important thing is to focus on the 5G license with that company and the ongoing negotiations. So Huawei is a company that we've been engaged with, just like the others in terms of trying to move negotiations forward. We expect that to continue. We don't really have any news on that just yet. Akash Palkhiwala -- Chief Financial Officer and Chief Operating Officer And then, from a revenue breakdown perspective, as you know, we don't break down our QTL revenue by OEM, but a reasonable way of thinking about it is look at the scale of the market the number of units, any specific OEM contributes to the scale of the market and apply that to our overall revenue stream. Operator Our next question is from the line of Ross Seymore with Deutsche Bank. Please proceed with your questions. Ross Seymore -- Analyst Hi, guys. One question, one follow-up. First one, probably more for Cristiano. I just wanted to see how you feel with your leadership position on both the modem and the apps processor side in your handset business. How do you feel about the relative market share that you'll have in the penetration at given customers? There's kind of perpetual debate about what you're doing with your lead Korean customer, year to year, gen to gen. Same thing with your modem only customer. So as you look forward over the next year or two, how are you feeling about the penetration that Qualcomm can have at the major customers? Cristiano R. Amon -- President and Chief Executive Officer All right. Thanks for your question, Ross, loaded question, so I'm going to have to unpack one by one. I think, the first part of the question, how do we think about modem technology. We feel pretty good about our modem technology. I think, this is one of the core competencies of the company. We continue to be the Number 1 company in the country in a number of wireless patents and extended essential patents and continue to be the company pushing for the road map. As it relates to our business with Apple, we still operate with the framework that we provided to you all. I think, when we extended the chipset agreement, and we expect to be operating within that. We have no new update, provided everything above what we said before is an upside. So we don't have that in our financial planning assumptions above what we had disclosure. When we think about the application processor, I think the conversation is a little bit more interesting because we have always had the leadership in AI performance, we always had the leadership in sustained peak and sustained performance, in mobile gaming, in other applications with our Adreno GPU. And now, for the first time in a while, we're going to have our own custom CPU, which will be announced at the Snapdragon Summit and will be in the flagship devices launching toward the end of the year, beginning of 2025, so I will argue that our application processor advantage is accelerating. And as I said in this earnings, I think the launch of the Copilot+ PC was really a graduation for Qualcomm as it used to be perceived as a communications company, isn't really a computing company, to the point that now we become the benchmark for others to follow within the PC industry. And I think that is going to be reflected in the handset, as well as we have our own custom CPU. As it relates to relationship with Samsung, we have executed agreements with them. It's largely consistent to what you have seen with the launch of the GS24, how is that going to continue. We are pretty happy with the relationship. And I think we both have a lot of opportunity with the AI coming into premium smartphones. Thank you. Ross Seymore -- Analyst Thanks, Cristiano. I guess, as my follow-up for Akash. One, in the answer to your prior question, you said that your year-over-year growth in December would be about the same as it was last December. Just a clarification. Was that just for QCT. And then, I guess, my bigger picture question, how should we think about gross margins in QCT going forward? Looks like you're implying them down a bit in the September quarter, but still flat year over year. Has the diversification process happens, automotive, PCs, etc.? How should we think about that line in your income statement? Akash Palkhiwala -- Chief Financial Officer and Chief Operating Officer Sure, Ross. So that comment was really focused on overall company, so not just QCT, but the overall Qualcomm metrics. From a gross margin perspective, we did slightly better than we expected. We had guided in the third quarter. And what we are doing is we are guiding fourth quarter in line with the guidance we had provided for third quarter. I think, as you look forward beyond fourth quarter into fiscal '25 using fourth quarter as a way to model the going-forward path is a reasonable way of thinking about it. Operator Our next question is from the line of Tal Liani with Bank of America. Please proceed with your questions. OK. Perfect. Sorry. So I need help to define your addressable market in compute, meaning, is it mostly about consumer laptops, enterprise? How do you envision your addressable market in the compute segment? And the second thing is you talked a lot about AI, AI inclusion in handsets. When we talk to carriers, they seem to be far away from it in the sense that they can't find the applications yet. What do you think is going to drive the deployment? What kind of applications and what's the timing of applications that will drive the deployment of AI in handsets? Thanks. Cristiano R. Amon -- President and Chief Executive Officer Tal, this is Cristiano. Thank you for your question. Let me take the first one. You should think about addressable market the following way. First of all, it's Windows 11, addressable market. We're very focused right now on laptops, whether it's commercial laptops for enterprise, consumer laptops. We're ranging price points, I think, especially as we talked in the prepared remarks, extending the road map from $700 and above. That's -- and what is defined as AI PC, a metric that I can provide to you. And I think there has been a number of OEMs indicating their respective views, but we forecast about 50% of our computers sold in 2027 will be AI PCs. That's one way to think about it. And we continue to basically see the transition of -- as upgrades are happening to Windows 11 and Copilot+ PCs, an opportunity for us to participate with a highly differentiated solution. I think, your second question -- It was about AI applications for devices, so here's how you should think about it. AI is going to do on phones, whether you're going to text, whether you're going to talk, whether you're going to touch, it's going to be a very important part of the human computer interface. And this is going to start to change a lot of the user experience on apps. It's less of a carrier conversation. It's really more of an application conversation. And those are going to start to change a lot of the use case of existing apps or you're going to start to see as we see the development of new agents that become more relevant. For example, if you are like me, a user of WhatsApp , you're going to see the ability within WhatsApp for you to search with Llama for you to do different things with their model. And eventually, a lot of the models are going to have multiple functionality across multiple apps. The way to measure this is the number of use cases. And we're -- as I said before, we're actually very happy with the trajectory. I'd like to compare what happened with the smartphone. With the smartphone, first there were like 10 apps and then became 100 apps and became 1,000 apps, became hundreds of thousands of apps and then it became very clear what was happening. I think, we look at AI little bit the same way. We are in the beginning, but we like the number of use cases increasing, and that's going to drive a lot more AI NPU performance in the silicon and hopefully continue to expand the premium and high tier. Our last question is from Tom O'Malley with Barclays. Please proceed with your question. Tom O'Malley -- Barclays -- Analyst Hey, guys, thanks for sneaking me in. I have one for Cristiano and one for Akash. just very recently here, obviously, in the quarter, there's a huge step-up in the auto portfolio, and I think you guys did a good job of kind of describing what drove that. But you've also, in your deck and kind of in your commentary talking more about AI PC being a driver. Cristiano, if you look at kind of the next 12 months, you hosted an auto analyst day and you kind of talked about the opportunity being back-end loaded, and I think the end date was kind of the late 2020s. But if you look at the next 12 months, what opportunity do you think is more exciting to you, the automotive side or the IoT in terms of revenue growth? Obviously, the buckets are different sizes, but just breaking those two out as to what can drive some growth there. And then, on the Akash side, if you look into Q4, you, obviously, have an extra week there, but you are seeing opex step down. Could you just walk through the moving parts that are expected to be up a little bit just given the extra week? Thanks for all that. Thank you, Tom. Actually, I appreciate the question. I really like the question to give me an opportunity to explain this. You should think of Qualcomm, we're not just trying to build one big business of differentiation. Actually, we're building a number of business -- I'm sorry, of diversification. We're really focused on this. And when we talk about auto investor day, that was actually in September 2022, we kind of outlined how that is going to be turning into a big platform for Qualcomm and building into the financials. And then, hopefully, you can see now, especially with this quarter, how that's materializing. And that will continue. That's not going away. We expect, given the size of our pipeline, we talk about $4 billion in '26. We talk about $9 billion toward the end of the decade. We're on track to do that. But the second one is PCs. And as we get -- it's early. As I said, we're very happy. It's exceeding our expectations. Some models sold out. We just launched. I think, when we get to the investor day, we probably will feel comfortable putting a metric out there of what that's going to represent and how that's going to grow over time when we think about the total contribution to Qualcomm. That's one they're very excited. But we don't stop there. The next one, and I encourage you all to see what we are going to do next quarter, I think AI and computing, it's driving the industrial road map toward Qualcomm. So we we're completely redesigning our industrial road map, and we're going to unveil that road map in the coming months. So we think about this as, there are many markets that can benefit from technology. We're super focused on growth and diversification and it's about a number of bets, not just one bet. And Tom, on your second question on opex, we had some non-labor material-related spend and tape-out related spend in the third quarter, which is why third quarter opex was higher and it goes down into the fourth quarter despite the extra week. And so, it's just timing of nonlabor spend that drove it. But fundamentally, no change in kind of the way we are managing opex. We're very committed to operating discipline and hiring, even when we do it, it is very focused on specific new skills that are required for diversification. So you won't see a difference in the way we are managing the opex for the company. Operator That concludes today's question-and-answer session. Mr. Amon, do you have anything further to add before adjourning the call? Cristiano R. Amon -- President and Chief Executive Officer No, I just want to just quickly thank all of our partners, our suppliers, our employees for a great job on the PC execution. I think, we're very proud of what we accomplished. We will continue to drive AI across each one of our businesses. We feel we have a very unique position in the ability to run AI at the edge. We're very happy with the automotive traction, and we're actually looking forward to the next generation of products launching in coming months, as I said, hopefully creating a new vector for growth of the company in the future in industrial IoT. Thank you very much.

QUALCOMM Incorporated (QCOM) Q3 2024 Earnings Call Transcript

QUALCOMM Incorporated (NASDAQ:QCOM) Q3 2024 Results Conference Call July 31, 2024 4:45 PM ET Company Participants Mauricio Lopez-Hodoyan - Vice President, Investor Relations Cristiano Amon - President and Chief Executive Officer Akash Palkhiwala - Chief Financial Officer and Chief Operating Officer Alex Rogers - President of Qualcomm Technology Licensing and Global Affairs Conference Call Participants Matt Ramsay - TD Cowen Samik Chatterjee - JPMorgan Chris Caso - Wolfe Research Stacy Rasgon - Bernstein Research Joe Moore - Morgan Stanley Christopher Rolland - Susquehanna Ross Seymore - Deutsche Bank Tal Liani - Bank of America Tom O'Malley - Barclays Operator Ladies and gentlemen, thank you for standing by. Welcome to the Qualcomm Third Quarter Fiscal 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, July 31, 2024. The playback number for today's call is (877) 660-6853, International callers, please dial (201) 612-7415. The playback reservation number is 13747430. I would now like to turn the call over to Mauricio Lopez-Hodoyan, Vice President of Investor Relations. Mr. Lopez-Hodoyan, please go ahead. Mauricio Lopez-Hodoyan Thank you, and good afternoon, everyone. Today's call will include prepared remarks by Cristiano Amon and Akash Palkhiwala. In addition, Alex Rogers will join the question-and-answer session. You can access our earnings release and a slide presentation that accompany this call on our Investor Relations website. In addition, this call is being webcast on qualcomm.com, and a replay will be available on our website later today. During the call today, we will use non-GAAP financial measures as defined in Regulation G, and you can find the related reconciliations to GAAP on our website. We will also make forward-looking statements, including projections and estimates of future events, business or industry trends or business or financial results. Actual events or results could differ materially from those projected in our forward-looking statements. Please refer to our SEC filings, including our most recent 10-K, which contain important factors that could cause actual results to differ materially from the forward-looking statements. And now to comments from Qualcomm's President and Chief Executive Officer, Cristiano Amon. Cristiano Amon Thank you, Mauricio, and good afternoon, everyone. Thanks for joining us today. In fiscal Q3, we delivered non-GAAP revenues of $9.4 billion and non-GAAP earnings per share of $2.33, which was above the midpoint of our guidance range. Revenues from our chipset business of $8.1 billion reflect a sequential growth in automotive and IoT and continued traction of our Snapdragon mobile platforms across leading smartphones. Our automotive and IoT revenues were the result of ongoing execution of our diversification strategy. Licensing business revenues were $1.3 billion. Now I would like to share some key highlights from the business. In automotive, we secured more than 10 new design wins with global automakers during the quarter. These include next-generation digital cockpit connectivity and/or ADAS and autonomy. Our Snapdragon Digital Chassis continue to scale across virtually all OEMs and is now a key asset for the automotive industry. As we look forward, we're focused on extending our industry-leading on-device AI solutions to the Snapdragon Digital Chassis to enable automotive-centric Gen AI use cases and applications. It's important to note that our architecture with capabilities across all domains is uniquely positioned to enable sensor data to be utilized simultaneously for ADAS autonomy workloads and user-centric Gen AI experiences in the digital cockpit. A great example is our Snapdragon Ride Flex solution, which combines digital cockpit and ADAS on a single SoC. Future drivers for automotive growth include Gen AI experiences the software-defined vehicle transition, central computing replacing microcontrollers, expansion into 2-wheelers and core to cloud services. In handsets, we are pleased that all Galaxy Z Fold6 and Flip6 are powered by the Snapdragon 803 for Galaxy, delivering extraordinary AI capabilities premium level performance and power efficiency for foldable devices. Together with Samsung and our other partners, we continue to push the boundaries of own device Gen AI on mobile devices. To that end, we're pleased with the growth and trajectory of AI use cases on smartphones. This continued expansion of AI features is a precursor to next-generation smartphones which we believe will become AI-centric with pervasive on-device AI working across applications in the cloud. Qualcomm is very well-positioned to help drive this transformation across the industry in the coming years. At our upcoming Snapdragon Summit in October, we will reveal details of our next-generation Snapdragon 8 flagship mobile platform, the first to be powered by our custom Oryon CPU. This platform, combined with new and unparalleled NPU AI capabilities is already exceeding both our and our customers' performance expectations. In compute, we're very pleased that Copilot+ PCs powered exclusively by Snapdragon X Series platforms became available for purchase on June 18. This marks the start of one of the most significant transitions in personal computing since the launch of Windows 95 and is restoring performance leadership back to the Windows ecosystem. 20 Copilot+ PCs from Microsoft, Dell, HP, Lenovo, Acer, ASUS and Samsung are now available across 20 countries and 47 retailers. It's important to highlight the unique Copilot+ and Snapdragon ex-elite dedicated retail spaces in Best Buy, Costco, Curies, Harvey Norman and many more. We are very pleased with the initial response with several models sold out at retailers and online. Our retail presence is expected to expand to more than 60 retailers across 25 countries in the coming months. We're also working closely with more than 50 global commercial customers to drive Snapdragon readiness in their respective environments. Additionally, we added the Snapdragon X Series platforms to the Qualcomm AI hub, allowing developers to easily take advantage of optimized AI models to create responsive power-efficient and compelling on-device generative AI applications for Copilot+ PCs. As we look forward to 2025, we are already working with OEMs on the next wave of Copilot+ PCs. In addition to new design wins, our X Series product road map will expand to address PCs with retail prices as low as $700 without compromising NPU performance. Longer term, we believe the benefits of Snapdragon X Series platforms make it clear that the PC ecosystem has begun the transition to an ARM-compatible architecture. As we look forward, we're forecasting that at least of PCs will be AI capable by 2027. Given our clear technology leadership and competitive road map we expect to be positioned as one of the top silicon suppliers for these devices. We also remain excited about the continued positive momentum in XR, particularly the success of Meta's Ray-Ban smart glasses. Sales are exceeding our expectations due in part to the integration of Llama into the experience. We foresee an acceleration in demand for extended and mixed reality devices as new use cases enabled by Gen AI gain scale. Snapdragon XR remains the industry platform of choice, and we are engaged with major ecosystem players, including Meta, Google, Microsoft, and others. Most recently, at the Augmented World Expo will showcase 2 of the latest XR devices, NTT's augmented reality glasses and Sony's upcoming head-mounted mixed reality device. In industrial IoT, we're pleased to report that we're now collaborating with Aramco on connectivity, AI and advanced computing solutions for industrial and enterprise use cases in Saudi Arabia. This also includes accelerating development of the industrial 4G, 5G and non-terrestrial networks ecosystem, including the first significant wide area private cellular network for IoT. As the industrial sector is transformed by AI, we expect an increase in demand for more complex on-device processing. This trend aligns well with our core capabilities, especially the computing and AI road map we have built for Auto and PC. As high-performance processing and intelligence at the edge becomes critical for the next phase of enterprise digital transformation, we see a unique opportunity to build a leadership position in this space. In the next few months, we will announce our new dedicated product road map for industrial IoT and including support for multiple operating systems, ability to run multibillion parameter AI models in a comprehensive development platform. Finally, we're very pleased to share that we recently signed a key long-term licensing agreement with Honor, a leading Chinese smartphone OEM. We continue to be pleased with the company's diversification beyond mobile, and we're particularly proud of what we have accomplished to date in automotive and PC. We will provide additional updates on our diversification strategy at our Investor Day in New York on November 19. I would now like to turn the call over to Akash. Akash Palkhiwala Thank you, Cristiano, and good afternoon, everyone. I'll start with our third fiscal quarter earnings. We are pleased to announce strong non-GAAP results with revenue of $9.4 billion and EPS of $2.33, both of which were above the midpoint of our guidance. QTL revenues of $1.3 billion and EBT margin of 70% were in line with our expectations. QCT delivered revenues of $8.1 billion and EBITDA margin of 27%, which was at the high end of our guidance range, driven by upside in both IoT and automotive. QCT handset revenues of $5.9 billion were in line with expectations, reflecting our scale in premium Android handsets and greater than 50% year-over-year growth in revenues from Chinese OEMs. QCT IoT revenues increased 9% sequentially to $1.4 billion as we continue to see a gradual recovery in the industry environment. We delivered our fourth consecutive quarter of record QCT automotive revenues of $811 million, with sequential growth of 34%. Our revenue acceleration reflects content growth in new vehicle launches as we become the leading supplier of advanced computing and connectivity solutions to the automotive industry. Lastly, we returned $2.3 billion to stockholders during the quarter, including $1.3 billion in stock repurchases and $949 million in dividends. Before turning to guidance, I would like to outline 3 factors included in our forecast. First, Consistent with our long-term financial planning assumption of largely flat handset units, we continue to estimate global 3G/4G 5G units in calendar '24 to be flat to slightly up on a year-over-year basis. Second, our license to export products to Huawei, which was set to expire in late calendar '24 was revoked on May 7. This change will impact our revenues in both the current quarter and the first quarter of fiscal '25. Lastly, our fourth fiscal quarter includes an additional week as we align our fiscal reporting period with the calendar quarter end every 5 to 6 years. Now turning to fourth fiscal quarter guidance. We are forecasting revenues of $9.5 billion to $10.3 billion and non-GAAP EPS of $2.45 to $2.65. In QTL, we estimate revenues of $1.35 billion to $1.55 billion and EBT margins of 70% to 74%, reflecting normal seasonality for handset units. In QCT, we expect revenues of $8.1 billion to $8.7 billion and EBT margins of 27% to 29%. We expect QCT handset revenues to grow by low single-digit percentage sequentially. This forecast reflects an increase in purchases from a modem-only handset customer partially offset by seasonally lower Android revenue ahead of our new Snapdragon premium chipset launch in the first quarter of fiscal '25. We expect QCT IoT revenues will increase by low double-digit percentage sequentially, driven by growth across consumer, networking and industrial. Following our outperformance in the third quarter, we expect QCT automotive revenues to remain flat in the fourth fiscal quarter. We are on track to deliver approximately 50% year-over-year revenue growth in fiscal '24, providing confidence in our ability to execute to our long-term targets. Lastly, we expect non-GAAP operating expenses to be approximately $2.2 billion. In closing, we are pleased with our execution and financial performance in fiscal '24. Based on the midpoint of our guidance, we are on track to deliver strong non-GAAP EPS growth of approximately 20% relative to fiscal '23. Over the last quarter, industry support for our vision for on-device AI has accelerated and been validated by several key players. Beyond handsets and PCs, we expect on-device AI to drive competitive differentiation for us in industrial, networking, automotive and XR. Our leading technology and product portfolio has positioned us to continue to execute on our diversification strategy. And in the months ahead, we look forward to introducing new industry-leading products across all our end markets. Finally, as Cristiano outlined, we'll be hosting our Investor Day on November 19, where we'll provide an update on our IoT and automotive diversification strategy. This concludes our prepared remarks. Back to you, Mauricio. Mauricio Lopez-Hodoyan Thank you, Akash. Operator, we are now ready for questions. Question-and-Answer Session Operator [Operator Instructions] First question will come from the line of Matt Ramsay with TD Cowen. Matt Ramsay I have a couple of questions, guys, really highlighting some of the diversification the company is now starting to deliver on in the revenue. I guess the first one is in the automotive business, some pretty big upside there. And maybe you could talk a little bit about like the -- you're seeing some of this revenue come through now in OEM programs that no doubt you won 2 or 3 years ago. Do you think that continues as we roll through the next several quarters? I mean what kind of momentum could we see as some of these units start to roll out from, I guess, the programs you won a long time back? And then Cristiano on the second one, people keep asking lots of questions about AI PCs. As you know, you're getting really close here to when the holiday ramp period would start for you to sell in units. So maybe you could give us your current take on your expectations of what the PC market could bring in terms of units or revenue for your company as we look forward into the next fiscal year. Cristiano Amon Very good. Thank you, Matt. Thanks for asking the questions. Let me start with automotive. Look, we're very pleased with automotive performance. And I want to start by saying this is you continue to see signs of the pipeline translating into revenue. There are a couple of things we really like it. The first one is -- our automotive revenue is all about share of new cars being launched with our content, also is independent whether the industry is about internal combustion or EV because it's all about digital, would be the Snapdragon Digital Chassis really became a key asset for the automotive industry. And just within the quarter, we have not only the launch of 10 new models with our technology, but also we actually have 10 new design wins, which continue to add to the pipeline. So we're very excited about that. We will continue to see as new cars get launched with our technology from the pipeline, the revenue to grow. And as Akash said in the script, we're actually on track to the metric we provided for $4 billion in 2026. One side comment on your question. An upside is what Gen AI is doing in automotive. Gen AI use cases, especially using large language models for audio. It was a great user interface for were behind the wheel. We're starting to see a lot of interesting use case being developed. That upside to our model, it could be an upgrade of content in the digital cockpits that we have in. The second comment which is about PCs. I will start by saying we're very pleased is exceeding our expectations. We -- it's a new version of Windows, the Copilot+ is a new architecture with an ARM compatible. We expect that, that will ramp over a period of time. But what we have seen in the market right now with the 20 models that can launch is exceeding our internal targets. Some models, as I mentioned in my prepared remarks, had sold out. And I think we should expect that, that will continue to be a crescendo, slow and steady as the market transition. We will have new product announcements coming up at EFA, and you're going to continue to see more Copilot+ features coming from Microsoft we're very happy about that as the same thing we did with auto, we expect PC to be the next biggest driver of diversification for the company, and we'll continue to track every quarter. Operator Our next question is from the line of Samik Chatterjee with JPMorgan. Samik Chatterjee Congrats on the strong print here. I guess, Cristiano, if I start you off with those smartphone question here related to VI smartphones. One, can you share if you're seeing any depreciable difference in the demand for smartphones with AI features in them from consumers already. And as you look to the pipeline in terms of design wins for next year, how are you thinking about proliferation of the AI features and capabilities into more mid-tier or outside of the flagship to your phones that you work with, with your customers? And I have a follow-up. Cristiano Amon Thank you for your question, Samik. So on smartphones, I would start by saying one thing that we really like. And I think it was reflected by some of the metrics provided by Akash he talks about in his remarks, 50% growth within China with Chinese OEMs. So I has expanded the size of the premium tier. So even in a market which it's kind of flattish to low single-digits in growth. The premium tier is actually growing faster. And we've seen that. We're seeing a larger premium tier enabled by AI. And to your specific question, we are happy with the trajectory of AI features. We used to have a few. Now we have tens of AI features. And eventually, when they get to 100, we're going to start to see a change that -- a smartphone with AI feature will become an AI smartphone. We don't have any heroic assumptions in our model, but we actually like the direction this is going that could create an interesting upside if we have an AI-driven upgrade cycle. It's still early in the process, but the use cases are becoming more interesting. I pointed to the increase of use cases in the Galaxy Flip6 and Fold6. China has a number of use cases. They're going to be launched in the next flagship. And I know you asked about bringing AI to the master. We intend to do that. The same thing we're doing with the PC which is as we expand the road map, we're not compromising on AI capabilities. We're going to see us doing that within our mobile road map. But on the premium tier, I'm actually very excited given the upcoming launch of our next Snapdragon that has our custom CPU. And you're going to see the same shift in performance that we have done in the PC ecosystem restoring the performance back to the Windows ecosystem, you're going to see doing us something similar in phones. And AI is going to be a big part of the story. Samik Chatterjee Got it. And a quick one for Akash. Akash, the guide for September revenues, that looks pretty similar to what you were sort of soft guiding us to back sort of 90 days ago, although you now have incremental headwinds with the license to export to Huawei. How should we think about sort of where you're finding the offsets? Where is the upside to help you offset that incremental headwind? Akash Palkhiwala Yes. Thanks, Samik. Samik, we're pretty happy with the way the quarter has played out, right? If you look at our handset business, we are growing. We are -- we're guiding that will grow low single-digit percentage on a quarter-over-quarter basis. IoT, we're guiding low double-digit growth, and we're seeing strength across industrial edge networking and consumer. And then auto coming off of an extremely strong quarter in June, we're guiding flat revenue in the September quarter. And so all of these, both IoT and automotive are incremental to our previous expectations, and you're seeing that benefit show up in our guidance. Operator Our next question is from the line of Chris Caso with Wolfe Research. Chris Caso I guess first question is just a clarification on the extra week in the quarter that you referred to. Can you speak about what impact you might expect it to have on both revenue and cost? And if there's any implications on that the absence of the extra week, as you go into the following quarter, which is obviously a seasonally strong quarter. Akash Palkhiwala Yes. Sure, Chris. If you think about the 2 factors I outlined for the guidance, which is the extra week on one hand and then offset by the Huawei reduction, revenue reduction on the other side. Those 2 largely offset each other. And so the net impact on our overall guidance is pretty limited when you consider the impact of both factors. Specifically on the extra week, as you know, not all weeks are created equal as you think about the different parts of our business. So what we've factored in is incremental revenue on the QCT side, incremental OpEx on the OpEx side. And then within -- sorry, incremental revenue on the QTL side. And then within QCT, revenue forecast and the benefit that we have from a flagship phone launch that doesn't really change based on the number of weeks. So that remains largely consistent and these factors are already included in. But kind of the big message is when you step back and look at the 2 key factors I outlined, they're pretty much canceled out against each other. Chris Caso Okay. Understood. And then moving over to QTL. The guidance for the fourth quarter is -- it's outside of the range that you have been talking about before. You haven't changed your expectation for global handset units. So can you speak to the reason for the QTL guidance and if that's sustainable going forward because typically, the first quarter is a stronger quarter for that segment. Akash Palkhiwala Yes, sure. So the QTL guidance is relatively straightforward. If you look at June to September, we typically see very small growth on a quarter-over-quarter basis. So we factored that in. And then we have the extra week on top of it as well, which is also factored into our numbers. So that's how we got to the number we're guiding for QTL. Operator Our next question is from the line of Stacy Rasgon with Bernstein Research. Stacy Rasgon I want to ask the second half of Chris' question again that you didn't quite get to. The extra week, I should think about the implication for December quarter seasonality coming off of that. What are you guys thinking for December? If you could help us shape that a little bit? Akash Palkhiwala Sure, Stacy. So as you know, well, we typically grow into the first quarter into the December quarter, and we're expecting that it's a seasonally strongest quarter of the year going forward. And as we think about the quarter, there couple of factors we consider. First is the launch of our new Android premium tier chip, which is going to be a tailwind for us. We do go back from the 16 weeks -- 14 weeks back to 13 weeks within the quarter. And then relative to last year, we'll not have Huawei product revenue going forward, which we did have last year. So net of all of this, when you look at a year-over-year basis, we expect revenue to be largely -- revenue growth to be largely consistent with the year-over-year growth we saw in December quarter last year. Stacy Rasgon Got it. That's helpful. If you could also just give us any sort of incremental color. How much of the guide actually includes how much of the guide is PC revenue at this point for next quarter? I know you said the consumer piece sounds like it's growing in IoT, that's where it is, but how much of it actually is PCs? Akash Palkhiwala Yes. I mean Stacy and all candor, we're a few weeks into our launch. And so it's too early to kind of have either a bullish assumption or a specific assumption on PC. We do have indications from our customers and we've tried our best to factor it in as we usually do. But as Cristiano said, to us, this is about kind of the longer-term growth opportunity and being very specific on sell-through in the short term is not really something that we have insight into. But we will, as we get to Investor Day, we're going to give a lot more disclosure on our specific plans on revenue ramp. Operator Our next question comes from the line of Joe Moore with Morgan Stanley. Joe Moore I wanted to come back to the 50% growth in China handset. And it sounds like you talked about growth in the premium tier there. Can you kind of give us a sense of how much of that is price versus units? And is that -- is the market expanding? And then maybe market share commentary because your numbers seem better than your competitor. Akash Palkhiwala Yes. So if you look at the total handset market, our general assumption is that from '23 to '24, it's flat to slightly up. So the market is not growing. But within that, the premium tier, the trend has been very positive. We've gone from greater than $400 representing 21% of the market now to representing 31% of the market. And so that's very significant growth that we are benefiting from. And as you know, we are very strong at the premium tier. And as that market expands, we get to participate in that, not just from a revenue perspective, but content increase perspective as well. Operator Our next question is from the line of Christopher Rolland with Susquehanna. Christopher Rolland I guess in your latest Q, you talked about a bunch of new licenses coming up. I think they expire early fiscal '25, including Huawei. I guess, first of all, the 4G at Huawei would this might affect these negotiations? Do you expect everyone else to sign in those negotiations as well? And then lastly, do we think about Huawei that impact is roughly $150 million a quarter. Is that a fair number on the 4G stuff from Huawei? Alex Rogers Chris, this is Alex. Thanks for the question. So if you look at the licensing progress basically over the last year or so, we set out to execute on a number of renewals and extensions. And we've done actually a really good job doing that. The most recent was getting on or signed up to a long-term agreement. And then, as you know, Apple extended through '27. But we also noted recently that we have 2 major Chinese OEM signed long term. Well, we haven't named them, but they are significant handset manufacturers. And then we're working through negotiations with others that we still have optimistic expectations in terms of getting them signed up. We also recently announced that we signed up tranching to a 5G license, and we're still negotiating with them. There's some litigation ongoing, but I think the important thing is to focus on the 5G license with that company and the ongoing negotiations. So Huawei is a company that we've been engaged with, just like the others in terms of trying to move negotiations forward. We expect that to continue. We don't really have any news on that just yet. Akash Palkhiwala And then from a revenue breakdown perspective, as you know, we don't break down our QTL revenue by OEM, but a reasonable way of thinking about it is look at the scale of the market the number of units, any specific OEM contributes to the scale of the market and apply that to our overall revenue stream. Operator Our next question is from the line of Ross Seymore with Deutsche Bank. Ross Seymore One question, one follow-up. First one, probably more for Cristiano. I just wanted to see how you feel with your leadership position on both the modem and the apps processor side in your handset business. How do you feel about the relative market share that you'll have in the penetration at given customers? There's kind of perpetual debate about what you're doing with your lead Korean customer, year-to-year, gen-to-gen same thing with your modem only customer. So as you look forward over the next year or 2, how are you feeling about the penetration that Qualcomm can have at the major customers? Cristiano Amon All right. Thanks for your question, Ross, loaded question. So I'm going to have to unpack one by one. I think the first part of the question, how do we think about modem technology. We feel pretty good about our modem technology. I think this is one of the core competencies of the company. We continue to be the number 1 company in the country in a number of wireless patents and extended essential patents and continue to be the company pushing for the road map. As it relates to our business with Apple, we still operate with the framework that we provided to you all. I think when we extended the chipset agreement, and we expect to be operating within that. We have no new update to provide it everything above what we said before is an upside. So we don't have that in our financial planning assumptions above what we had disclosure. When we think about the application processor, I think the conversation is a little bit more interesting because we have always said the leadership in AI performance, we always had the leadership and sustained peak and sustained performance in mobile gaming in other applications with our Adreno GPU. And now for the first time in a while, we're going to have our own custom CPU, which will be announced at the Snapdragon Summit and will be in the flagship devices launching towards the end of the year, beginning of 2025. So I will argue that our application processor advantage is accelerating. And as I said in this earnings, I think the launch of the Copilot+ PC was really a graduation for Qualcomm as it used to be perceived as a communications company isn't really a computing company. To the point that now we become the benchmark for others to follow within the PC industry. And I think that is going to be reflected in -- in the handset as well as we have our own custom CPU. As it relates to relationship with Samsung, we have executed agreements with them. It's largely consistent to what you have seen with the launch of the GS24, how is that going to continue. We're pretty happy with the relationship. And I think we both have a lot of opportunity with the AI coming into premium smartphones. Ross Seymore I guess as my follow-up for Akash. One, in the answer to your prior question, you said that your year-over-year growth in December would be about the same as it was last December. Just a clarification. Was that just for QCT? And then I guess my bigger picture question, how should we think about gross margins in QCT going forward? Looks like you're implying them down a bit in the September quarter, but still flat year-over-year. Has the diversification process happens, automotive, PCs, et cetera? How should we think about that line in your income statement? Akash Palkhiwala Sure, Ross. So that comment was really focused on overall company, so not just QCT, but the overall Qualcomm metrics. From a gross margin perspective, we did slightly better than we expected. We had guided in the third quarter. And what we're doing is we're guiding fourth quarter in line with the guidance we had provided for third quarter. I think as you look forward beyond fourth quarter into fiscal '25 using fourth quarter as a way to model the going-forward path is a reasonable way of thinking about it. Operator Our next question is from the line of Tal Liani with Bank of America. Tal Liani Can you hear me? Cristiano Amon Yes, we can. Tal Liani Okay. Perfect. Sorry. So I need help to define your addressable market in compute, meaning. Is it mostly about consumer laptops, enterprise? How do you envision your addressable market in the compute segment? And the second thing is you talked a lot about AI, AI inclusion in handsets. When we talk to carriers, they seem to be far away from it in the sense that they can't find the applications yet. What do you -- what do you think is going to drive the deployment? What kind of applications and what's the timing of applications that will drive the deployment of AI in handsets? Cristiano Amon Tal, this is Cristiano. Thank you for your question. Let me take the first one. You should think about addressable market the follow way. First of all, it's Windows 11, addressable market. We're very focused right now on laptops, whether it's commercial laptops for enterprise, consumer laptops. We're ranging price points, I think, especially as we talked in the prepared remarks, extending the road map from $700 and above. That's -- and what is defined as AI PC, a metric that I can provide to you. And I think there has been a number of OEMs indicating their respective views, but we forecast about 50% of our computers sold in 2027 will be AI PCs. That's one way to think about it. And we continue to basically see the transition of as upgrades are happening to Windows 11 and Copilot+ PCs, an opportunity for us to participate with a highly differentiated solution. I think your second question... Akash Palkhiwala It was on AI applications. Cristiano Amon It was about AI applications for devices. So here's how you should think about it. AI is going to do on phones, whether you're going to text, whether you're going to talk, whether you're going to touch, it's going to be a very important part of the human computer interface. And this is going to start to change a lot of the user experience on apps. It's less of a carrier conversation. It's really more of an application conversation. And those are going to start to change a lot of the use case of existing apps or you're going to start to see as we see the development of new agents that become more relevant. For example, if you are like me, a user of WhatsApp, you're going to see the ability within WhatsApp for you to search with Llama for you to do different things with their model. And eventually, a lot of the models are going to have multiple functionality across multiple apps. The way to measure this is the number of use cases. And we're -- as I said before, we're actually very happy with the trajectory. I'd like to compare what happened with the smartphone. When the smartphone -- first, there were like 10 apps and then became 100 apps and became 1,000 of apps, became hundreds of thousands of apps and then it became very clear what was happening. I think we look at a little bit the same way. We're in the beginning, but we like the number of use cases increasing, and that's going to drive a lot more AI NPU performance in the silicon and hopefully continue to expand the premium and high tier. Operator Our last question is from Tom O'Malley with Barclays. Tom O'Malley I have one for Cristiano and one for Akash. Just very recently here, obviously, in the quarter, there's a huge step-up in the auto portfolio, and I think you guys did a good job of kind of describing what drove that. But you've also, in your deck and kind of in your commentary talking more about AI PC being a driver. Cristiano, if you look at kind of the next 12 months, you hosted an Auto Analyst Day and you kind of talked about the opportunity being back-end loaded, and I think the end date was kind of the late 2020s. But if you look at the next 12 months, what opportunity do you think is more exciting to you the automotive side or the IoT in terms of revenue growth? Obviously, the buckets are different sizes, but just breaking those 2 out as to what can drive some growth there. And then on the Akash side, if you look into Q4, you obviously have an extra week there, but you are seeing OpEx step down. Could you just walk through the moving parts that I would expect it to be up a little bit just given the extra week? Cristiano Amon Thank you, Tom. Actually, I appreciate the question. I really like the question to give me an opportunity to explain this. You should think of Qualcomm -- we're not just trying to build one big business of differentiation. Actually, we're building a number of business -- I'm sorry, of diversification. We're really focused on this. And when we talk about Auto Investor Day, that was actually in September 2022, we kind of outline how that is going to be turning into a big platform for Qualcomm and building into the financials. And then hopefully, you can see now, especially with this quarter, that's materializing. And that will continue. That's not going away. We expect -- given the size of our pipeline, we talk about $4 billion in '26. We talk about $9 billion towards the end of the decade. We're on track to do that. But the second one is PCs. And as we get -- it's early. As I said, we're very happy. It's exceeding our expectations. Some models sold out. We just launched. I think when we get to the Investor Day, we probably will feel comfortable putting a metric out there of what that's going to represent and how that's going to grow over time when we think about the total contribution to Qualcomm. That's one they're very excited. But we don't stop there. The next one, and I encourage you to so what we're going to do next quarter, I think AI and computing, it's driving the industrial road map towards Qualcomm. So we we're completely redesigning our industrial road map, and we're going to unveil that road map in the coming months. So we think about this as -- there are many markets that can benefit from technology. We're super focused on growth and diversification and it's about a number of bets, not just one bet. Akash Palkhiwala And Tom, on your second question on OpEx, we had some non-labor material-related spent and tape-out related spend in the third quarter, which is why third quarter OpEx was higher and it goes down into the fourth quarter despite the extra week. And so it's just timing of non-labor spend that drove it. But fundamentally, no change in kind of the way we are managing OpEx. We're very committed to operating discipline and hiring, even when we do it, it is very focused on specific new skills that are required for diversification. So you won't see a difference in the way we are managing the OpEx for the company. Operator That concludes today's question-and-answer session. Mr. Amon you have anything further to add before adjourning the call? Cristiano Amon No, I just want to just quickly thank all of our partners. Our suppliers, our employees for a great job on PC execution. I think we're very proud of what we accomplished. We will continue to drive AI across each one of our businesses. We feel we have a very unique position in the ability to run AI at the edge. We're very happy with the automotive traction, and we're actually looking forward to the next generation of products launching coming months, as I said, hopefully creating a new vector for growth of the company in the future in industrial IoT. Thank you very much. Operator Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Earnings call: AMD sees Q2 revenue climb, data center growth soars By Investing.com

Advanced Micro Devices, Inc. (NASDAQ:AMD) has reported a 9% year-over-year increase in revenue for the second quarter of 2024, reaching $5.8 billion. The company's data center segment was the standout performer, with revenue soaring by 115% to a record $2.8 billion, largely driven by robust sales of Instinct MI300 GPUs and EPYC CPUs. Client processor demand also surged, resulting in a 49% revenue increase in that segment. However, the gaming segment faced a 59% decline due to weaker semi-custom SoC sales. Despite this, AMD anticipates significant revenue growth in the latter half of the year, propelled by its data center and client segments, and plans to boost investments in AI technology. Key Takeaways Company Outlook Bearish Highlights Bullish Highlights Misses Q&A Highlights AMD's second-quarter performance demonstrates a strong trajectory in the data center space, bolstered by its EPYC CPUs and Instinct GPUs. The company's strategic focus on AI and the acquisition of talent and technology through companies like Silo AI and Nod.ai position it to capitalize on the growing demand for AI solutions. Despite challenges in the gaming and embedded segments, AMD's outlook remains optimistic, with significant investments planned to drive growth and expand its market share in the competitive tech landscape. InvestingPro Insights Advanced Micro Devices, Inc. (AMD) has shown a resilient performance in its latest quarterly results, with particular strength in the data center segment. InvestingPro data provides further context to AMD's financial health and market position: InvestingPro Tips highlight that while AMD is trading at high valuation multiples across earnings, EBIT, EBITDA, and revenue, it remains a prominent player in the Semiconductors & Semiconductor Equipment industry. This is particularly relevant given the company's focus on expanding its AI technology investments. Moreover, with liquid assets exceeding short-term obligations and a moderate level of debt, AMD's financial stability is noteworthy. For readers interested in a deeper analysis of AMD's financial health and future prospects, InvestingPro offers 14 additional tips. These tips provide insights into aspects such as stock price volatility, historical returns, and profitability forecasts, which can be found at https://www.investing.com/pro/AMD. Full transcript - Adv Micro Device (AMD) Q2 2024: Operator: Greetings, and welcome to the AMD Second 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. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce to you Mitch Haws, Vice President Investor Relations. Thank you, Mitch. You may begin. Mitch Haws: Thank you, and welcome to AMD's Second 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 conference 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 Dr. Lisa Su will attend the Goldman Sachs (NYSE:GS) Technology Communicopia and Technology Conference on Monday, September 9th, and Mark Papermaster, Executive Vice President and Chief Technology Officer, will attend the Deutsche Bank (ETR:DBKGn) Technology conference on Wednesday, August 28th. 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 in our press release for more information on factors that could cause action results to differ materially. With that, I'll hand the call over to Lisa. Lisa Su: Thank you, Mitch, and good afternoon to all those listening today. We delivered strong second quarter financial results with revenue coming in above the midpoint of guidance and profitability increasing by a double-digit percentage driven by higher than expected sales of our Instinct, Ryzen, and EPYC processors. We continued accelerating our AI traction, as leading cloud and enterprise providers, expanded availability of Instinct MI300X solutions, and we also saw positive demand signals for general purpose compute in both our client and server processor businesses. As a result, second quarter revenue increased 9% year-over-year to $5.8 billion, as significantly higher sales of our data center and client processors more than offset declines in gaming and embedded product sales. We also expanded gross margin by more than 3 percentage points and grew EPS 19%, as data center product sales accounted for nearly 50% of overall sales in the quarter. Turning to the segments, data center segment revenue increased 115% year-over-year to a record $2.8 billion, driven by the steep ramp of Instinct MI300 GPU shipments and a strong double-digit percentage increase in EPYC CPU sales. Cloud adoption remains strong as hyperscalers deploy fourth-gen EPYC CPUs to power more of their internal workloads and public instances. We are seeing hyperscalers select EPYC processors to power a larger portion of their applications and workloads, displacing incumbent offerings across their infrastructure with AMD solutions that offer clear performance and efficiency advantages. The number of AMD-powered cloud instances available from the largest providers has increased 34% from a year ago to more than 900. We are seeing strong pull for these instances with both enterprise and cloud-first businesses. As an example, Netflix (NASDAQ:NFLX) and Uber (NYSE:UBER) both recently selected fourth-gen EPYC Public Cloud instances as one of the key solutions to power their mission critical customer facing workloads. In the enterprise, sales were increased by a strong double-digit percentage sequentially. We closed multiple large wins in the quarter with financial services, technology, health care, retail, manufacturing, and transportation customers, including Adobe (NASDAQ:ADBE), Boeing (NYSE:BA), Industrial Light & Magic, Optiver, and Siemens. Importantly, more than one-third of our enterprise server wins in the first half of the year were with businesses deploying EPYC in their data centers for the first time, highlighting our success attracting new customers, while also continuing to expand our footprint with existing customers. Looking ahead, our next-generation Turin family, featuring our new Zen 5 core is looking very strong. Zen 5 is a grounds up new core design optimized for leadership performance and efficiency. Turin will extend our TCO leadership by offering up to 192 cores and 384 threads, support for the latest memory and I.O. Technologies, and the ability to drop into existing fourth-gen EPYC platforms. We publicly previewed Turin for the first time in June, demonstrating our significant performance advantages in multiple compute-intensive workloads. We also passed a major milestone in the second quarter as we started Turin production shipments to lead Cloud customers. Production is ramping now ahead of launch and we expect broad OEM and cloud availability later this year. Turning to our data center AI business, we delivered our third straight quarter of record data center GPU revenue with MI300 quarterly revenue exceeding $1 billion for the first time. Microsoft (NASDAQ:MSFT) expanded their use of MI300X Accelerators to power GPT-4 Turbo and multiple co-pilot services including Microsoft 365 Chat, Word, and Teams. Microsoft also became the first large hyperscaler to announce general availability of public MI300X instances in the quarter. The new Azure VMs leverage the industry-leading compute performance and memory capacity of MI300X in conjunction with the latest ROCm software to deliver leadership-inferencing price performance when running the latest frontier models, including GPT-4. Hugging Face was one of the first customers to adopt the new Azure instances, enabling enterprise and AI customers to deploy hundreds of thousands of models on MI300X GPUs with one click. Our enterprise and Cloud AI customer pipeline grew in the quarter, and we are working very closely with our system and cloud partners to ramp availability of MI300 solutions to address growing customer demand. Dell (NYSE:DELL), HPE, Lenovo, and Supermicro all have Instinct platforms in production, and multiple hyperscale and tier-2 cloud providers are on track to launch MI300 instances this quarter. On the AI software front, we made significant progress enhancing support and features across our software stack, making it easier to deploy high performance AI solutions on our platforms. We also continued to work with the open source community to enable customers to implement the latest AI algorithms. As an example, AMD support for Flash Attention 2 algorithm was upstreamed, providing out-of-the-box support for AMD hardware in the popular library that could increase training and inference performance on large transformer models. Our work with the model community also continued accelerating, highlighted by the launches of new models and frameworks with day one support for AMD hardware. At Computex, I was joined by the co-CEO of Stable Diffusion to announce that MI300 is the first GPU to support their latest SD 3.0 image generation LLM. Last week, we were proud to note that multiple partners used ROCm and MI300X to announce support for the latest Llama 3.1 models, including their 405 billion parameter version that is the industry's first frontier-level open source AI model. Llama 3.1 runs seamlessly on MI300 accelerators, and because of our leadership memory capacity, we're also able to run the FP16 version of the Llama 3.1 405B model in a single server, simplifying deployment and fine-tuning of the industry-leading model and providing significant TCO advantages. Earlier this month, we announced our agreement to acquire Silo AI, Europe's largest private AI lab with extensive experience developing tailored AI solutions for multiple enterprise and embedded customers, including Allianz (ETR:ALVG), Ericsson (BS:ERICAs), Finnair, Korber, Nokia (HE:NOKIA), Philips (LON:0LNG), T-Mobile, and Unilever (LON:ULVR). The Silo team significantly expands our capability to service large enterprise customers looking to optimize their AI solutions for AMD hardware. Silo also brings deep expertise in large language model development, which will help accelerate optimization of AMD inference and training solutions. In addition to our acquisitions of Silo AI, [Sology] (ph), and Nod.ai, we have invested over $125 million across a dozen AI companies in the last 12 months to expand the AMD AI ecosystem, support partners, and advance leadership AMD computing platforms. Looking ahead from a roadmap perspective, we are accelerating and expanding our Instinct roadmap to deliver an annual cadence of AI accelerators, starting with the launch of MI325X later this year. MI325X leverages the same infrastructure as MI300 and extends our generative AI performance leadership by offering twice the memory capacity and 1.3 times more peak compute performance than competitive offerings. We plan to follow MI325X with the MI350 series in 2025 based on the new CDNA 4 architecture, which is on track to deliver a 35x increase in performance compared to CDNA 3. And our MI400 series powered by the CDNA "Next" architecture is making great progress in development and is scheduled to launch in 2026. Turning to our AI solutions work, Broadcom (NASDAQ:AVGO), Cisco (NASDAQ:CSCO), HP (NYSE:HPQ) Enterprise, Intel (NASDAQ:INTC), Google (NASDAQ:GOOGL), Meta (NASDAQ:META), and Microsoft all joined us to announce Ultra Accelerator Link, an industry standard technology to connect hundreds of AI accelerators that is based on AMD's proven infinity fabric technology. By combining UA-Link with the widely supported ultra-Ethernet consortium specification, the industry is coming together to establish a standardized approach for building the next generation of high-performance data centers, AI solutions at scale. In summary, customer response to our multi-year Instinct and ROCm roadmaps is overwhelmingly positive and we're very pleased with the momentum we are building. As a result, we now expect data center GPU revenue to exceed $4.5 billion in 2024, up from the $4 billion we guided in April. Turning to our client segment, revenue was $1.5 billion, an increase of 49% year-over-year driven by strong demand for our prior generation Ryzen processors and initial shipments of our next generation Zen 5 processors. In PC applications, Zen 5 delivers an average of 16% more instructions per clock than our industry leading previous generation of Ryzen processors. For desktops, our upcoming Ryzen 9000 series processors drop into existing AM5 motherboards and extends our performance and energy efficiency leadership across productivity, gaming, and content creation workloads. For notebooks, we announced our Ryzen AI 300 series that extends our industry-leading CPU and GPU performance and introduces the industry's fastest NPU with 50 tops of AI compute performance for Copilot Plus PCs. The first Ryzen AI 300 series notebooks went on sale over the weekend to strong reviews. And more than 100 Ryzen AI 300 series premium, gaming, and commercial platforms are on track to launch from Acer, ASUS, HP, Lenovo, and others over the coming quarters. Customer excitement for our new Ryzen processors is very strong, and we are well positioned for ongoing revenue share gains based on the strength of our leadership portfolio and design win momentum. Now turning to our gaming segment, revenue declined 59% year-over-year to $648 million as semi-custom SoC sales declined in-line with our projections. Semi-custom demand remains soft, as we are now in the fifth-year of the console cycle and we expect sales to be lower in the second half of the year compared to the first half. In gaming graphics, revenue increased year-over-year driven by improved sales of our Radeon 6000 and 7000 series GPUs in the channel. Turning to our embedded segment, revenue decreased 41% year-over-year to $861 million. The first quarter marked the bottom for our embedded segment revenue. Although second quarter revenue was flattish sequentially, we saw early signs of order patterns improving and expect embedded revenue to gradually recover in the second half of the year. Longer term we are building strong design win momentum for our expanded embedded portfolio. Design wins in the first half of the year increased by more than 40% from the prior year to greater than $7 billion, including multiple triple-digit million-dollar wins combining our adaptive and x86 compute products. We announced our Alveo V80 accelerators that deliver leadership capabilities in memory-intensive workloads and entered early access on next-generation Edge AI solutions with more than 30 key partners on our upcoming second-gen Versal adaptive SoCs. Last week, we also announced Victor Peng, President of AMD, would retire at the end of August. Victor has made significant contributions to Xilinx (NASDAQ:XLNX) and AMD, including helping scale our embedded business and leading our cross-company AI strategy. On a personal note, Victor has been a great partner to me in sharing the success of our Xilinx acquisition and integration. On behalf of all of the AMD employees and board, I want to thank Victor for all of his contributions to AMD success and wish him all the best in his retirement. In summary, we delivered strong second quarter results and are well positioned to grow revenue significantly in the second half of the year, driven by our data center and client segments. Our data center GPU business is on a steep growth trajectory as shipments ramp across an expanding set of customers. We're also seeing strong demand for our next generation Zen 5 EPYC and Ryzen processors that deliver leadership performance and efficiency in both data center and client workloads. Looking ahead, the rapid advances in generative AI and development of more capable models are driving demand for more compute across all markets. Under this backdrop, we see strong growth opportunities over the coming years and are significantly increasing hardware, software and solutions investments with a laser focus on delivering an annual cadence of leadership data center GPU hardware, integrating industry leading AI capabilities across our entire product portfolio, enabling full stack software capabilities, amplifying our ROCm development with the scale and speed of the open source community and providing customers with turnkey solutions that accelerate the time to market for AMD based AI systems. We are excited about the unprecedented opportunities in front of us and are well positioned to drive our next phase of significant growth. Now I'd like to turn the call over to Jean to provide some additional color on our second quarter results. Jean? Jean Hu: 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 third quarter. We're very pleased with our overall second quarter financial results that came in above expectations. On a year-over-year basis, data center segment revenue more than doubled. Client segment revenue grow significantly, and we expand the gross margin by 340 basis points. For the second quarter of 2024, revenue was $5.8 billion, up 9% year-over-year, as revenue growth in the data center and the client segments was partially offset by lower revenue in our gaming and embedded segments. Revenue increases 7% sequentially, primarily driven by growth in the data center and the client segments revenue. Gross margin was 53%, up 340 basis points year-over-year, primarily driven by higher data center revenue. Operating expenses were $1.8 billion, an increase of 15% year-over-year, as we continue to invest in R&D to address the significant AI growth opportunities ahead of us and enhanced go-to-market activities. Operating income was $1.3 billion representing a 22% operating margin. Taxes, interest expense and other was $138 million. Diluted earnings per share was $0.69, an increase of 19% year-over-year. Now turning to our reportable segment. Starting with the data center. Data Center delivered record quarterly segment revenue of $2.8 billion, up 115%, a $1.5 billion increase in year-over-year. The Data Center segment accounted for nearly 50% of total revenue, led primarily by the steep ramp of AMD Instinct GPUs and strong double-digit percentage EPYC Server revenue growth. On a sequential basis, revenue increased 21%, driven primarily by strong momentum in AMD Instinct GPUs. Data center segment operating income was $743 million or 26% of revenue compared to $147 million or 11% a year ago. Operating income was up more than 5 times from the prior year, driven by higher revenue and operating leverage, even as we significantly increase our investment in R&D. Client segment revenue was $1.5 billion, up 49% year-over-year and 9% sequentially driven primarily by AMD Ryzen processor sales. Client segment operating income was $89 million or 6% of revenue compared to operating loss of $69 million a year ago. Gaming segment revenue was $648 million down 59% year-over-year and 30% sequentially. The decrease in revenue was primarily due to semi-customer inventory digestion and the lower end-market demand. Gaming segment operating income was $77 million, or 12% of revenue compared to $225 million or 14% a year ago. Embedded segment revenue was $861 million, down 41% year-over-year, as customers continue to normalize their inventory levels. On sequential basis, embedded segment revenue was up 2%. Embedded segment operating income was $345 million or 40% of revenue compared to $757 million or 52% a year ago. Turning to the balance sheet and the cash flow. During the quarter, we generated $593 million in cash from operations and the free cash flow was $439 million. Inventory increased sequentially by [$339 million] (ph) to $5 billion, primarily to support the continued ramp of a data center GPU product. At the end of the quarter, cash, cash equivalent, and short-term investments were $5.3 billion. In the second quarter, we returned $352 million to shareholders repurchasing 2.3 million shares, and we have $5.2 billion of authorization remaining. During the quarter, we retired $750 million of debt that matured this past June utilizing existing cash. Now turning to our third quarter, 2024 outlook. We expect revenue to be approximately $6.7 billion plus or minus $300 million. Sequentially, we expect revenue to grow approximately 15%, primarily driven by strong growth in the data center and the client segment. We expect embedded segment revenue to be up and the gaming segment to decline by double digit percentage. Year-over-year we expect revenue to grow approximately 16%, driven by the steep ramp of our AMD Instinct processors and strong server and client revenue growth to more than offset the declines in the gaming and embedded segments. In addition, we expect third quarter non-GAAP gross margin to be approximately 53.5%. Non-GAAP operating expenses to be approximately $1.9 billion. Non-GAAP effective tax rate to be 13%. And the diluted share count is expected to be approximately 1.64 billion shares. Also during the third quarter, we expect to close the acquisition of Silo AI for approximately $665 million in cash. In closing, we made significant progress during the quarter toward achieving our financial goals. We delivered record MI300 revenue that exceeded $1 billion and demonstrated solid traction with our next-gen Ryzen and EPYC product. We expanded gross margin significantly and drove earnings growth while increasing investment in AI. Looking forward, opportunities ahead of us are unprecedented, will remain focused on executing to our long-term growth strategy, while driving financial discipline and operational excellence. With that, I will turn it back to Mitch for the Q&A session. Mitch Haws: Thank you, Jean. John, we're happy to poll the audience for questions. Operator: Thank you, Mitch. We will now be conducting the question-and-answer session. [Operator Instructions] And the first question comes from the line of Ben Reitzes with Melius Research. Please proceed with your question. Ben Reitzes: Hey, thanks a lot. Congratulations on these results. Lisa, I wanted to ask you about MI300, how you see it playing out sequentially for the rest of the year. I guess there is about $2.8 billion left to hit your annual target. So I'm wondering if you see things picking up in the fourth quarter and how that's going sequentially. And if you don't mind, I wanted to also ask about next year if you see potential for rapid growth. You're probably aware of some of the chatter out there, and I just was wondering if you are already seeing signs that you can grow significantly, given your road map for next year. Thank you so much. Lisa Su: Yes. Great, Ben. Thanks for the question. So first of all on sort of MI300 and the customer evolution, we are very happy with how MI300 has progressed. When we started the year, I think the key point for us was to get our products into our customers' data centers, to have them qualify their workloads, to really ramp in production and then see what the production capabilities are especially performance and all of those things. And I can say now being sort of more than halfway through the year, we've seen great progress across the board. As we look into the second half of the year I think we would expect that MI300 revenue would continue to ramp in the third quarter and the fourth quarter. And we are continuing to expand both current deployments with our existing customers, as well as we have a large pipeline of customers that we are working through that are getting familiar with our architecture and software and all that stuff. So I'd say overall, very pleased with the progress, and really continuing right on track to what we expected from the capabilities of the product. As we go into next year, I mean one of the important things that we announced at Computex, was increasing and expanding our road map. I think we feel really good about our road map. We are on track to launch MI325 later this year. And then next year, our MI350 Series, which will be very competitive with Blackwell Solutions. And then we're well on our way to our CDNA Next as well. So I think, overall we remain quite bullish on the overall AI market. I think the market continues to need more compute. And we also feel very good that our hardware and software solutions are getting good traction, and we are continuing to expand that pipeline. Aaron Rakers: Yeah, thanks for taking my question. And congrats on the quarter as well. I guess sticking on the Data Center side, as we look forward and you think about the full year, I'm curious of how you're currently thinking about the EPYC server CPU growth expectations as we go forward. And any kind of updated thoughts on your ability to kind of continue to gain share in the server market? Just kind of just update us on how you see the server market playing out over the next couple of quarters. Lisa Su: Yes, sure Aaron. Thanks for the question. So we are very pleased with the progress that we've made with EPYC. I think a couple of things. First of all, in terms of competitive positioning and just the traction in the market, our fourth-gen EPYC between Zen 1 Bergamo is really doing very well. We've seen broad adoption across cloud, and then we've been very focused on enterprise as well as third-party cloud instances. And as I said in the prepared remarks, we are starting to see very nice traction in enterprise with both new customers as well as existing customers, and then for third-party cloud adoption, also a good pickup there as well. So I think overall, I think our EPYC portfolio has done well. Going into the second half of the year, I think we also feel good about it. There are a couple of positives there. We see -- first of all the market looks like it's improving, so we have seen some return to spending in both enterprise and cloud. And so I think those are positive market trends. And then in addition to that, we are in the process of launching Turin. So we started production here in the second quarter and we are on track to launch broadly in the second half of the year. We'll see some revenue of Turin in the second half of the year contributing as well. So overall, I think the server market and our ability to continue to grow share in the server market is one of the things that we see in the second half of the year. Operator: And the next question comes from the line of Timothy Arcuri with UBS. Please proceed with your question. Timothy Arcuri: Thanks a lot. Lisa, I wanted to ask about the Data Center GPU roadmap. As you said, 325 launching later this year, so I guess I had two questions. Does the greater than $4.5 billion, does that include any revenue from 325? And can you talk a little bit more about 350? Obviously, we are seeing a big rack scale or shift toward rack-scale systems for the competition's product. And I'm wondering if that's what 350 is going to look like. Is it going to have liquid cooling and is it going to have a rack scale aspect to it? Thanks. Lisa Su: Yes, absolutely. So let me start with your original question. I mean, I think looking at 325X, we are on track to launch later this year. From a revenue standpoint there will be a small contribution in the fourth quarter but it really is still mostly the MI300 capabilities. And 325 will start in the fourth quarter and then ramp more in the first half of next year. And then as we look at the 350 Series, what we are seeing and the reason we call it a series is because there will be multiple SKUs in that series that we'll go through the range of, let's call it, air-cooled to liquid-cooled. In spending time with our customers. I think there are people who certainly want more rack level solutions, and we are certainly doing much more in terms of system-level integration for our products. You will see us invest more in system-level integration. But we also have many customers who want to use their current infrastructure. I think the beauty of the MI350 series is, it actually fits into the same infrastructure as the MI300 series. And so it would lend itself to, let's call it a pretty fast ramp if you've already invested in 300 or 325. So we see the range of options, and that's part of the expansion of the road map that we are planning. Operator: And the next question comes from the line of Ross Seymore with Deutsche Bank. Please proceed with your question. Ross Seymore: Hi, thanks for having me ask a question and congrats on the strong results. Well, Data Center is obviously very important. I just want to pivot to the Client side. Lisa, can you talk about the AI PC side of things? How you believe AMD is positioned? Are you seeing any competitive intensity changing with the emergence of ARM based systems? Just wanted to see how you are expecting that to roll out and what it means to second half seasonality. Lisa Su: Yes. Sure, Ross. So first, we are very pleased with our Client business results. I think we have a very strong road map, so I'm very pleased with the road map. The Zen 5 based products, we're launching both notebook and desktop in the middle of this year. What we've seen is actually very positive feedback on the product. So we just actually launched the first Strix-based notebooks over the weekend. They went on sale. You may have seen some of the reviews. The reviews are very positive. Our view of this is the AI PC is an important add to the overall PC category. As we go into the second half of the year, I think we have better seasonality in general, and we think we can do, let us call it above-typical seasonality, given the strength of our product launches and when we are launching. And then into 2025, you're going to see AI PCs across sort of a larger set of price points which will also open up more opportunities. So overall, I'd say, the PC market is a good revenue growth opportunity for us. The business is performing well. The products are strong. And we are working very closely with both the ecosystem partners, as well as our OEM partners to have strong launches here into the second half of the year. Ross Seymore: And is the ARM side changing anything or not really? Lisa Su: Look, I think at this point the PC market is a big market and we are underrepresented in the market. I'd say that we take all of our competition very seriously. That being the case, I think our products are very well positioned. Operator: And the next question comes from the line of Matt Ramsay with Cowen. Please proceed with your question. Matt Ramsey: Thank you very much. Good afternoon. Lisa, I wanted to maybe draw a parallel between the Instinct portfolio that your company is rolling out now and what you guys did five or six years ago with EPYC. And I remember when the Naples product launched, there was a lot of, I'd say, reaction positively and negatively and sort of sentiment around where your road map might go to relatively small perturbations in what the volumes were, super early. But if I remember back to that, what was the most important was that was the toehold into the market for long-term engagement, both on the software side and the hardware side with your customers two, three, four generations forward. So is that an accurate parallel to where you guys are with MI300? And maybe you could talk about the level of engagement, the intensity of engagement, the breadth of it across the customer base with 350 and 400. Thanks. Lisa Su: Yes, absolutely, Matt. So look as I said earlier, we are very pleased with the progress that we are making on the Instinct road map. This is absolutely a long-term play so absolutely, you are correct. It has a lot of parallels to the EPYC journey, where you really have to -- you gain more opportunities, broader workloads, larger deployments as you go from generation to generation. So we are playing the long game here. Our conversations with our customers, so I'd start with first, in the near-term, we had some very key milestones that we wanted to pass this year. And as I said, they related to getting hardware in volume in multiple hyperscalers, as well as large Tier 2 customers. We've done that. We've now seen our software in a lot of different environments, and it is matured substantially. ROCm is in very -- from a standpoint of features, functions, out-of-box performance, getting to performance with customers, we've gained a lot of confidence and learned a lot in that whole process. The networking aspects of building out the rack scale and the system-level items are areas that we are continuing to invest in. And then the point of having long-term conversations across multiple generations is also really important. So I think all of those things have progressed well. We view this as very good progress for MI300, but we have a lot more to do. And I think the various road maps will help us open up those opportunities over the next couple of years. Operator: And the next question comes from the line of Vivek Arya with Bank of America (NYSE:BAC) Securities. Please proceed with your question. Vivek Arya: Thanks for taking my question. Lisa, there seems to be this ongoing industry debate about AI monetization and whether your customers are getting the right ROI on their CapEx. And today, they have these three options, right? They can buy GPUs from your largest competitor with all the software bells and whistles and incumbency or they can do custom chips or they can buy from AMD. So how do you think this plays out next year? Do you think your customers given all this concern around monetization, does it make them consolidate their CapEx around just the other two suppliers? How is your visibility going into next year, given this industry debate? And how will AMD continue to kind of carve a position between these two other competitive choices that are out there? Thank you. Lisa Su: Yes, sure, Vivek. Well, I mean I think you talk to a lot of the same people that we talk to. I think the overall view on AI investment is we have to invest. I mean the industry has to invest. The potential of AI is so large to impact the way enterprises operate and all that stuff. So I think the investment cycle will continue to be strong. And then relative to the various choices for the size of the market, I firmly believe that there will be multiple solutions, whether you are talking about GPUs or you are talking about custom chips or ASICs, there will be multiple solutions. In our case, I think we've demonstrated a really strong road map and the ability to partner well with our customers. And from the standpoint of that deep engagement, hardware, software co-optimization is so important in that. And for large language models, GPUs are still the architecture of choice. So I think, the opportunity is very large. And I think our piece of that is really strong technology with strong partnerships with the key AI market makers. Joe Moore: Great. Thank you. I also wanted to ask about MI300. I wonder if you could talk about training versus inference. Do you have a sense -- I know that a lot of the initial focus was inference, but do you have traction on the training side? And any sense of what that split may look like over time? Lisa Su: Yes, sure. Thanks for the question Joe. So as we said on MI300, there are lots of great characteristics about it. One of them is our memory bandwidth and memory capacity is leading the industry. From that standpoint, the early deployments have largely been inference in most cases, and we have seen fantastic performance from an inference standpoint. We also have customers that are doing training. We've also seen that from a training standpoint, we've optimized quite a bit our ROCm software stack, to make it easier for people to train on AMD. And I do expect that we'll continue to ramp training over time. As we go forward, I think you'll see -- the belief is that inference will be larger than training from a market standpoint. But from an AMD standpoint, I'd expect both inference and training to be growth opportunities for us. Joe Moore: Great. Thank you. Operator: And the next question comes from the line of Toshiya Hari with Goldman Sachs. Please proceed with your question. Toshiya Hari: Hi, thank you so much for taking the question. I had a question on the MI300 as well. Curiously, if you are currently shipping to demand or if the updated annual forecast of $4.5 billion is in some shape or form supply constrained. I think last quarter you gave some comments on HBM and CoWoS. Curious if you could provide an update there. And then my Part B to my question is on profitability for MI300. I think in the past, you've talked about the business being accretive and improving further over time as you sort of work through the kinks, if you will. Has that view evolved or changed at all, given sort of the competitive intensity and your need to invest, whether it be through organic R&D or some of the acquisitions you've made? Or are you still confident that profit margins in the business continue to expand? Thank you. Lisa Su: Yes. Sure, Toshiya. Thanks for the question. So on the supply side, let me make a couple of comments and then maybe I'll let Jean comment on sort of the trajectory for the business. So on the supply side, we made great progress in the second quarter. We ramped up supply significantly exceeding $1 billion in the quarter. I think the team has executed really well. We continue to see line of sight to continue increasing supply as we go through the second half of the year. But I will say that the overall supply chain is tight and will remain tight through 2025. So under that backdrop, we have great partnerships across the supply chain. We've been building additional capacity and capability there. And so we expect to continue to ramp as we go through the year. And we'll continue to work both supply as well as demand opportunities, and really that's accelerating our customer adoption overall, and we'll see how things play out as we go into the second half of this year. Jean Hu: Yes. On your second question about the profitability, first our team has done a tremendous job to ramp the product MI300. It is a very complex product. So we ramped it successfully. At the same time, the team also started to implement operational optimization to continue to improve gross margin. So we continue to see the gross margin improvement. Over time, in the longer term, we do believe gross margin will be accretive to corporate average. From a profitability perspective, AMD always invests in platforms. If you look at our Data Center platform especially both the [Server] (ph) and the Data Center GPU side, we are ramping the revenue. The business model can leverage very significantly even from GPU side. Because the revenue ramp has been quite significant, the operating margin continued to expand. We definitely want to continue to invest as the opportunity is huge. At the same time, it is a profitable business already. Toshiya Hari: Thank you very much. Operator: And the next question comes from the line of Stacy Rasgon with Bernstein Research. Please proceed with your question. Stacy Rasgon: Hi, guys. Thanks for taking my question. I wanted to dig into the Q3 guidance a little bit, if I could. So with Gaming down double digits, it probably means you've got close to $1 billion of growth revenue across Data Center, Client, and Embedded. I was wondering if you could give us some color on how that $1 billion-ish splits out across those three businesses. Like if I had 70% of it going to Data Center and 20% going to Client and 10% going to Embedded, like would that be like way off? Or how should we think about that apportioning out across the segment? Lisa Su: Yes. Maybe Stacy, let me give you the following color. So the Gaming business is down double digit as you state. Think of it as the Data Center is the largest piece of it, client next. And then on the Embedded side think of it as single-digit sequential growth. Stacy Rasgon: Got it. So I mean within that Data Center piece then, how does that split out? I mean, is the bulk of it [indiscernible] Instinct? Or is it sort of equally weighted between Instinct and EPYC? Or like again how does it -- again if you got, I don't know $400 million to $600 million of sequential Data Center growth or something like that, how does it split up? Lisa Su: Yes. So again, without being that granular, we will see both -- certainly, the Instinct GPUs will grow and we'll see also very nice growth on the server side. Operator: And the next question comes from the line of Harsh Kumar with Piper Sandler. Please proceed with your question. Harsh Kumar: Hi, Lisa. From my rudimentary understanding, the large difference between your Instinct products and the adoption versus your nearest competitor is kind of rack level performance and that rack level infrastructure that you may be lacking. You talked a little bit about UALink. I was wondering if you could expand on that and give us some more color on when that might -- when that gap might be closed. Or is this a major step for the industry to close that gap? Just any color would be appreciated. Lisa Su: Yes. So Harsh, overall, maybe if I take a step back and just talk about how the systems are evolving, there is no question that the systems are getting more complex, especially as you go into large training clusters, and our customers need help to put those together. And that includes the sort of Infinity Fabric-type solutions that are the basis for the UALink things as well as just general rack level system integration. I think what you should expect, Harsh is, first of all, we're very pleased with all of the partners that have come together for UALink. We think that's an important capability. But we have all of the pieces of this already within sort of the AMD umbrella with our Infinity Fabric, with the work with our networking capability through the acquisition of Pensando. And then you'll see us invest more in this area. So this is part of how we help customers get to market faster is by investing in all of the components, so the CPUs, the GPUs, the networking capability as well as system-level solutions. Operator: And the next question comes from the line of Blayne Curtis with Jefferies. Please proceed with your question. Blayne Curtis: Hi, good afternoon. Thanks for taking my question. I just want to ask another question on MI300. Just curious if you can kind of characterize the makeup of the customers in the first half. I know you had, end of last year, a government customer. Is there still a government contingency? And kind of the second part of it is really you've invested in all these software assets. Kind of curious the challenge of ramping the next wave of customers. I know there's been a lot of talk on some hardware challenges, memory issues and such, but then you're investing in software. I'm sure that's a big challenge, too. Just kind of curious what the biggest hurdle is for you to kind of get that next wave of customers ramp. Lisa Su: Yes. So Blayne, a lot of pieces to that question, so let me try to address them. First, on your question about I think you are basically asking about the supercomputing piece. That was mainly Q4 and a bit in Q1. So if you think about our Q2 revenue, think about it as almost all AI. So it is MI300X, it's for large AI, hyperscalers as well as OEM customers going to enterprise and Tier 2 data centers. So that's the makeup of the customer set. And then in terms of the various pieces of what we're doing, I think first on your question about memory, I think there's a lot of noise in the system. I wouldn't really pay attention to all that noise in the system. I mean, this has been an incredible ramp. And I'm actually really proud of what the team has done in terms of just definitely fastest product ramp that we've ever done to $1 billion here in the -- over $1 billion in the second quarter, and then ramping each quarter in Q3 and Q4. In terms of memory, we have multiple suppliers that we've qualified on HBM3. And it is a tricky -- memory is a tricky business but I think we've done it very well and that's there. And then we are also qualifying HBM3E for future products with multiple memory suppliers as well. So to your overarching question of what are the things that we're doing, the exciting part of this is that the ROCm capability has really gotten substantially better because so many customers have been using it. And with that, what we look at is out of box performance, how long does it take a customer to get up and running on MI300? And we've seen, depending on the software that companies are using, particularly if you are based on some of the higher-level frameworks like PyTorch, et cetera, we can be out-of-the-box running very well in a very short amount of time, like let's call it, very small number of weeks. And that's great because that's expanding the overall portfolio. We're going to continue to invest in software and that was one of the reasons that we did the Silo AI acquisition. It is a great acquisition for us, 300 scientists and engineers. These are engineers that have experience with AMD hardware and are very, very good at helping customers get up and running on AMD hardware. And that's -- so we view this as the opportunity to expand the customer base with talent like Silo AI, like Nod.ai which brought a lot of compiler talent. And then we continue to hire quite a bit organically. So I think Jean said earlier that we see leverage in the model, but we are going to continue to invest because this opportunity is huge, and we have all of the pieces. This is just about building out scale. Tom O'Malley: Hi, Lisa. Thanks for taking my question. I'll give you a breather from the MI300 for a second, but just to focus on Client in the second half. No problem. Focused on Client in the second half, you kind of said above-seasonal for September, December. You're obviously launching a new notebook, desktop product, but you're also talking about AI PC. Could you just break down where you're seeing those above-seasonal trends? Is it the ASP uplift you're getting from the new products? Is it a unit assumption that's coming with AI PC? Just any kind of breakdown between those two and why you're seeing it a little bit better. Thank you. Lisa Su: Sure, Tom. So I think you actually said it well. We are launching Zen 5 desktops and notebooks with volume ramping in the third quarter. And that's the primary reason that we see above-seasonal. The AI PC element is certainly 1 element of that, but there is just the overall refresh. Usually, desktop launches going into a third quarter are good for us, and we feel that the products are very well positioned. So those are the primary reasons. Operator: And our final question comes from the line of Chris Danely with Citi. Please proceed with your question. Chris Danely: Again. Thanks for speaking me in. Just a question on gross margin. So if we look at your guidance, it seems like the incremental gross margin is dropping a little bit for Q3. Why is that happening? And then just a follow-up on another part of the gross margin angle. Have you changed your gross margin expectations for the MI300? Has the accretion point moved out a little bit? Jean Hu: Yes, Chris, thanks for the question. I think, first we have made a lot of progress, as you mentioned, this year to expand our gross margin from 2023 at a 50 percentage point to, we actually guided 53.5% for Q3. The primary driver is really the faster Data Center business growth. If you look at the Data Center business as a percentage of revenue from 37% in Q4 last year to now close to 50%. That faster expansion really helped us with the gross margin. When you look at the second half we will continue to see Data Center to be the major driver of our top-line revenue growth, will help with the margin expansion. But there are some other puts and takes. I think Lisa mentioned the PC business actually is going to do better in second half, especially typically, seasonally, it tends to be more consumer-focused. So that really is a little bit different dynamics there. Secondly, I'd say, Embedded business, we are going to see Embedded business to be up sequentially each quarter. But the recovery, as we mentioned earlier, is more gradual. So when you look at the balance of the picture, that's why we see the gross margin -- the pace of the gross margin changed a little bit, but we do see continued gross margin expansion. As far as MI300, we are quite confident over the long-term, it will be accretive to our corporate average. We feel pretty good about the overall Data Center business to continue to be absolutely the driver of gross margin expansion. Chris Danely: Thank you. Operator: Thank you. I would like to turn the floor back over to Mitch for any closing comments. Mitch Haws: Great. That concludes today's call. Thanks to all of you for joining us today. Operator: And ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Advanced Micro Devices (AMD) Q2 2024 Earnings Call Transcript | The Motley Fool

Greetings, and welcome to the AMD second 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. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce to you Mitch Haws, vice president, investor relations. Thank you, Mitch. You may begin. Mitch Haws -- Vice President, Investor Relations Thank you, and welcome to AMD's second 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 conference 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 Dr. Lisa Su will attend the Goldman Sachs Technology Communacopia and Technology Conference on Monday, September 9; and Mark Papermaster, executive vice president and chief technology officer, will attend the Deutsche Bank Technology Conference on Wednesday, August 28. 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 in our press release for more information on factors that could cause actual results to differ materially. Thank you, Mitch, and good afternoon to all those listening today. We delivered strong second-quarter financial results, with revenue coming in above the midpoint of guidance and profitability increasing by a double-digit percentage driven by higher-than-expected sales of our Instinct, Ryzen, and EPYC processors. We continued accelerating our AI traction as leading cloud and enterprise providers expanded availability of Instinct MI300X solutions, and we also saw positive demand signals for general-purpose compute in both our client and server processor businesses. As a result, second-quarter revenue increased 9% year over year to $5.8 billion as significantly higher sales of our data center and client processors more than offset declines in gaming and embedded product sales. We also expanded gross margin by more than three percentage points and grew EPS 19% as data center product sales accounted for nearly 50% of overall sales in the quarter. Turning to the segments. Data center segment revenue increased 115% year over year to a record $2.8 billion, driven by the steep ramp of Instinct MI300 GPU shipments and a strong double-digit percentage increase in EPYC CPU sales. Cloud adoption remains strong as hyperscalers deploy fourth-gen EPYC CPUs to power more of their internal workloads and public instances. We are seeing hyperscalers select EPYC processors to power a larger portion of their applications and workloads, displacing incumbent offerings across their infrastructure with AMD solutions that offer clear performance and efficiency advantages. The number of AMD-powered cloud instances available from the largest providers has increased 34% from a year ago to more than 900. We are seeing strong pull for these instances with both enterprise and cloud-first businesses. As an example, Netflix and Uber both recently selected fourth-gen EPYC public cloud instances as one of the key solutions to power their mission-critical customer-facing workloads. In the enterprise, sell-through increased by a strong double-digit percentage sequentially. We closed multiple large wins in the quarter with financial services, technology, healthcare, retail, manufacturing, and transportation customers, including Adobe, Boeing, Industrial Light & Magic, Optiver, and Siemens. Importantly, more than one-third of our enterprise server wins in the first half of the year were with businesses deploying EPYC in their data centers for the first time, highlighting our success attracting new customers while also continuing to expand our footprint with existing customers. Looking ahead, our next-generation Turin family featuring our new Zen 5 core is looking very strong. Zen 5 is a grounds-up new core design optimized for leadership performance and efficiency. Turin will extend our TCO leadership by offering up to 192 cores and 384 threads, support for the latest memory and I/O technologies, and the ability to drop into existing fourth-gen EPYC platforms. We publicly previewed Turin for the first time in June, demonstrating our significant performance advantages in multiple compute-intensive workloads. We also passed a major milestone in the second quarter as we started Turin production shipments to lead cloud customers. Production is ramping now ahead of launch, and we expect broad OEM and cloud availability later this year. Turning to our data center AI business. We delivered our third straight quarter of record data center GPU revenue with MI300 quarterly revenue exceeding $1 billion for the first time. Microsoft expanded their use of MI300X accelerators to power GPT-4 Turbo and multiple copilot services, including Microsoft 365 Chat, Word, and Teams. Microsoft also became the first large hyperscaler to announce general availability of public MI300X instances in the quarter. The new Azure VMs leverage the industry-leading compute performance and memory capacity of MI300X in conjunction with the latest ROCm software to deliver leadership inferencing price performance when running the latest frontier models, including GPT-4. Hugging Face was one of the first customers to adopt the new Azure instances, enabling enterprise and AI customers to deploy hundreds of thousands of models on MI300X GPUs with one click. Our enterprise and cloud AI customer pipeline grew in the quarter, and we are working very closely with our system and cloud partners to ramp availability of MI300 solutions to address growing customer demand. Dell, HP, Lenovo, and Super Micro all have Instinct platforms in production, and multiple hyperscale and Tier 2 cloud providers are on track to launch MI300 instances this quarter. On the AI software front, we made significant progress enhancing support and features across our software stack, making it easier to deploy high-performance AI solutions on our platforms. We also continued to work with the open-source community to enable customers to implement the latest AI algorithms. As an example, AMD support for Flash Attention 2 algorithm was upstreamed, providing out-of-the-box support for AMD hardware in the popular library that can increase training and inference performance on large transformer models. Our work with the model community also continued accelerating, highlighted by the launches of new models and frameworks with Day 1 support for AMD hardware. At Computex, I was joined by the co-CEO of Stable Diffusion to announce that MI300 is the first GPU to support their latest SD 3.0 Image Generation LLM. Last week, we were proud to note that multiple partners use ROCm and MI300X to announce support for the latest Llama 3.1 models, including their 405 billion parameter version that is the industry's first frontier-level open-source AI model. Llama 3.1 runs seamlessly on MI300 accelerators. And because of our leadership memory capacity, we're also able to run the FP16 version of the Llama 3.1 405B model in a single server, simplifying deployment and fine-tuning of the industry-leading model and providing significant TCO advantages. Earlier this month, we announced our agreement to acquire Silo AI, Europe's largest private AI lab with extensive experience developing tailored AI solutions for multiple enterprise and embedded customers, including Allianz, Ericsson, Finnair, Karber, Nokia, Philips, T-Mobile, and Unilever. The Silo team significantly expands our capability to service large enterprise customers looking to optimize their AI solutions for AMD hardware. Silo also brings deep expertise in large language model development, which will help accelerate optimization of AMD inference and training solutions. In addition to our acquisitions of Silo AI, Mipsology, and Nod.ai, we have invested over $125 million across a dozen AI companies in the last 12 months to expand the AMD AI ecosystem, support partners, and advance leadership AMD computing platforms. Looking ahead, from a road map perspective, we are accelerating and expanding our Instinct road map to deliver an annual cadence of AI accelerators, starting with the launch of MI325X later this year. MI325X leverages the same infrastructure as MI300 and extends our generative AI performance leadership by offering twice the memory capacity and 1.3 times more peak compute performance than competitive offerings. We plan to follow MI325X with the MI350 series in 2025 based on the new CDNA 4 architecture, which is on track to deliver a 35x increase in performance compared to CDNA 3. And our MI400 series powered by the CDNA Next architecture is making great progress in development and is scheduled to launch in 2026. Turning to our AI solutions work. Broadcom, Cisco, HP Enterprise, Intel, Google, Meta, and Microsoft, all joined us to announce Ultra Accelerator Link, an industry-standard technology to connect hundreds of AI accelerators that is based on AMD's proven Infinity Fabric technology. By combining UALink with the widely supported Ultra Ethernet consortium specification, the industry is coming together to establish a standardized approach for building the next generation of high-performance data center AI solutions at scale. In summary, customer response to our multiyear Instinct and ROCm road maps is overwhelmingly positive and we're very pleased with the momentum we are building. As a result, we now expect data center GPU revenue to exceed $4.5 billion in 2024, up from the $4 billion we guided in April. Turning to our client segment. Revenue was $1.5 billion, an increase of 49% year over year, driven by strong demand for our prior-generation Ryzen processors and initial shipments of our next-generation Zen 5 processors. In PC applications, Zen 5 delivers an average of 16% more instructions per clock than our industry-leading previous generation of Ryzen processors. For desktops, our upcoming Ryzen 9000 series processors dropped into existing AM5 motherboards and extends our performance and energy efficiency leadership across productivity, gaming, and content creation workloads. For notebooks, we announced our Ryzen AI 300 series that extends our industry-leading CPU and GPU performance and introduces the industry's fastest NPU with 50 tops of AI compute performance for Copilot+ PCs. The first Ryzen AI 300 Series notebooks went on sale over the weekend to strong reviews, and more than 100 Ryzen AI 300 Series premium, gaming, and commercial platforms are on track to launch from Acer, ASUS, HP, Lenovo, and others over the coming quarters. Customer excitement for our new Ryzen processors is very strong, and we are well positioned for ongoing revenue share gains based on the strength of our leadership portfolio and design win momentum. Now, turning to our gaming segment. Revenue declined 59% year over year to $648 million as semi-custom SoC sales declined in line with our projections. Semi-custom demand remains soft as we are now in the fifth year of the console cycle, and we expect sales to be lower in the second half of the year compared to the first half. In gaming graphics, revenue increased year over year, driven by improved sales of our Radeon 6000 and 7000 Series GPUs in the channel. Turning to our embedded segment. Revenue decreased 41% year over year to $861 million. The first quarter marked the bottom for our embedded segment revenue. Although second-quarter revenue was flattish sequentially, we saw early signs of order patterns improving and expect embedded revenue to gradually recover in the second half of the year. Longer term, we are building strong design win momentum for our expanded embedded portfolio. Design wins in the first half of the year increased by more than 40% from the prior year to greater than $7 billion, including multiple triple-digit million-dollar wins, combining our Adaptive and x86 compute products. We announced our Alveo V80 accelerators that deliver leadership capabilities in memory-intensive workloads and entered early access on next-generation edge AI solutions with more than 30 key partners on our upcoming second-gen Versal Adaptive SoCs. Last week, we also announced Victor Peng, President of AMD, would retire at the end of August. Victor has made significant contributions to Xilinx and AMD, including helping scale our embedded business and leading our cross-company AI strategy. On a personal note, Victor has been a great partner to me, ensuring the success of our Xilinx acquisition and integration. On behalf of all of the AMD employees and board, I want to thank Victor for all of his contributions to AMD's success and wish him all the best in his retirement. In summary, we delivered strong second-quarter results and are well-positioned to grow revenue significantly in the second half of the year, driven by our data center and client segments. Our data center GPU business is on a steep growth trajectory as shipments ramp across an expanding set of customers. We're also seeing strong demand for our next-generation Zen 5, EPYC, and Ryzen processors that deliver leadership performance and efficiency in both data center and client workloads. Looking ahead, the rapid advances in generative AI and development of more capable models are driving demand for more compute across all markets. Under this backdrop, we see strong growth opportunities over the coming years and are significantly increasing hardware, software, and solutions investments with a laser focus on delivering an annual cadence of leadership data center GPU hardware, integrating industry-leading AI capabilities across our entire product portfolio, enabling full-stack software capabilities, amplifying our ROCm development with the scale and speed of the open source community, and providing customers with turnkey solutions that accelerate the time to market for AMD-based AI systems. We are excited about the unprecedented opportunities in front of us and are well-positioned to drive our next phase of significant growth. Now, I'd like to turn the call over to Jean to provide some additional color on our second-quarter results. Jean? Jean Hu -- Executive Vice President, Chief Financial Officer 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 third quarter. We are very pleased with our overall second quarter financial results that came in above expectations. On a year-over-year basis, data center segment revenue more than doubled, client segment revenue grew significantly, and we expanded the gross margin by 340 basis points. For the second quarter of 2024, revenue was $5.8 billion, up 9% year over year as revenue growth in the data center and the client segments was partially offset by lower revenue in our gaming and embedded segment. Revenue increased 7% sequentially, primarily driven by growth in the data center and client segments revenue. Gross margin was 53%, up 340 basis points year over year, primarily driven by higher data center revenue. Operating expenses were $1.8 billion, an increase of 15% year over year as we continue to invest in R&D to address the significant AI growth opportunities ahead of us and enhanced go-to-market activities. Operating income was $1.3 billion, representing a 22% operating margin. Taxes, interest expense, and other was $138 million. Diluted earnings per share was $0.69, an increase of 19% year over year. Now, turning to our reportable segments. Starting with data center, data center delivered record quarterly segment revenue of $2.8 billion, up 115%, a $1.5 billion increase year over year. The data center segment accounted for nearly 50% of total revenue, led primarily by the steep ramp of AMD Instinct GPUs and a strong double-digit percentage EPYC server revenue growth. On a sequential basis, revenue increased 21%, driven primarily by strong momentum in AMD Instinct GPUs. Data center segment operating income was $743 million or 26% of revenue compared to $147 million or 11% a year ago. Operating income was up more than five times from the prior year, driven by higher revenue and operating leverage even as we significantly increased our investment in R&D. Client segment revenue was $1.5 billion, up 49% year over year and 9% sequentially, driven primarily by AMD Ryzen processor sales. Client segment operating income was $89 million or 6% of revenue compared to an operating loss of $69 million a year ago. Gaming segment revenue was $648 million, down 59% year over year and 30% sequentially. The decrease in revenue was primarily due to semi-custom inventory digestion and the lower-end market demand. Gaming segment operating income was $77 million or 12% of revenue compared to $225 million or 14% a year ago. Embedded segment revenue was $861 million, down 41% year over year as customers continued to normalize their inventory levels. On a sequential basis, embedded segment revenue was up 2%. Embedded segment operating income was $345 million or 40% of revenue compared to $757 million or 52% a year ago. Turning to the balance sheet and cash flow. During the quarter, we generated $593 million in cash from operations, and free cash flow was $439 million. Inventory increased sequentially by $339 million to $5 billion, primarily to support the continued ramp of data center GPU products. At the end of the quarter, cash, cash equivalents, and short-term investments were $5.3 billion. In the second quarter, we returned $352 million to shareholders, repurchasing 2.3 million shares, and we have $5.2 billion of authorization remaining. During the quarter, we retired $750 million of debt that matured this past June, utilizing existing cash. Now, turning to our third quarter 2024 outlook. We expect revenue to be approximately $6.7 billion, plus or minus $300 million. Sequentially, we expect revenue to grow approximately 15%, primarily driven by strong growth in the data center and client segment. We expect embedded segment revenue to be up and the gaming segment to decline by double-digit percentage. Year over year, we expect revenue to grow approximately 16%, driven by the steep ramp of our AMD Instinct processors and strong server and client revenue growth to more than offset the declines in the gaming and the embedded segment. In addition, we expect third quarter non-GAAP gross margin to be approximately 53.5%, non-GAAP operating expenses to be approximately $1.9 billion, non-GAAP effective tax rate to be 13%, and the diluted share count is expected to be approximately 1.64 billion shares. Also during the third quarter, we expect to close the acquisition of Silo AI for approximately $665 million in cash. In closing, we made significant progress during the quarter toward achieving our financial goals. We delivered record MI300 revenue that exceeded $1 billion and demonstrated solid traction with our next-gen Ryzen and EPYC product. We expanded gross margin significantly and drove earnings growth while increasing investment in AI. Looking forward, the opportunities ahead of us are unprecedented. We'll remain focused on executing to our long-term growth strategy while driving financial discipline and operational excellence. With that, I'll turn it back to Mitch for the Q&A session. Mitch Haws -- Vice President, Investor Relations Thank you, Jane. John, we're happy to poll the audience for questions. Operator Thank you, Mitch. We will now be conducting the question-and-answer session. [Operator instructions] One moment, please, while we poll for questions. And the first question comes from the line of Ben Reitzes with Melius Research. Hey, thanks a lot, and congratulations on these results. Lisa, I wanted to ask you about MI300, how you see it playing out sequentially for the rest of the year. I guess there's about $2.8 billion left to hit your annual target. So, I'm wondering if you see things picking up in the fourth quarter and how that's going sequentially. And if you don't mind, I wanted to also ask about next year if you see potential for rapid growth. You're probably aware of some of the chatter out there, and I just was wondering if you're already seeing signs that you can grow significantly, given your road map for next year. Thank you so much. Lisa T. Su -- President and Chief Executive Officer Yeah. Great, Ben. Thanks for the question. So, first of all, on sort of MI300 and the customer evolution, we're very happy with how MI300 has progressed. When we started the year, I think the key point for us was to get our products into our customers' data centers, to have them qualify their workloads, to really ramp in production, and then see what the production capabilities are, especially performance and all of those things. And I can say now being sort of more than halfway through the year, we've seen great progress across the board. As we look into the second half of the year, I think we would expect that MI300 revenue would continue to ramp in the third quarter and the fourth quarter. And we're continuing to expand both current deployments with our existing customers, as well as we have a large pipeline of customers that we're working through that are getting familiar with our architecture and software and all that stuff. So, I would say overall, very pleased with the progress, and really continuing right on track to what we expected from the capabilities of the product. As we go into next year, I mean, one of the important things that we announced at Computex was increasing and expanding our road map. I think we feel really good about our road map. We're on track to launch MI325 later this year, and then next year, our MI350 Series, which will be very competitive with Blackwell solutions. And then we're well on our way to our CDNA Next as well. So, I think, overall, we remain quite bullish on the overall AI market. I think the market continues to need more compute. And we also feel very good that our hardware and software solutions are getting good traction, and we're continuing to expand that pipeline. And the next question comes from the line of Aaron Rakers with Wells Fargo. Please proceed with your question. Aaron Rakers -- Analyst Yeah. Thanks. Thanks for taking the question, and congrats on the quarter as well. I guess sticking on the data center side, as we look forward and you think about the full year, I'm curious of how you're currently thinking about the EPYC server CPU growth expectations as we go forward. And any kind of updated thoughts on your ability to kind of continue to gain share in the server market? Just kind of just update us on how you see the server market playing out over the next couple of quarters. Lisa T. Su -- President and Chief Executive Officer Yeah, sure, Aaron. Thanks for the question. So, you know, we're very pleased with the progress that we've made with EPYC. I think a couple of things. First of all, in terms of competitive positioning and just the traction in the market, our fourth-gen EPYC between Gen 1 Bergamo is really doing very well. We've seen broad adoption across cloud. And then we've been very focused on enterprise as well as third-party cloud instances. And as I said in the prepared remarks, we're starting to see very nice traction in enterprise with both new customers as well as existing customers, and then for third-party cloud adoption, also a good pickup there as well. So, I think overall, I think our EPYC portfolio has done well. Going into the second half of the year, I think we also feel good about it. There are a couple of positives there. We see -- first of all, the market looks like it's improving, so we have seen some return to spending in both enterprise and cloud. And so, I think those are positive market trends. And then in addition to that, we are in the process of launching Turin. So, we started production here in the second quarter and we're on track to launch broadly in the second half of the year. We'll see some revenue of Turin in the second half of the year contributing as well. So, overall, I think the server market and our ability to continue to grow share in the server market is one of the things that we see in the second half of the year. Operator And the next question comes from the line of Timothy Arcuri with UBS. Please proceed with your question. Timothy Arcuri -- Analyst Thanks a lot. Lisa, I wanted to ask about the data center GPU road map. As you said, 325 launching later this year, so I guess I had two questions. Does the greater than $4.5 billion, does that include any revenue from 325? And can you talk a little bit more about 350? Obviously, we're seeing a big rack scale or shift toward rack-scale systems for the competition's product. And I'm wondering if that's what 350 is going to look like. Is it going to have liquid cooling and is it going to have a rack scale aspect to it? Thanks. Lisa T. Su -- President and Chief Executive Officer Yeah, absolutely. So, you know, let me start with your original question. I mean, I think looking at 325X, we are on track to launch later this year. From a revenue standpoint, there will be a small contribution in the fourth quarter, but it really is still mostly the MI300 capabilities. And 325 will start in the fourth quarter and then ramp more in the first half of next year. And then as we look at the 350 Series, what we're seeing and the reason we call it a series is because there will be multiple SKUs in that series that we'll go through the range of, let's call it, air-cooled to liquid-cooled. In spending time with our customers. I think there are people who certainly want more rack-level solutions, and we're certainly doing much more in terms of system-level integration for our products. You'll see us invest more in system-level integration. But we also have many customers who want to use their current infrastructure. I think the beauty of the MI350 series is it actually fits into the same infrastructure as the MI300 series. And so, it would lend itself to, let's call it, a pretty fast ramp if you've already invested in 300 or 325. So, we see the range of options, and that's part of the expansion of the road map that we're planning. Operator And the next question comes from the line of Ross Seymore with Deutsche Bank. Please proceed with your question. Ross Seymore -- Analyst Hi. Thanks for letting me ask a question, and congrats on the strong results. Well, data center is obviously very important. I just want to pivot to the client side. Lisa, can you talk about the AI PC side of things, how you believe AMD is positioned? Are you seeing any competitive intensity changing with the emergence of ARM-based systems? Just wanted to see how you're expecting that to roll out and what it means to second-half seasonality. Lisa T. Su -- President and Chief Executive Officer Yeah. Sure, Ross. So, first, you know, we're very pleased with our client business results. I think we have a very strong road map, so I'm very pleased with the road map. The Zen 5-based products, we're launching both notebook and desktop in this -- in the middle of this year. What we've seen is actually very positive feedback on the product. So, we just actually launched the first Strix-based notebooks over the weekend. They went on sale. You may have seen some of the reviews. The reviews are very positive. Our view of this is the AI PC is an important add to the overall PC category. As we go into the second half of the year, I think we have better seasonality in general, and we think we can do, let's call it, above-typical seasonality, given the strength of our product launches and when we're launching. And then into 2025, you're going to see AI PCs across sort of a larger set of price points, which will also open up more opportunities. So, overall, I would say the PC market is a good revenue growth opportunity for us. The business is performing well. The products are strong. And we're working very closely with both the ecosystem partners as well as our OEM partners to have strong launches here into the second half of the year. Ross Seymore -- Analyst And is the ARM side changing anything or not really? Lisa T. Su -- President and Chief Executive Officer You know, look, I think at this point, the PC market is a big market, and we are underrepresented in the market. I would say that we take all of our competition very seriously. That being the case, I think our products are very well-positioned. Operator And the next question comes from the line of Matt Ramsay with Cowen. Please proceed with your question. Matt Ramsay -- Analyst Thank you very much. Good afternoon. Lisa, I wanted to maybe draw a parallel between the Instinct portfolio that your company is rolling out now and what you guys did five or six years ago with EPYC. And I remember when the Naples product launched, there was a lot of, I would say, reaction positively and negatively and sort of sentiment around where your road map might go to relatively small perturbations in what the volumes were. Super early, but if I remember back to that, what was the most important was that was the toehold into the market for long-term engagement, both on the software side and the hardware side with your customers two, three, four generations forward. So, is that an accurate parallel to where you guys are with MI300? And maybe you could talk about the level of engagement, the intensity of engagement, the breadth of it across the customer base with 350 and 400. Thanks. Lisa T. Su -- President and Chief Executive Officer Yeah, absolutely, Matt. So, look, as I said earlier, we're very pleased with the progress that we're making on the Instinct road map. This is absolutely a long-term play so absolutely, you're correct. It has a lot of parallels to the EPYC journey, where you really have to -- you gain more opportunities, broader workloads, larger deployments as you go from generation to generation. So, we are playing the long game here. Our conversations with our customers, so I would start with first, in the near term, we had some very key milestones that we wanted to pass this year. And as I said, they related to getting hardware in volume in multiple hyperscalers as well as large Tier 2 customers. We've done that. We've now seen our software in a lot of different environments, and it's matured substantially. ROCm is in very, from a standpoint of features, functions, out-of-box performance, getting to performance with customers, we've gained a lot of confidence and learned a lot in that whole process. The networking aspects of building out the rack scale and the system-level items are areas that we're continuing to invest in. And then the point of having long-term conversations across multiple generations is also really important. So, I think all of those things have progressed well. We view this as very good progress for MI300, but we have a lot more to do. And I think the various road maps will help us open up those opportunities over the next couple of years. And the next question comes from the line of Vivek Arya with Bank of America Securities. Please proceed with your question. Vivek Arya -- Analyst Thanks for taking my question. Lisa, there seems to be this ongoing industry debate about AI monetization and whether your customers are getting the right ROI on their capex. And today, they have these three options, right? They can buy GPUs from your largest competitor with all the software bells and whistles and incumbency, or they can do custom chips, or they can buy from AMD. So, how do you think this plays out next year? Do you think your customers, given all this concern around monetization, does it make them consolidate their capex around just the other two suppliers? How is your visibility going into next year, given this industry debate? And how will AMD continue to kind of carve a position between these two other competitive choices that are out there? Thank you. Lisa T. Su -- President and Chief Executive Officer Yeah, sure, Vivek. Well, I mean, I think you talk to a lot of the same people that we talk to. I think the overall view on AI investment is we have to invest. I mean, the industry has to invest. The potential of AI is so large to impact the way enterprises operate and all that stuff. So, I think the investment cycle will continue to be strong. And then relative to the various choices for the size of the market, I firmly believe that there will be multiple solutions, whether you're talking about GPUs or you're talking about custom chips or ASICs, there will be multiple solutions. In our case, I think we've demonstrated a really strong road map and the ability to partner well with our customers. And from the standpoint of that deep engagement, hardware, software co-optimization is so important in that. And for large language models, GPUs are still the architecture of choice. So, I think the opportunity is very large. And I think our piece of that is really strong technology with strong partnerships with the key AI market makers. And the next question comes from the line of Joe Moore with Morgan Stanley. Please proceed with your question. Joe Moore -- Analyst Great. Thank you. I also wanted to ask about MI300. I wonder if you could talk about training versus inference. Do you have a sense -- I know that a lot of the initial focus was inference, but do you have traction on the training side? And any sense of what that split may look like over time? Lisa T. Su -- President and Chief Executive Officer Yeah, sure. Thanks for the question, Joe. So, as we said on MI300, there are lots of great characteristics about it. One of it -- one of them is our memory bandwidth and memory capacity is leading the industry. From that standpoint, the early deployments have largely been inference in most cases, and we've seen fantastic performance from an inference standpoint. We also have customers that are doing training. We've also seen that from a training standpoint, we've optimized quite a bit our ROCm software stack to make it easier for people to train on AMD. And I do expect that we'll continue to ramp training over time. As we go forward, I think you'll see -- the belief is that inference will be larger than training from a market standpoint. But from an AMD standpoint, I would expect both inference and training to be growth opportunities for us. And the next question comes from the line of Toshiya Hari with Goldman Sachs. Please proceed with your question. Toshiya Hari -- Analyst Hi. Thank you so much for taking the question. I had a question on the MI300 as well. Curiously, if you're currently shipping to demand or if the updated annual forecast of $4.5 billion is in some shape or form supply constrained, think last quarter, you gave some comments on HBM and CoAs. Curious if you could provide an update there. And then my Part B to my question is on profitability for MI300. I think in the past, you've talked about the business being accretive and improving further over time as you sort of work through the kinks, if you will. Has that view evolved or changed at all given sort of the competitive intensity and your need to invest, whether it be through organic R&D or some of the acquisitions you've made? Or are you still confident that profit margins in the business continue to expand? Thank you. Lisa T. Su -- President and Chief Executive Officer Yeah. Sure, Toshiya. Thanks for the question. So, on the supply side, let me make a couple of comments and then maybe I'll let Jean comment on sort of the trajectory for the business. So, on the supply side, we made great progress in the second quarter. We ramped up supply significantly exceeding $1 billion in the quarter. I think the team has executed really well. We continue to see line of sight to continue increasing supply as we go through the second half of the year. But I will say that the overall supply chain is tight and will remain tight through 2025. So, under that backdrop, we have great partnerships across the supply chain. We've been building additional capacity and capability there. And so, we expect to continue to ramp as we go through the year. And we'll continue to work both supply as well as demand opportunities, and really that's accelerating our customer adoption overall, and we'll see how things play out as we go into the second half of this year. Jean Hu -- Executive Vice President, Chief Financial Officer Yeah. On your second question about the profitability, first, our team has done a tremendous job to ramp the product MI300. It's a very complex product so we ramped it successfully. At the same time, the team also started to implement operational optimization to continue to improve gross margin. So, we continue to see the gross margin improvement. Over time, in the longer term, we do believe gross margin will be accretive to corporate average. From a profitability perspective, AMD always invests in platforms. If you look at our data center platform, especially both the server and the data center GPU side, we are ramping the revenue. The business model can leverage very significantly even from GPU side. Because the revenue ramp has been quite significant, the operating margin continued to expand. We definitely want to continue to invest as the opportunity is huge. At the same time, it is a profitable business already. And the next question comes from the line of Stacy Rasgon with Bernstein Research. Please proceed with your question. Stacy Rasgon -- Analyst Hi, guys. Thanks for taking my question. I wanted to dig into the Q3 guidance a little bit if I could. So, with gaming down double digits, it probably means you've got close to $1 billion of growth revenue across data center, client, and embedded. I was wondering if you could give us some color on how that $1 billion-ish splits out across those three businesses. Like if I had 70% of it going to data center and 20% going to client and 10% going to embedded, like would that be like way off? Or how should we think about that apportioning out across the segments? Lisa T. Su -- President and Chief Executive Officer Yeah. Maybe Stacy, let me give you the following color. So, the gaming business is down double digit as you state. Think of it as the data center is the largest piece of it, client, next. And then on the embedded side, think of it as single-digit sequential growth. Stacy Rasgon -- Analyst Got it. So, I mean, within that data center piece then, how does that split out? I mean, is the bulk of the data growth Instinct? Or is it sort of equally weighted between Instinct and EPYC? Or like again, how does it -- again, if you got, I don't know, $400 million to $600 million of sequential data center growth or something like that, how does it split up? Lisa T. Su -- President and Chief Executive Officer Yeah. So, again, without being that granular, we will see both -- certainly, the Instinct GPUs will grow, and we'll see also very nice growth on the server side. Operator And the next question comes from the line of Harsh Kumar with Piper Sandler. Please proceed with your question. Harsh Kumar -- Analyst Yeah. Hey, Lisa, from my rudimentary understanding, the large difference between your Instinct products and the adoption versus your nearest competitor is kind of rack level performance and that rack level is the structure that you may be lacking. You talked a little bit about UALink. I was wondering if you could expand on that and give us some more color on when that might -- when that gap might be closed. Or is this a major step for the industry to close that gap? Just any color would be appreciated. Lisa T. Su -- President and Chief Executive Officer Yeah. So, Harsh, overall, maybe if I take a step back and just talk about how the systems are evolving, there's no question that the systems are getting more complex, especially as you go into large training clusters, and our customers need help to put those together. And that includes the sort of Infinity Fabric-type solutions that are the basis for the UALink things as well as just general rack-level system integration. I think what you should expect, Harsh is, first of all, we're very pleased with all of the partners that have come together for UALink. We think that's an important capability. But we have all of the pieces of this already within sort of the AMD umbrella with our Infinity Fabric, with the work with our networking capability through the acquisition of Pensando. And then you'll see us invest more in this area. So, this is part of how we help customers get to market faster is by investing in all of the components, so the CPUs, the GPUs, the networking capability as well as system-level solutions. And the next question comes from the line of Blayne Curtis with Jefferies. Please proceed with your question. Blayne Curtis -- Analyst Hey, good afternoon. Thanks for taking my question. I just want to ask another question on MI300. Just curious if you can kind of characterize the makeup of the customers in the first half. I know you had, end of last year, a government customer. Is there still a government contingency? And kind of the second part of it is really you've invested in all these software assets. Kind of curious the challenge of ramping the next wave of customers. I know there's been a lot of talk on some hardware challenges, memory issues, and such, but then you're investing in software. I'm sure that's a big challenge, too. Just kind of curious what the biggest hurdle is for you to kind of get that next wave of customers ramp. Lisa T. Su -- President and Chief Executive Officer Yeah. So, Blayne, a lot of pieces to that question so let me try to address them. First, on your question about, I think you're basically asking about the supercomputing piece. That was mainly Q4 and a bit in Q1. So, if you think about our Q2 revenue, think about it as almost all AI. So, it's MI300X, it's for large AI, hyperscalers as well as OEM customers going to enterprise and Tier 2 data centers. So, that's the makeup of the customer set. And then in terms of the various pieces of what we're doing, I think first on your question about memory, I think there's a lot of noise in the system. I wouldn't really pay attention to all that noise in the system. I mean, this has been an incredible ramp. And I'm actually really proud of what the team has done in terms of just definitely fastest product ramp that we've ever done to $1 billion here in the -- over $1 billion in the second quarter and then ramping each quarter in Q3 and Q4. In terms of memory, we have multiple suppliers that we've qualified on HBM3. And it's a tricky -- memory is a tricky business, but I think we've done it very well and that's there. And then we're also qualifying HBM3E for future products with multiple memory suppliers as well. So, to your overarching question of what are the things that we're doing, the exciting part of this is that the ROCm capability has really gotten substantially better because so many customers have been using it. And with that, what we look at is out-of-box performance, how long does it take a customer to get up and running on MI300? And we've seen, depending on the software that companies are using, particularly if you're based on some of the higher-level frameworks like PyTorch, etc., we can be out-of-the-box running very well in a very short amount of time, like, let's call it, very small number of weeks. And that's great because that's expanding the overall portfolio. We are going to continue to invest in software, and that was one of the reasons that we did the Silo AI acquisition. It's a great acquisition for us. 300 scientists and engineers. These are engineers that have experience with AMD hardware and are very, very good at helping customers get up and running on AMD hardware. And that's -- so we view this as the opportunity to expand the customer base with talent like Silo AI, like Nod.ai which brought a lot of compiler talent. And then we continue to hire quite a bit organically. So, I think Jean said earlier that we see leverage in the model, but we're going to continue to invest because this opportunity is huge, and we have all of the pieces. And the next question comes from the line of Tom O'Malley with Barclays. Please proceed with your question. Tom O'Malley -- Barclays -- Analyst Hey, Lisa. Thanks for taking my question. I'll give you a breather from the MI300 for a second, but just to focus on client in the second half. No problem. Focused on client in the second half, you kind of said above seasonal for September, December. You're obviously launching a new notebook, desktop product, but you're also talking about AI PC. Could you just break down where you're seeing those above-seasonal trends? Is it the ASP uplift you're getting from the new products? Is it a unit assumption that's coming with AI PC? Just any kind of breakdown between those two and why you're seeing it a little bit better. Thank you. Lisa T. Su -- President and Chief Executive Officer Sure, Tom. So, I think you actually said it well. We are launching Zen 5 desktops and notebooks with volume ramping in the third quarter. And that's the primary reason that we see above seasonal. The AI PC element is certainly one element of that, but there is just the overall refresh. Usually, desktop launches going into a third quarter are good for us, and we feel that the products are very well-positioned. So, those are the primary reasons. Operator And our final question comes from the line of Chris Danely with Citi. Please proceed with your question. Christopher Danely -- Analyst Hey, gang, thanks for sneaking me in. Just a question on gross margin. So, if we look at your guidance, it seems like the incremental gross margin is dropping a little bit for Q3. Why is that happening? And then just a follow-up on another part of the gross margin angle. Have you changed your gross margin expectations for the MI300? Has the accretion point moved out a little bit? Jean Hu -- Executive Vice President, Chief Financial Officer Yeah, Chris, thanks for the question. I think, first, we have made a lot of progress, as you mentioned, this year to expand our gross margin from 2023 at a 50 percentage point to -- you know, we actually guided 53.5% for Q3. The primary driver is really the faster data center business growth. If you look at the data center business as a percentage of revenue from 37% in Q4 last year to now close to 50%. That faster expansion really helped us with the gross margin. When you look at the second half, we'll continue to see data center to be the major driver of our top-line revenue growth, will help with the margin expansion. But there are some other puts and takes. I think Lisa mentioned the PC business actually is going to do better in second half, especially typically, seasonally, it tends to be more consumer-focused. So, that really is a little bit different dynamics there. Secondly, I would say embedded business, we are going to see embedded business to be up sequentially each quarter. But the recovery, as we mentioned earlier, is more gradual. So, when you look at the balance of the picture, that's why we see the gross margin -- the pace of the gross margin changed a little bit, but we do see continued gross margin expansion. As far as MI300, we are quite confident over the long term, it will be accretive to our corporate average. We feel pretty good about the overall data center business to continue to be absolutely the driver of gross margin expansion. I would like to turn the floor back over to Mitch for any closing comments. Mitch Haws -- Vice President, Investor Relations Great. That concludes today's call. Thanks to all of you for joining us today.

Earnings call: Skyworks Solutions sees growth with AI-driven upgrades By Investing.com

Skyworks Solutions, Inc. (NASDAQ:SWKS) has reported a robust performance for the third fiscal quarter of 2024, with key financial indicators such as revenue hitting $906 million, earnings per share reaching $1.21, and free cash flow amounting to $249 million. The company has shared an optimistic outlook for the mobile market, expecting it to stabilize and predicting a multiyear smartphone upgrade cycle propelled by generative AI. Skyworks has also observed two consecutive quarters of sequential growth in broad markets and is forecasting modest growth for the remainder of the year. The company is poised to capitalize on the emerging trends in the automotive and industrial sectors, despite currently working through excess inventory levels. A 3% hike in the quarterly dividend to $0.70 per share has been announced, and revenue expectations for the fourth fiscal quarter of 2024 are set between $1 billion and $1.04 billion. Skyworks Solutions remains committed to returning excess cash flow to shareholders through dividends and share buybacks and is open to strategic M&A opportunities. The company sees AI integration as a significant hurdle, with only the strongest expected to thrive, and is positioning itself to seize more opportunities with top-tier customers. The company concluded the earnings call by expressing gratitude and inviting participants to upcoming investor conferences. Skyworks Solutions, Inc. (SWKS) has demonstrated a resilient financial performance in the third fiscal quarter of 2024, with an optimistic outlook on the mobile market and broad markets. To provide additional context to the company's fiscal health and future prospects, key metrics and expert analysis from InvestingPro are presented. InvestingPro Data highlights that Skyworks has a market capitalization of $18.22 billion, with a price-to-earnings (P/E) ratio of 23.23. This P/E ratio has seen a slight adjustment in the last twelve months as of Q2 2024, coming down to 20.62. Despite a decrease in revenue growth by 11.41% over the last twelve months as of Q2 2024, the company maintains a solid gross profit margin of 41.19%. These figures suggest that while the company has faced revenue challenges, it remains profitable and maintains a strong margin on its products. An InvestingPro Tip notes that Skyworks has consistently rewarded its shareholders, having raised its dividend for 10 consecutive years. This is a testament to the company's commitment to returning value to its shareholders and its confidence in sustained financial performance. Another tip points out that Skyworks has been profitable over the last twelve months, which aligns with the company's optimistic revenue projections for Q4 FY2024 and supports the notion of a stable financial footing. For readers interested in more in-depth analysis, there are additional InvestingPro Tips available on the InvestingPro platform. These tips provide further insights into Skyworks' shareholder yield, free cash flow yield, and analysts' predictions for the company's profitability this year. With a total of 10 additional tips listed on InvestingPro, investors can gain a comprehensive understanding of the company's financial health and future outlook. For those considering an investment in Skyworks or monitoring their existing holdings, these insights from InvestingPro can be invaluable. The company's consistent dividend growth and profitability, combined with its strategic positioning in the AI-driven mobile and automotive markets, paint a picture of a company that is navigating industry challenges with a clear plan for growth. Operator: Good afternoon and welcome to Skyworks Solutions Third Quarter Fiscal Year 2024 Earnings Call. This call is being recorded. At this time, I will turn the call over to Raji Gill, Vice President of Investor Relations for Skyworks. Mr. Gill, please go ahead. Raji Gill: Thank you, operator. Good afternoon, everyone and welcome to Skyworks third fiscal quarter 2024 conference call. With me today is Liam Griffin, our Chairman, Chief Executive Officer and President; and Kris Sennesael, Chief Financial Officer for Skyworks. This call is being broadcast live over the web and can be accessed from the Investor Relations section of the company's website at skyworksinc.com. In addition, the company's prepared remarks will be made available on our website probably after their conclusion during the call. Before we begin, I would like to remind everyone that our discussion will include statements relating to future results and expectations that are or may be considered forward-looking statements. Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10-K for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. Additionally, the results and guidance we will discuss include non-GAAP financial measures consistent with our past practice. Please refer to our press release within the Investor Relations section of our company website for a complete reconciliation to GAAP. With that, I'll turn the call over to Liam. Liam Griffin: Thanks, Raji and welcome, everyone. Skyworks delivered solid results for the third fiscal quarter of 2024. We posted revenue of $906 million, delivered earnings per share of $1.21 and generated free cash flow of $249 million. Revenue, gross margin and EPS met or were slightly above our prior guidance. Importantly, year-to-date free cash flow was $1.3 billion or 40% free cash flow margin which reflects strong working capital management and operational excellence. In mobile, we are seeing encouraging signs that inventory levels and order patterns are normalizing. We are energized about the prospects of generative AI, catalyzing a meaningful smartphone replacement cycle and driving higher levels of RF complexity. We expect new AI features will only be available on the latest next-generation smartphones, potentially fueling a multiyear upgrade cycle. We are uniquely positioned given our long-standing relationships with the leading smartphone OEMs, best-in-class RF technology and a global manufacturing footprint. In broad markets, we delivered 2 consecutive quarters of sequential growth since the December bottom and we anticipate modest growth for the balance of 2024. In edge IoT, where demand is improving, we have a strong design win funnel for WiFi 7 systems and we expect a healthy multiyear upgrade cycle given faster data transfer speeds and lower latency. In traditional data center and wireless infrastructure, inventory levels remain elevated which is prolonging the recovery as we continue to under-ship natural demand. However, once industry conditions stabilize, we expect end customers to replenish inventory back to normal levels. Lastly, in automotive and industrial, we are working through excess inventory levels but seeing signs of stabilization. We remain bullish on our design win pipeline across our power isolation, RF and digital broadcast solutions for the connected car and EV markets. Over the medium to long term, we believe generative AI will migrate to the edge. Most significantly, we believe the rollout of compelling AI applications will drive a smartphone replacement cycle, one that is currently the longest in history, standing at over 4 years. In edge IoT, AI-enabled devices increasingly incorporate machine learning to support language and computer vision models. Robust RF is critical to facilitate the continuous training to inference between device and cloud. Over time, automotive OEMs will train on big data in the cloud and screen software downloads through over-the-year updates, supporting higher levels of autonomy and vehicles. To facilitate these trends, OEMs need power and extremely fast RF connectivity. For next-generation data centers, complex workloads supporting large language models will propel upgrade cycles in switch, compute and optical networks. Over the medium to long term, Skyworks is well positioned with our high-performance timing solutions, targeting 800 gig and 1.6 terabit Ethernet switches in optical modules. Ultimately, our view is there will be a hybrid approach to AI computing, a combo of on-device and cloud-based. Data can be trained in the cloud and deployed to the edge for inference on new inputs. More complex AI tasks will be processed in the cloud and less complex on-device. In addition to these new usage cases, AI-enabled smartphones will further elevate the technological burden, resulting in premium for onboard space, requiring higher levels of integration in advanced packaging, energy efficiency translating to lower power consumption, low latency, pushing the boundary of signal integrity and higher throughput and connectivity upgrades with 5G advanced and 6G. These increased technological demands play to Skyworks' strengths, given our deep customer relationships, exceptional engineering talent and strong IP portfolio. Turning to our quarterly business highlights. We secured 5G content for premium Android smartphones, including Google (NASDAQ:GOOGL) Pixel 8a, Samsung (KS:005930) Galaxy M and Oppo Reno12, among others. We supported the launches of WiFi 7 tri-band routers and access points with NETGEAR, TP-LINK and Cambium Networks (NASDAQ:CMBM). We accelerated our design win pipeline in automotive, including telematics, infotainment and CV2X. Despite a challenging demand environment, we continue to make strategic investments in our long-term growth areas, expand our customer base and diversify the reach of the business. With that, I will turn the call over to Kris for a discussion of last quarter's performance and our outlook for Q4 of fiscal 2024. Kris Sennesael: Thanks, Liam. Skyworks revenue for the third fiscal quarter of 2024 was $906 million, slightly above the midpoint of our outlook. Mobile was approximately 61% of total revenue, down 21% [ph] sequentially. Broad markets were approximately 39% of total revenue, up 1% sequentially. Gross profit was $416 million with gross margin at 46%, in line with expectations. Gross margin grew 100 basis points sequentially, reflecting our ongoing cost-reduction actions and favorable mix shift. Also, during Q3, we further reduced our internal inventory, resulting in 6 consecutive quarters of reductions. Operating expenses were $197 million reflecting our strategic investments in our technology and product road maps. We delivered $219 million of operating income, translating into an operating margin of 24%. We generated $3 million of other income and our effective tax rate was 12%, driving net income of $195 million and a diluted earnings per share of $1.21 which is in line with our guidance. Third fiscal quarter cash flow from operations was $274 million. Capital expenditures were $24 million or less than 3% of revenue, resulting in a free cash flow of $249 million. Year-to-date, we generated $1.3 billion of free cash flow or 40% free cash flow margin. We continue to drive robust cash flow through consistent levels of profitability, careful working capital management and moderating CapEx intensity. During fiscal Q3, we paid $109 million in dividends and repurchased 764,000 shares of our common stock for a total of $77 million. Cash and investments grew to nearly $1.3 billion and we have $1 billion in debt, providing us excellent optionality. We remain committed to delivering shareholder value through a disciplined approach to capital allocation. Given our conviction in Skyworks' long-term strategic outlook and consistent strong cash generation, we announced a 3% increase to our quarterly dividend to $0.70 per share. Now let's move on to our outlook for Q4 of fiscal 2024. We anticipate revenue of $1 billion to $1.04 billion. We expect our mobile business to be up approximately 20% sequentially as demand and supply patterns appear to be normalizing. In broad markets, we anticipate modest improvements, representing 3 consecutive quarters of sequential growth. Gross margin is projected to be in the range of 46% to 47%, increasing 50 basis points sequentially at the midpoint. We anticipate gross margin expansion during the remainder of 2024, driven by our cost-reduction actions, favorable mix shift and higher utilization rates. We expect operating expenses in the range of $197 million to $203 million as we continue to make strategic investments in mobile and broad markets to drive share gains and increase diversification. Below the line, we anticipate roughly $3 million in other income, an effective tax rate of 12% and a diluted share count of approximately 161 million shares. Accordingly, at the midpoint of the revenue range of $1.02 billion, we intend to deliver diluted earnings per share of $1.52. Operator, let's open the line for questions. Operator: [Operator Instructions] And our first question coming from the line of Matt Ramsay with TD Cowen. Matt Ramsay: Guys, I guess, for my first question, I mean lots, your company and all of your industry peers have been through this cyclicality, in broad markets for you guys and lots of industrial businesses for your competition. And it's great to see us get back on sort of a sequential growth from a revenue perspective and a chain of that which will, I assume, continue as you guys come out of the cyclicality here. But as you've revisited that diverse set of businesses, I mean it's a question that a lot of companies in this space get. Any sense now of what the sort of, I don't know, kind of equilibrium sell-through revenue level is that this business supports right now? We were obviously over-shipping for a bit and then have under-shipped for a bit to try to clear the channel. But any sense of where you are right now on the shipping levels you guys are guiding to relative to end consumption and when we might get back to equilibrium? Liam Griffin: Yes. Sure. This is Liam. So if we start to take a look at those markets, we are actually gaining some share and driving revenue. We're seeing opportunities in auto that have substantially been grown. We see the connected car as a significant opportunity for Skyworks. We already have meaningful design wins and I know we can do much more. We're looking at more and more opportunities in safety systems, driver assist. We talked a little bit about that. All those markets are actually doing quite well and we have a lot of room to grow. Then moving into some other markets that are quite powerful today are the WiFi cycles. We have a WiFi 7 upgrade today that is going really well. Very important technology, lots of volume coming. And certainly, an extension here as we get to more and more opportunities. Home enterprise, commercial, industrial, wearables, all of these markets fall into that category and have been really powerful for us and we expect that to continue. And further, we have some great opportunities in infrastructure, leveraging networking and cloud. We talked about 800 gig and 1.6 terabit speeds. A lot of really powerful vectors there that can come about here as we move into the next quarter. Matt Ramsay: Got it, Liam. I guess as my follow-up, if we look into the wireless market, there's -- it seems like the market has some fairly bullish expectations on units with your largest customer and you guys had talked last quarter about how the content had changed there a little bit. I just wonder if you could give us any early thoughts, Kris, on sort of the shape of the year or this cycle in your wireless business? Maybe you have a chance to lean into Android a little bit more. And there's the dynamics in both directions that I mentioned with Cupertino. So if you have any early thoughts, we'd appreciate it. I know it's early to ask about that but I get asked about it a lot. Liam Griffin: Yes. Look, I mean there's a lot of opportunity there. We are seeing stronger signals in demand for sure. We're starting to see that actually accelerate, leveraging some of the more unique products that we have within the Skyworks bench. So a lot of opportunity there. Our outlook looks very good as we look forward. The technologies that we're working on right now are really difficult. They're very, very challenging. It takes great companies and great people to make it happen. As you've heard many, many times, our labs-to-fabs approach really does work. There's a lot of customization as we start to grow into some of these new markets, mobile and others. So we feel really good about that. And I think there's an opportunity for us to continue to move forward. We're just beginning to now engage in AI and we see that in the phone. We definitely see that as a major, major catalyst for smartphones. And I'll tell you, I don't think there's a company that can do that better than Skyworks. So we look forward to the opportunity. We've got the key pieces in place and it's a time for us to just put up a little bit more revenue there. Operator: And our next question coming from the line of Chris Caso from Wolfe Research. Chris Caso: The first question is on broad markets. And it seems like that revenue is just kind of bouncing along the bottom here. You mentioned expectations for some modest growth going forward. Can you speak to the different end markets within broad markets? I'd imagine that some of the consumer markets that corrected earlier are perhaps some of the ones that are coming out. But I know some of the industrial markets still have some inventory to go through. What's the stage of the inventory correction and kind of how much of that business is normalized? And how much of that still has customer inventory that needs to be burned through? Kris Sennesael: Yes, Chris, great question. So first of all, we did call out broad markets at the bottom in the December quarter. And so we really turned a corner there. And we have seen now 2 consecutive quarters of sequential growth and we do expect further growth in the September quarter that's incorporated in our guidance. And we do beyond the September quarter, further sequential growth and actually an acceleration of that sequential growth returning back to year-over-year growth in our broad markets business. Now as you know, there's multiple different end markets there. As it relates to consumer enterprise where we mainly play with our connectivity solutions, I would say that's getting a more stable environment. Most of the inventory correction is over there. And we are growing the business there mostly because of our content uplift story, right? As Liam indicated, WiFi 7, a lot of good traction there. That's a big step-up in content compared to WiFi 6. Some of those other end markets, there's still an inventory correction ongoing. Automotive, industrial markets, very similar to what our peers and competitors have seen in that market. But again, as Liam indicated, we have strong design win momentum there, we have great opportunities in EVs with our power isolation or in the connected car with our connectivity solutions, WiFi, 5G, digital radios. And so we are able to buck the trend there and see some stronger revenue growth opportunities. Chris Caso: As a follow-up, I wanted to ask a question on gross margins. And I understand you're guiding up 50 basis points for the September quarter. I know that you've taken some cost-reduction actions, depreciation's coming down. What would you say is the trajectory for gross margins as perhaps some revenue comes back and utilization comes up? What's sort of the slope and the destination for the gross margins as those things occur? Kris Sennesael: Yes, Chris, so there as well, March was the bottom for us at 45%. You saw already 100 basis points improvements in the June quarter. And we just guided another 50 basis points improvement going into the September quarter. And we do expect further gross margins improvement in the December quarter. Obviously, then there is seasonality in our business. But when I look at fiscal '25 or '26 and beyond, we do expect further gross margins improvement. And it's basically a combination of multiple factors, right? We continue to execute on cost reductions into our factory. As the top line is growing, we are getting better utilization into our factories. We are bringing higher value products to the market for which we are getting paid. And we have a little bit of a tailwind from a mix point of view as broad markets is growing at higher than above gross margins. So we think we are on the right track here and we will see ongoing further gross margins improvement. Operator: And our next question coming from the line of Timothy Arcuri with UBS. Timothy Arcuri: Kris, can you give us a sense of how big the large customer was for June? And then in September, it's ranged between mid-50s when Android was higher to the high 60s last year. Any sense of how to think about how that's going to trend and what you're embedding in the guidance? Kris Sennesael: Yes. So our largest customer in the June quarter was approximately 65% of total revenue. That was down sequentially, maybe a little bit more than normal seasonality and we explained that at the last earnings call, where we saw some buildup of inventory in March, April time frame. And so we pushed the brakes in June. But looking ahead now into September, we think the largest customer will be slightly above 65% of total revenue and it will be up on or about 20% sequentially, right, as we execute and support our large customer in ramping up new products that they are bringing to market. Timothy Arcuri: And then can you give us a sense also of what December -- I mean, December is kind of all over the map seasonally but it's up in the range of 10% usually. Is that a reasonable bogey to think about for December? Kris Sennesael: Yes. So we only guide 1 quarter at a time and I would really stick with that. But yes, it's clear that we do expect further sequential growth going into the December quarter but we will guide next quarter on that. Operator: And our next question coming from the line of Christopher Rolland with Susquehanna. Christopher Rolland: You referred to some AI smartphones. And I think we all got excited about some new AI announcements this quarter, driving a refresh cycle. So I guess my first question is how much of this kind of acceleration or pull-in in the refresh cycle did you see or is in your September guidance? Did you see kind of the same excitement that we all kind of felt? Or do you think this is something really to play out December and onward as we move through time and new product launches? Liam Griffin: Yes, great question. I think this is the early stage of a very, very long ramp in mobile. There's no question that AI is going to make an impact. I really believe that and I think most of the market does. But what comes with it is also a challenge. You have to have very, very difficult challenges to be able to manage the AI world. Fortunately, with Skyworks, this is what we do all the time and we're a deep technology company, we know how to handle the really challenging opportunities. We're dealing with higher levels of MIMO; more paths, uplink and downlink; bringing in carrier aggregation, better filtering. And you know that at Skyworks, really, really important to get those filters down and new frequency bands. So it's a very challenging ask to deliver. But fortunately, at Skyworks, these are technologies that we understand. So we are looking forward to this. It's very early stages but I believe and our team believes that we're going to have a very meaningful cycle in mobile, led by these technology innovations. Christopher Rolland: My next question is around Android. So you talked about a couple of cool Android phones, Google, Samsung Galaxy M, Oppo. Can you point to any marquee sockets, either new areas that you're playing or big chunky sockets? And then just more generally, how would you describe the Android environment and kind of your outlook there and revenue contribution moving forward? Liam Griffin: Yes, that's great. I mean we are certainly engaged in Android and most specifically, with Samsung and Google. There's some great products there. The Pixel phone is an amazing phone. There's other products as well. Great partnership with Google actually. And the technology inside is very rich, very, very impactful. So we should see more and more of that from Skyworks, probably less of the low end in China, of course. But the higher end in Android has been really powerful. I think there's a lot more we can do from there. Operator: And our next question coming from the line up Craig Ellis with B. Riley Securities. Craig Ellis: And Liam, nice to hear the enthusiasm about a smartphone refresh cycle in the middle of the 5G cycle. I wanted to follow up on that. So as you look at the opportunity for AI to drive more up and downlink content, increased carrier aggregation and some of the other technologies that the company specializes in, can you talk about the content gain opportunities that might exist in Gen 2 and Gen 3 smartphones? Because I think from commentary a quarter ago, we may not be looking at so much in this year's version of your largest customer handset. But what could we look at in coming years from AI on the content gain side? Liam Griffin: Yes. I think this is going to be a long, long run here and a successful run in the industry if the technologies come about the way that we see it. So we have some of this technology in place right now and we're able to capitalize on that. But this is going to -- Craig, this going to be a long-term cycle here, very meaningful, akin to the first 5G cycle in my expectation. But I think it's going to be much more powerful. The challenges are much more demanding, more challenging. Fortunately, for Skyworks, we can do a lot of this stuff in-house, very difficult but we can do it in-house and we can craft and curate account by account to get it right because we're not seeing one fits all here. This is going to be a customized platform when you get into AI and each customer has its own needs and specs. So it's early innings. The companies that are deeply involved are going to win. The customers that we pick are also going to be really important to us but we're looking forward to it. I think it's going to be a significant move in the industry and certainly for Skyworks. Craig Ellis: Got it. And then a two-part follow-up. The follow-up specifically to the implications for revenue is, is what does this mean for the company to get back to the gross margins that it was executing at a couple of years ago in the 50% range and maybe even up to that 53% target? And then switching gears, the company just continues to throw off tremendous cash. You talked about it in your comments. The dividend just raised again. You have very little debt. How are you thinking about what happens next with cash return? Is there a lot more buyback? Or are you thinking about strategic M&A? And if so, what type of cards might you be thinking about playing there? Kris Sennesael: Yes. So maybe first on the gross margins, I think I already answered that question, right? I think we're going to continue to see further gross margins improvement. Obviously, we've accelerated revenue growth. We will have better utilization in the factories and that will exponentially result in further gross margins improvements. That is very clear. As it relates to the financial output of this company, it's just outstanding, right? Just if you look at in the first 9 months of the fiscal year, we generated $1.3 billion of cash. That's a 40% free cash flow margin. I think that is outstanding in the semiconductor business compared to many of our peers and competitors. In addition to that, we have a strong balance sheet. We have almost $1.3 billion of cash on the balance sheet and only $1 billion of debt with -- which is cheap debt with long maturities. So we have a very strong position here that allows us to, on one hand, continue to invest in our business, in our technology and product road maps, continue to invest in our factories if and when needed. And so currently, the capital intensity of the business has come down a lot. But if and when needed, of course, we can make those investments as well to maintain our leadership position. And in addition to that, there's not going to be any hesitation. We are going to return all the excess cash flow back to the shareholders. And we do that consistently through our dividend program and our share buyback program. On the dividend program, we just announced a 3% increase up to $0.70 per share. Right now, that's translating into a 2.4% dividend yield. And as you noticed, in the June quarter, we restarted the buyback program. And so there's not going to be any hesitation to that. In addition to that, we still have optionality for M&A, right? But you know us, we're not going to do anything stupid. We're going to remain disciplined on that. And if there are no deals, we will return the cash flow. Operator: And our next question coming from the line of Kevin Cassidy with Rosenblatt Securities. Kevin Cassidy: When you mentioned AI in the handsets and I understand the improvement that you'll get in content, what about AI is moving out into all types of robotics and IoT type of products? Do you have accelerated opportunities in that market, too? Liam Griffin: Great question. Great question. The good news is the technologies that we have can absolutely work in those environments. We just haven't gotten there yet. So we're making those investments. Obviously, we've got a great position in smartphones and the technologies that we work there. But to take that through an IoT cycle, across multi-markets is going to be a real powerful opportunity for Skyworks. The good news is we know what the technology is, how they work, where they need to be. It's just about putting it together and getting into the right markets, the right partners. But we really do believe this could be a very powerful cycle independent of the smartphone looking at the IoT opportunity. So we look forward to it. It's a great question and we'll hopefully update you more as we get more information but we're very, very interested in making that happen. Thank you. Kevin Cassidy: Okay, great. Just maybe as a hint is -- do you need more scalability to be able to service more customers? Liam Griffin: Well, I mean, we have customers that are actually working with us and asking us how they can engage in AI and using IoT as a vector. And so we're working with companies like that, that we know already. But there's a whole range of other opportunities and applications that we haven't yet addressed. So I think it's going to be a meaningful part of the strategy at Skyworks here as we move forward with a lot of runway that hasn't been covered. Operator: And our next question coming from the line of Quinn Bolton from Needham & Company. Nick Doyle: This is Nick Doyle on for Quinn. If your largest customer switches to an internal modem, can you talk about how that change -- how that would impact Skyworks' content opportunity? Liam Griffin: Yes, I hear you. We really can't go into specifics with that customer. But certainly, we have a great relationship. We're a trusted partner. There's a lot of opportunities that we can pursue but we just really can't get into any details here. Nick Doyle: Okay. You mentioned that inventory remains elevated in the traditional data center and wireless infrastructure. Do you have a sense of how much inventory remains in days or dollars? And what types of products have the most inventory left? Kris Sennesael: That's really hard to answer that question. I mean it really depends from end market to end market. As I said before, I think in consumer enterprise, most of the inventory correction is over. Automotive, industrial, you've heard it from peers and competitors. There's definitely some excess inventory that's being flushed out. And then if you look more at the infrastructure, networking, data center, there is still some excess inventory but the demand is definitely improving in those areas. And it will be a long recovery in those markets. So again, it really depends end market to end market. But again, when you look at our broad markets business, we're growing it sequentially for 3 quarters in a row and we'll start growing it on a year-over-year basis. And so there's definitely some good traction for Skyworks. Operator: Our next question is coming from the line Thomas O'Malley with Barclays (LON:BARC). Thomas O'Malley: Mine was just a broader industry dynamic on integration. A competitor at the recent analyst like kind of showed a slide with the mid- high-band socket integrating diversity receive over time in high-end Android. Can you talk about are you seeing the integration in some of the design wins that you're competing for today? And then could you just maybe speak to the fact is that only going to appear in high end markets? Do you see that across broad markets? Just where are you seeing the industry move to in terms of maybe silicon getting integrated into smaller duct space? Liam Griffin: As you know, we really can't get into details with our customers and our design wins. But we certainly have the best-in-class RF technology and the manufacturing scale to compete to win for sockets. And frankly, the tech stacks are getting harder and harder every year. On top of that, our customers are relentless in terms of driving higher levels of performance. And in this environment, only the strong will survive. And Skyworks, of course, this is what we do. This is our bread and butter. RF technology continues to get more and more difficult. And that's the way we want it. And so we expect more opportunities and more engagement, especially with the top-tier customers as we go forward. Thomas O'Malley: Helpful. And then just more broadly, when you talk about AI proliferating to the edge, I think people have generally a good idea of how they see that playing out. But when it comes to AI in the smartphone, do you think you could talk specifically as to where you see the content uplift? Is that just additional bands? Is that additional filtering? Like can you just point to where you think in the near term you see additional content as it relates to AI in the smartphone? Liam Griffin: Yes I mean just at the high level, think about transmit back and forth, right? Transmit and receive, the burden to be able to do that in an AI environment, the speeds, the latency, all of that, the filtering, the range, all of those issues become problems that need to be solved and that's exactly what we want to do. And this is the stuff we do all the time. So we're going to take all the know-how, our own IP, our technologists, our capital assets, our scale in our factories to curate solutions that will meet the demands of AI. So it's not going to be a one-fits-all kind of thing. It's going to be highly curated and custom-ated [ph]. Operator: And, ladies and gentlemen, that concludes today's question-and-answer session. I will now hand the call back over to Mr. Griffin for any closing comments. Liam Griffin: Thanks, everybody, for participating in today's call. We look forward to seeing you at upcoming investor conferences during the quarter. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.

Advanced Micro Devices, Inc. (AMD) Q2 2024 Earnings Call Transcript

Ben Reitzes - Melius Research Aaron Rakers - Wells Fargo Timothy Arcuri - UBS Ross Seymore - Deutsche Bank Matt Ramsey - TD Cowen Vivek Arya - Bank of America Securities Joe Moore - Morgan Stanley Toshiya Hari - Goldman Sachs Stacy Rasgon - Bernstein Research Harsh Kumar - Piper Sandler Blayne Curtis - Jefferies Tom O'Malley - Barclays Chris Danely - Citi Greetings, and welcome to the AMD Second 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. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce to you Mitch Haws, Vice President Investor Relations. Thank you, Mitch. You may begin. Mitch Haws Thank you, and welcome to AMD's Second 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 conference 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 Dr. Lisa Su will attend the Goldman Sachs Technology Communicopia and Technology Conference on Monday, September 9th, and Mark Papermaster, Executive Vice President and Chief Technology Officer, will attend the Deutsche Bank Technology conference on Wednesday, August 28th. 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 in our press release for more information on factors that could cause action results to differ materially. Thank you, Mitch, and good afternoon to all those listening today. We delivered strong second quarter financial results with revenue coming in above the midpoint of guidance and profitability increasing by a double-digit percentage driven by higher than expected sales of our Instinct, Ryzen, and EPYC processors. We continued accelerating our AI traction, as leading cloud and enterprise providers, expanded availability of Instinct MI300X solutions, and we also saw positive demand signals for general purpose compute in both our client and server processor businesses. As a result, second quarter revenue increased 9% year-over-year to $5.8 billion, as significantly higher sales of our data center and client processors more than offset declines in gaming and embedded product sales. We also expanded gross margin by more than 3 percentage points and grew EPS 19%, as data center product sales accounted for nearly 50% of overall sales in the quarter. Turning to the segments, data center segment revenue increased 115% year-over-year to a record $2.8 billion, driven by the steep ramp of Instinct MI300 GPU shipments and a strong double-digit percentage increase in EPYC CPU sales. Cloud adoption remains strong as hyperscalers deploy fourth-gen EPYC CPUs to power more of their internal workloads and public instances. We are seeing hyperscalers select EPYC processors to power a larger portion of their applications and workloads, displacing incumbent offerings across their infrastructure with AMD solutions that offer clear performance and efficiency advantages. The number of AMD-powered cloud instances available from the largest providers has increased 34% from a year ago to more than 900. We are seeing strong pull for these instances with both enterprise and cloud-first businesses. As an example, Netflix and Uber both recently selected fourth-gen EPYC Public Cloud instances as one of the key solutions to power their mission critical customer facing workloads. In the enterprise, sales were increased by a strong double-digit percentage sequentially. We closed multiple large wins in the quarter with financial services, technology, health care, retail, manufacturing, and transportation customers, including Adobe, Boeing, Industrial Light & Magic, Optiver, and Siemens. Importantly, more than one-third of our enterprise server wins in the first half of the year were with businesses deploying EPYC in their data centers for the first time, highlighting our success attracting new customers, while also continuing to expand our footprint with existing customers. Looking ahead, our next-generation Turin family, featuring our new Zen 5 core is looking very strong. Zen 5 is a grounds up new core design optimized for leadership performance and efficiency. Turin will extend our TCO leadership by offering up to 192 cores and 384 threads, support for the latest memory and I.O. Technologies, and the ability to drop into existing fourth-gen EPYC platforms. We publicly previewed Turin for the first time in June, demonstrating our significant performance advantages in multiple compute-intensive workloads. We also passed a major milestone in the second quarter as we started Turin production shipments to lead Cloud customers. Production is ramping now ahead of launch and we expect broad OEM and cloud availability later this year. Turning to our data center AI business, we delivered our third straight quarter of record data center GPU revenue with MI300 quarterly revenue exceeding $1 billion for the first time. Microsoft expanded their use of MI300X Accelerators to power GPT-4 Turbo and multiple co-pilot services including Microsoft 365 Chat, Word, and Teams. Microsoft also became the first large hyperscaler to announce general availability of public MI300X instances in the quarter. The new Azure VMs leverage the industry-leading compute performance and memory capacity of MI300X in conjunction with the latest ROCm software to deliver leadership-inferencing price performance when running the latest frontier models, including GPT-4. Hugging Face was one of the first customers to adopt the new Azure instances, enabling enterprise and AI customers to deploy hundreds of thousands of models on MI300X GPUs with one click. Our enterprise and Cloud AI customer pipeline grew in the quarter, and we are working very closely with our system and cloud partners to ramp availability of MI300 solutions to address growing customer demand. Dell, HPE, Lenovo, and Supermicro all have Instinct platforms in production, and multiple hyperscale and tier-2 cloud providers are on track to launch MI300 instances this quarter. On the AI software front, we made significant progress enhancing support and features across our software stack, making it easier to deploy high performance AI solutions on our platforms. We also continued to work with the open source community to enable customers to implement the latest AI algorithms. As an example, AMD support for Flash Attention 2 algorithm was upstreamed, providing out-of-the-box support for AMD hardware in the popular library that could increase training and inference performance on large transformer models. Our work with the model community also continued accelerating, highlighted by the launches of new models and frameworks with day one support for AMD hardware. At Computex, I was joined by the co-CEO of Stable Diffusion to announce that MI300 is the first GPU to support their latest SD 3.0 image generation LLM. Last week, we were proud to note that multiple partners used ROCm and MI300X to announce support for the latest Llama 3.1 models, including their 405 billion parameter version that is the industry's first frontier-level open source AI model. Llama 3.1 runs seamlessly on MI300 accelerators, and because of our leadership memory capacity, we're also able to run the FP16 version of the Llama 3.1 405B model in a single server, simplifying deployment and fine-tuning of the industry-leading model and providing significant TCO advantages. Earlier this month, we announced our agreement to acquire Silo AI, Europe's largest private AI lab with extensive experience developing tailored AI solutions for multiple enterprise and embedded customers, including Allianz, Ericsson, Finnair, Korber, Nokia, Philips, T-Mobile, and Unilever. The Silo team significantly expands our capability to service large enterprise customers looking to optimize their AI solutions for AMD hardware. Silo also brings deep expertise in large language model development, which will help accelerate optimization of AMD inference and training solutions. In addition to our acquisitions of Silo AI, [Sology] (ph), and Nod.ai, we have invested over $125 million across a dozen AI companies in the last 12 months to expand the AMD AI ecosystem, support partners, and advance leadership AMD computing platforms. Looking ahead from a roadmap perspective, we are accelerating and expanding our Instinct roadmap to deliver an annual cadence of AI accelerators, starting with the launch of MI325X later this year. MI325X leverages the same infrastructure as MI300 and extends our generative AI performance leadership by offering twice the memory capacity and 1.3 times more peak compute performance than competitive offerings. We plan to follow MI325X with the MI350 series in 2025 based on the new CDNA 4 architecture, which is on track to deliver a 35x increase in performance compared to CDNA 3. And our MI400 series powered by the CDNA "Next" architecture is making great progress in development and is scheduled to launch in 2026. Turning to our AI solutions work, Broadcom, Cisco, HP Enterprise, Intel, Google, Meta, and Microsoft all joined us to announce Ultra Accelerator Link, an industry standard technology to connect hundreds of AI accelerators that is based on AMD's proven infinity fabric technology. By combining UA-Link with the widely supported ultra-Ethernet consortium specification, the industry is coming together to establish a standardized approach for building the next generation of high-performance data centers, AI solutions at scale. In summary, customer response to our multi-year Instinct and ROCm roadmaps is overwhelmingly positive and we're very pleased with the momentum we are building. As a result, we now expect data center GPU revenue to exceed $4.5 billion in 2024, up from the $4 billion we guided in April. Turning to our client segment, revenue was $1.5 billion, an increase of 49% year-over-year driven by strong demand for our prior generation Ryzen processors and initial shipments of our next generation Zen 5 processors. In PC applications, Zen 5 delivers an average of 16% more instructions per clock than our industry leading previous generation of Ryzen processors. For desktops, our upcoming Ryzen 9000 series processors drop into existing AM5 motherboards and extends our performance and energy efficiency leadership across productivity, gaming, and content creation workloads. For notebooks, we announced our Ryzen AI 300 series that extends our industry-leading CPU and GPU performance and introduces the industry's fastest NPU with 50 tops of AI compute performance for Copilot Plus PCs. The first Ryzen AI 300 series notebooks went on sale over the weekend to strong reviews. And more than 100 Ryzen AI 300 series premium, gaming, and commercial platforms are on track to launch from Acer, ASUS, HP, Lenovo, and others over the coming quarters. Customer excitement for our new Ryzen processors is very strong, and we are well positioned for ongoing revenue share gains based on the strength of our leadership portfolio and design win momentum. Now turning to our gaming segment, revenue declined 59% year-over-year to $648 million as semi-custom SoC sales declined in-line with our projections. Semi-custom demand remains soft, as we are now in the fifth-year of the console cycle and we expect sales to be lower in the second half of the year compared to the first half. In gaming graphics, revenue increased year-over-year driven by improved sales of our Radeon 6000 and 7000 series GPUs in the channel. Turning to our embedded segment, revenue decreased 41% year-over-year to $861 million. The first quarter marked the bottom for our embedded segment revenue. Although second quarter revenue was flattish sequentially, we saw early signs of order patterns improving and expect embedded revenue to gradually recover in the second half of the year. Longer term we are building strong design win momentum for our expanded embedded portfolio. Design wins in the first half of the year increased by more than 40% from the prior year to greater than $7 billion, including multiple triple-digit million-dollar wins combining our adaptive and x86 compute products. We announced our Alveo V80 accelerators that deliver leadership capabilities in memory-intensive workloads and entered early access on next-generation Edge AI solutions with more than 30 key partners on our upcoming second-gen Versal adaptive SoCs. Last week, we also announced Victor Peng, President of AMD, would retire at the end of August. Victor has made significant contributions to Xilinx and AMD, including helping scale our embedded business and leading our cross-company AI strategy. On a personal note, Victor has been a great partner to me in sharing the success of our Xilinx acquisition and integration. On behalf of all of the AMD employees and board, I want to thank Victor for all of his contributions to AMD success and wish him all the best in his retirement. In summary, we delivered strong second quarter results and are well positioned to grow revenue significantly in the second half of the year, driven by our data center and client segments. Our data center GPU business is on a steep growth trajectory as shipments ramp across an expanding set of customers. We're also seeing strong demand for our next generation Zen 5 EPYC and Ryzen processors that deliver leadership performance and efficiency in both data center and client workloads. Looking ahead, the rapid advances in generative AI and development of more capable models are driving demand for more compute across all markets. Under this backdrop, we see strong growth opportunities over the coming years and are significantly increasing hardware, software and solutions investments with a laser focus on delivering an annual cadence of leadership data center GPU hardware, integrating industry leading AI capabilities across our entire product portfolio, enabling full stack software capabilities, amplifying our ROCm development with the scale and speed of the open source community and providing customers with turnkey solutions that accelerate the time to market for AMD based AI systems. We are excited about the unprecedented opportunities in front of us and are well positioned to drive our next phase of significant growth. Now I'd like to turn the call over to Jean to provide some additional color on our second quarter results. Jean? Jean Hu 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 third quarter. We're very pleased with our overall second quarter financial results that came in above expectations. On a year-over-year basis, data center segment revenue more than doubled. Client segment revenue grow significantly, and we expand the gross margin by 340 basis points. For the second quarter of 2024, revenue was $5.8 billion, up 9% year-over-year, as revenue growth in the data center and the client segments was partially offset by lower revenue in our gaming and embedded segments. Revenue increases 7% sequentially, primarily driven by growth in the data center and the client segments revenue. Gross margin was 53%, up 340 basis points year-over-year, primarily driven by higher data center revenue. Operating expenses were $1.8 billion, an increase of 15% year-over-year, as we continue to invest in R&D to address the significant AI growth opportunities ahead of us and enhanced go-to-market activities. Operating income was $1.3 billion representing a 22% operating margin. Taxes, interest expense and other was $138 million. Diluted earnings per share was $0.69, an increase of 19% year-over-year. Now turning to our reportable segment. Starting with the data center. Data Center delivered record quarterly segment revenue of $2.8 billion, up 115%, a $1.5 billion increase in year-over-year. The Data Center segment accounted for nearly 50% of total revenue, led primarily by the steep ramp of AMD Instinct GPUs and strong double-digit percentage EPYC Server revenue growth. On a sequential basis, revenue increased 21%, driven primarily by strong momentum in AMD Instinct GPUs. Data center segment operating income was $743 million or 26% of revenue compared to $147 million or 11% a year ago. Operating income was up more than 5 times from the prior year, driven by higher revenue and operating leverage, even as we significantly increase our investment in R&D. Client segment revenue was $1.5 billion, up 49% year-over-year and 9% sequentially driven primarily by AMD Ryzen processor sales. Client segment operating income was $89 million or 6% of revenue compared to operating loss of $69 million a year ago. Gaming segment revenue was $648 million down 59% year-over-year and 30% sequentially. The decrease in revenue was primarily due to semi-customer inventory digestion and the lower end-market demand. Gaming segment operating income was $77 million, or 12% of revenue compared to $225 million or 14% a year ago. Embedded segment revenue was $861 million, down 41% year-over-year, as customers continue to normalize their inventory levels. On sequential basis, embedded segment revenue was up 2%. Embedded segment operating income was $345 million or 40% of revenue compared to $757 million or 52% a year ago. Turning to the balance sheet and the cash flow. During the quarter, we generated $593 million in cash from operations and the free cash flow was $439 million. Inventory increased sequentially by [$339 million] (ph) to $5 billion, primarily to support the continued ramp of a data center GPU product. At the end of the quarter, cash, cash equivalent, and short-term investments were $5.3 billion. In the second quarter, we returned $352 million to shareholders repurchasing 2.3 million shares, and we have $5.2 billion of authorization remaining. During the quarter, we retired $750 million of debt that matured this past June utilizing existing cash. Now turning to our third quarter, 2024 outlook. We expect revenue to be approximately $6.7 billion plus or minus $300 million. Sequentially, we expect revenue to grow approximately 15%, primarily driven by strong growth in the data center and the client segment. We expect embedded segment revenue to be up and the gaming segment to decline by double digit percentage. Year-over-year we expect revenue to grow approximately 16%, driven by the steep ramp of our AMD Instinct processors and strong server and client revenue growth to more than offset the declines in the gaming and embedded segments. In addition, we expect third quarter non-GAAP gross margin to be approximately 53.5%. Non-GAAP operating expenses to be approximately $1.9 billion. Non-GAAP effective tax rate to be 13%. And the diluted share count is expected to be approximately 1.64 billion shares. Also during the third quarter, we expect to close the acquisition of Silo AI for approximately $665 million in cash. In closing, we made significant progress during the quarter toward achieving our financial goals. We delivered record MI300 revenue that exceeded $1 billion and demonstrated solid traction with our next-gen Ryzen and EPYC product. We expanded gross margin significantly and drove earnings growth while increasing investment in AI. Looking forward, opportunities ahead of us are unprecedented, will remain focused on executing to our long-term growth strategy, while driving financial discipline and operational excellence. With that, I will turn it back to Mitch for the Q&A session. Mitch Haws Thank you, Jean. John, we're happy to poll the audience for questions. Thank you, Mitch. We will now be conducting the question-and-answer session. [Operator Instructions] And the first question comes from the line of Ben Reitzes with Melius Research. Please proceed with your question. Ben Reitzes Hey, thanks a lot. Congratulations on these results. Lisa, I wanted to ask you about MI300, how you see it playing out sequentially for the rest of the year. I guess there is about $2.8 billion left to hit your annual target. So I'm wondering if you see things picking up in the fourth quarter and how that's going sequentially. And if you don't mind, I wanted to also ask about next year if you see potential for rapid growth. You're probably aware of some of the chatter out there, and I just was wondering if you are already seeing signs that you can grow significantly, given your road map for next year. Thank you so much. Lisa Su Yes. Great, Ben. Thanks for the question. So first of all on sort of MI300 and the customer evolution, we are very happy with how MI300 has progressed. When we started the year, I think the key point for us was to get our products into our customers' data centers, to have them qualify their workloads, to really ramp in production and then see what the production capabilities are especially performance and all of those things. And I can say now being sort of more than halfway through the year, we've seen great progress across the board. As we look into the second half of the year I think we would expect that MI300 revenue would continue to ramp in the third quarter and the fourth quarter. And we are continuing to expand both current deployments with our existing customers, as well as we have a large pipeline of customers that we are working through that are getting familiar with our architecture and software and all that stuff. So I'd say overall, very pleased with the progress, and really continuing right on track to what we expected from the capabilities of the product. As we go into next year, I mean one of the important things that we announced at Computex, was increasing and expanding our road map. I think we feel really good about our road map. We are on track to launch MI325 later this year. And then next year, our MI350 Series, which will be very competitive with Blackwell Solutions. And then we're well on our way to our CDNA Next as well. So I think, overall we remain quite bullish on the overall AI market. I think the market continues to need more compute. And we also feel very good that our hardware and software solutions are getting good traction, and we are continuing to expand that pipeline. And the next question comes from the line of Aaron Rakers with Wells Fargo. Please proceed with your question. Aaron Rakers Yeah, thanks for taking my question. And congrats on the quarter as well. I guess sticking on the Data Center side, as we look forward and you think about the full year, I'm curious of how you're currently thinking about the EPYC server CPU growth expectations as we go forward. And any kind of updated thoughts on your ability to kind of continue to gain share in the server market? Just kind of just update us on how you see the server market playing out over the next couple of quarters. Lisa Su Yes, sure Aaron. Thanks for the question. So we are very pleased with the progress that we've made with EPYC. I think a couple of things. First of all, in terms of competitive positioning and just the traction in the market, our fourth-gen EPYC between Zen 1 Bergamo is really doing very well. We've seen broad adoption across cloud, and then we've been very focused on enterprise as well as third-party cloud instances. And as I said in the prepared remarks, we are starting to see very nice traction in enterprise with both new customers as well as existing customers, and then for third-party cloud adoption, also a good pickup there as well. So I think overall, I think our EPYC portfolio has done well. Going into the second half of the year, I think we also feel good about it. There are a couple of positives there. We see -- first of all the market looks like it's improving, so we have seen some return to spending in both enterprise and cloud. And so I think those are positive market trends. And then in addition to that, we are in the process of launching Turin. So we started production here in the second quarter and we are on track to launch broadly in the second half of the year. We'll see some revenue of Turin in the second half of the year contributing as well. So overall, I think the server market and our ability to continue to grow share in the server market is one of the things that we see in the second half of the year. And the next question comes from the line of Timothy Arcuri with UBS. Please proceed with your question. Timothy Arcuri Thanks a lot. Lisa, I wanted to ask about the Data Center GPU roadmap. As you said, 325 launching later this year, so I guess I had two questions. Does the greater than $4.5 billion, does that include any revenue from 325? And can you talk a little bit more about 350? Obviously, we are seeing a big rack scale or shift toward rack-scale systems for the competition's product. And I'm wondering if that's what 350 is going to look like. Is it going to have liquid cooling and is it going to have a rack scale aspect to it? Thanks. Lisa Su Yes, absolutely. So let me start with your original question. I mean, I think looking at 325X, we are on track to launch later this year. From a revenue standpoint there will be a small contribution in the fourth quarter but it really is still mostly the MI300 capabilities. And 325 will start in the fourth quarter and then ramp more in the first half of next year. And then as we look at the 350 Series, what we are seeing and the reason we call it a series is because there will be multiple SKUs in that series that we'll go through the range of, let's call it, air-cooled to liquid-cooled. In spending time with our customers. I think there are people who certainly want more rack level solutions, and we are certainly doing much more in terms of system-level integration for our products. You will see us invest more in system-level integration. But we also have many customers who want to use their current infrastructure. I think the beauty of the MI350 series is, it actually fits into the same infrastructure as the MI300 series. And so it would lend itself to, let's call it a pretty fast ramp if you've already invested in 300 or 325. So we see the range of options, and that's part of the expansion of the road map that we are planning. And the next question comes from the line of Ross Seymore with Deutsche Bank. Please proceed with your question. Ross Seymore Hi, thanks for having me ask a question and congrats on the strong results. Well, Data Center is obviously very important. I just want to pivot to the Client side. Lisa, can you talk about the AI PC side of things? How you believe AMD is positioned? Are you seeing any competitive intensity changing with the emergence of ARM based systems? Just wanted to see how you are expecting that to roll out and what it means to second half seasonality. Lisa Su Yes. Sure, Ross. So first, we are very pleased with our Client business results. I think we have a very strong road map, so I'm very pleased with the road map. The Zen 5 based products, we're launching both notebook and desktop in the middle of this year. What we've seen is actually very positive feedback on the product. So we just actually launched the [first strict based] (ph) notebooks over the weekend. They went on sale. You may have seen some of the reviews. The reviews are very positive. Our view of this is the AI PC is an important add to the overall PC category. As we go into the second half of the year, I think we have better seasonality in general, and we think we can do, let us call it above-typical seasonality, given the strength of our product launches and when we are launching. And then into 2025, you're going to see AI PCs across sort of a larger set of price points which will also open up more opportunities. So overall, I'd say, the PC market is a good revenue growth opportunity for us. The business is performing well. The products are strong. And we are working very closely with both the ecosystem partners, as well as our OEM partners to have strong launches here into the second half of the year. Ross Seymore And is the ARM side changing anything or not really? Lisa Su Look, I think at this point the PC market is a big market and we are underrepresented in the market. I'd say that we take all of our competition very seriously. That being the case, I think our products are very well positioned. And the next question comes from the line of Matt Ramsay with Cowen. Please proceed with your question. Matt Ramsey Thank you very much. Good afternoon. Lisa, I wanted to maybe draw a parallel between the Instinct portfolio that your company is rolling out now and what you guys did five or six years ago with EPYC. And I remember when the Naples product launched, there was a lot of, I'd say, reaction positively and negatively and sort of sentiment around where your road map might go to relatively small perturbations in what the volumes were, super early. But if I remember back to that, what was the most important was that was the toehold into the market for long-term engagement, both on the software side and the hardware side with your customers two, three, four generations forward. So is that an accurate parallel to where you guys are with MI300? And maybe you could talk about the level of engagement, the intensity of engagement, the breadth of it across the customer base with 350 and 400. Thanks. Lisa Su Yes, absolutely, Matt. So look as I said earlier, we are very pleased with the progress that we are making on the Instinct road map. This is absolutely a long-term play so absolutely, you are correct. It has a lot of parallels to the EPYC journey, where you really have to -- you gain more opportunities, broader workloads, larger deployments as you go from generation to generation. So we are playing the long game here. Our conversations with our customers, so I'd start with first, in the near-term, we had some very key milestones that we wanted to pass this year. And as I said, they related to getting hardware in volume in multiple hyperscalers, as well as large Tier 2 customers. We've done that. We've now seen our software in a lot of different environments, and it is matured substantially. ROCm is in very -- from a standpoint of features, functions, out-of-box performance, getting to performance with customers, we've gained a lot of confidence and learned a lot in that whole process. The networking aspects of building out the rack scale and the system-level items are areas that we are continuing to invest in. And then the point of having long-term conversations across multiple generations is also really important. So I think all of those things have progressed well. We view this as very good progress for MI300, but we have a lot more to do. And I think the various road maps will help us open up those opportunities over the next couple of years. And the next question comes from the line of Vivek Arya with Bank of America Securities. Please proceed with your question. Vivek Arya Thanks for taking my question. Lisa, there seems to be this ongoing industry debate about AI monetization and whether your customers are getting the right ROI on their CapEx. And today, they have these three options, right? They can buy GPUs from your largest competitor with all the software bells and whistles and incumbency or they can do custom chips or they can buy from AMD. So how do you think this plays out next year? Do you think your customers given all this concern around monetization, does it make them consolidate their CapEx around just the other two suppliers? How is your visibility going into next year, given this industry debate? And how will AMD continue to kind of carve a position between these two other competitive choices that are out there? Thank you. Lisa Su Yes, sure, Vivek. Well, I mean I think you talk to a lot of the same people that we talk to. I think the overall view on AI investment is we have to invest. I mean the industry has to invest. The potential of AI is so large to impact the way enterprises operate and all that stuff. So I think the investment cycle will continue to be strong. And then relative to the various choices for the size of the market, I firmly believe that there will be multiple solutions, whether you are talking about GPUs or you are talking about custom chips or ASICs, there will be multiple solutions. In our case, I think we've demonstrated a really strong road map and the ability to partner well with our customers. And from the standpoint of that deep engagement, hardware, software co-optimization is so important in that. And for large language models, GPUs are still the architecture of choice. So I think, the opportunity is very large. And I think our piece of that is really strong technology with strong partnerships with the key AI market makers. And the next question comes from the line of Joe Moore with Morgan Stanley. Please proceed with your question. Joe Moore Great. Thank you. I also wanted to ask about MI300. I wonder if you could talk about training versus inference. Do you have a sense -- I know that a lot of the initial focus was inference, but do you have traction on the training side? And any sense of what that split may look like over time? Lisa Su Yes, sure. Thanks for the question Joe. So as we said on MI300, there are lots of great characteristics about it. One of them is our memory bandwidth and memory capacity is leading the industry. From that standpoint, the early deployments have largely been inference in most cases, and we have seen fantastic performance from an inference standpoint. We also have customers that are doing training. We've also seen that from a training standpoint, we've optimized quite a bit our ROCm software stack, to make it easier for people to train on AMD. And I do expect that we'll continue to ramp training over time. As we go forward, I think you'll see -- the belief is that inference will be larger than training from a market standpoint. But from an AMD standpoint, I'd expect both inference and training to be growth opportunities for us. And the next question comes from the line of Toshiya Hari with Goldman Sachs. Please proceed with your question. Toshiya Hari Hi, thank you so much for taking the question. I had a question on the MI300 as well. Curiously, if you are currently shipping to demand or if the updated annual forecast of $4.5 billion is in some shape or form supply constrained. I think last quarter you gave some comments on HBM and [CoAs] (ph). Curious if you could provide an update there. And then my Part B to my question is on profitability for MI300. I think in the past, you've talked about the business being accretive and improving further over time as you sort of work through the kinks, if you will. Has that view evolved or changed at all, given sort of the competitive intensity and your need to invest, whether it be through organic R&D or some of the acquisitions you've made? Or are you still confident that profit margins in the business continue to expand? Thank you. Lisa Su Yes. Sure, Toshiya. Thanks for the question. So on the supply side, let me make a couple of comments and then maybe I'll let Jean comment on sort of the trajectory for the business. So on the supply side, we made great progress in the second quarter. We ramped up supply significantly exceeding $1 billion in the quarter. I think the team has executed really well. We continue to see line of sight to continue increasing supply as we go through the second half of the year. But I will say that the overall supply chain is tight and will remain tight through 2025. So under that backdrop, we have great partnerships across the supply chain. We've been building additional capacity and capability there. And so we expect to continue to ramp as we go through the year. And we'll continue to work both supply as well as demand opportunities, and really that's accelerating our customer adoption overall, and we'll see how things play out as we go into the second half of this year. Jean Hu Yes. On your second question about the profitability, first our team has done a tremendous job to ramp the product MI300. It is a very complex product. So we ramped it successfully. At the same time, the team also started to implement operational optimization to continue to improve gross margin. So we continue to see the gross margin improvement. Over time, in the longer term, we do believe gross margin will be accretive to corporate average. From a profitability perspective, AMD always invests in platforms. If you look at our Data Center platform especially both the [Server] (ph) and the Data Center GPU side, we are ramping the revenue. The business model can leverage very significantly even from GPU side. Because the revenue ramp has been quite significant, the operating margin continued to expand. We definitely want to continue to invest as the opportunity is huge. At the same time, it is a profitable business already. And the next question comes from the line of Stacy Rasgon with Bernstein Research. Please proceed with your question. Stacy Rasgon Hi, guys. Thanks for taking my question. I wanted to dig into the Q3 guidance a little bit, if I could. So with Gaming down double digits, it probably means you've got close to $1 billion of growth revenue across Data Center, Client, and Embedded. I was wondering if you could give us some color on how that $1 billion-ish splits out across those three businesses. Like if I had 70% of it going to Data Center and 20% going to Client and 10% going to Embedded, like would that be like way off? Or how should we think about that apportioning out across the segment? Lisa Su Yes. Maybe Stacy, let me give you the following color. So the Gaming business is down double digit as you state. Think of it as the Data Center is the largest piece of it, client next. And then on the Embedded side think of it as single-digit sequential growth. Stacy Rasgon Got it. So I mean within that Data Center piece then, how does that split out? I mean, is the bulk of it [indiscernible] Instinct? Or is it sort of equally weighted between Instinct and EPYC? Or like again how does it -- again if you got, I don't know $400 million to $600 million of sequential Data Center growth or something like that, how does it split up? Lisa Su Yes. So again, without being that granular, we will see both -- certainly, the Instinct GPUs will grow and we'll see also very nice growth on the server side. And the next question comes from the line of Harsh Kumar with Piper Sandler. Please proceed with your question. Harsh Kumar Hi, Lisa. From my rudimentary understanding, the large difference between your Instinct products and the adoption versus your nearest competitor is kind of rack level performance and that rack level infrastructure that you may be lacking. You talked a little bit about UALink. I was wondering if you could expand on that and give us some more color on when that might -- when that gap might be closed. Or is this a major step for the industry to close that gap? Just any color would be appreciated. Lisa Su Yes. So Harsh, overall, maybe if I take a step back and just talk about how the systems are evolving, there is no question that the systems are getting more complex, especially as you go into large training clusters, and our customers need help to put those together. And that includes the sort of Infinity Fabric-type solutions that are the basis for the UALink things as well as just general rack level system integration. I think what you should expect, Harsh is, first of all, we're very pleased with all of the partners that have come together for UALink. We think that's an important capability. But we have all of the pieces of this already within sort of the AMD umbrella with our Infinity Fabric, with the work with our networking capability through the acquisition of Pensando. And then you'll see us invest more in this area. So this is part of how we help customers get to market faster is by investing in all of the components, so the CPUs, the GPUs, the networking capability as well as system-level solutions. And the next question comes from the line of Blayne Curtis with Jefferies. Please proceed with your question. Blayne Curtis Hi, good afternoon. Thanks for taking my question. I just want to ask another question on MI300. Just curious if you can kind of characterize the makeup of the customers in the first half. I know you had, end of last year, a government customer. Is there still a government contingency? And kind of the second part of it is really you've invested in all these software assets. Kind of curious the challenge of ramping the next wave of customers. I know there's been a lot of talk on some hardware challenges, memory issues and such, but then you're investing in software. I'm sure that's a big challenge, too. Just kind of curious what the biggest hurdle is for you to kind of get that next wave of customers ramp. Lisa Su Yes. So Blayne, a lot of pieces to that question, so let me try to address them. First, on your question about I think you are basically asking about the supercomputing piece. That was mainly Q4 and a bit in Q1. So if you think about our Q2 revenue, think about it as almost all AI. So it is MI300X, it's for large AI, hyperscalers as well as OEM customers going to enterprise and Tier 2 data centers. So that's the makeup of the customer set. And then in terms of the various pieces of what we're doing, I think first on your question about memory, I think there's a lot of noise in the system. I wouldn't really pay attention to all that noise in the system. I mean, this has been an incredible ramp. And I'm actually really proud of what the team has done in terms of just definitely fastest product ramp that we've ever done to $1 billion here in the -- over $1 billion in the second quarter, and then ramping each quarter in Q3 and Q4. In terms of memory, we have multiple suppliers that we've qualified on HBM3. And it is a tricky -- memory is a tricky business but I think we've done it very well and that's there. And then we are also qualifying HBM3E for future products with multiple memory suppliers as well. So to your overarching question of what are the things that we're doing, the exciting part of this is that the ROCm capability has really gotten substantially better because so many customers have been using it. And with that, what we look at is out of box performance, how long does it take a customer to get up and running on MI300? And we've seen, depending on the software that companies are using, particularly if you are based on some of the higher-level frameworks like PyTorch, et cetera, we can be out-of-the-box running very well in a very short amount of time, like let's call it, very small number of weeks. And that's great because that's expanding the overall portfolio. We're going to continue to invest in software and that was one of the reasons that we did the Silo AI acquisition. It is a great acquisition for us, 300 scientists and engineers. These are engineers that have experience with AMD hardware and are very, very good at helping customers get up and running on AMD hardware. And that's -- so we view this as the opportunity to expand the customer base with talent like Silo AI, like Nod.ai which brought a lot of compiler talent. And then we continue to hire quite a bit organically. So I think Jean said earlier that we see leverage in the model, but we are going to continue to invest because this opportunity is huge, and we have all of the pieces. This is just about building out scale. And the next question comes from the line of Tom O'Malley with Barclays. Please proceed with your question. Tom O'Malley Hi, Lisa. Thanks for taking my question. I'll give you a breather from the MI300 for a second, but just to focus on Client in the second half. No problem. Focused on Client in the second half, you kind of said above-seasonal for September, December. You're obviously launching a new notebook, desktop product, but you're also talking about AI PC. Could you just break down where you're seeing those above-seasonal trends? Is it the ASP uplift you're getting from the new products? Is it a unit assumption that's coming with AI PC? Just any kind of breakdown between those two and why you're seeing it a little bit better. Thank you. Lisa Su Sure, Tom. So I think you actually said it well. We are launching Zen 5 desktops and notebooks with volume ramping in the third quarter. And that's the primary reason that we see above-seasonal. The AI PC element is certainly 1 element of that, but there is just the overall refresh. Usually, desktop launches going into a third quarter are good for us, and we feel that the products are very well positioned. So those are the primary reasons. And our final question comes from the line of Chris Danely with Citi. Please proceed with your question. Chris Danely Again. Thanks for speaking me in. Just a question on gross margin. So if we look at your guidance, it seems like the incremental gross margin is dropping a little bit for Q3. Why is that happening? And then just a follow-up on another part of the gross margin angle. Have you changed your gross margin expectations for the MI300? Has the accretion point moved out a little bit? Jean Hu Yes, Chris, thanks for the question. I think, first we have made a lot of progress, as you mentioned, this year to expand our gross margin from 2023 at a 50 percentage point to, we actually guided 53.5% for Q3. The primary driver is really the faster Data Center business growth. If you look at the Data Center business as a percentage of revenue from 37% in Q4 last year to now close to 50%. That faster expansion really helped us with the gross margin. When you look at the second half we will continue to see Data Center to be the major driver of our top-line revenue growth, will help with the margin expansion. But there are some other puts and takes. I think Lisa mentioned the PC business actually is going to do better in second half, especially typically, seasonally, it tends to be more consumer-focused. So that really is a little bit different dynamics there. Secondly, I'd say, Embedded business, we are going to see Embedded business to be up sequentially each quarter. But the recovery, as we mentioned earlier, is more gradual. So when you look at the balance of the picture, that's why we see the gross margin -- the pace of the gross margin changed a little bit, but we do see continued gross margin expansion. As far as MI300, we are quite confident over the long-term, it will be accretive to our corporate average. We feel pretty good about the overall Data Center business to continue to be absolutely the driver of gross margin expansion. Thank you. I would like to turn the floor back over to Mitch for any closing comments. Mitch Haws Great. That concludes today's call. Thanks to all of you for joining us today. And ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.