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

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 actual results to differ materially. With that, I'll hand the call over to Lisa.

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 by 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 by 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 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 ground-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, 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 the 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. 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, 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 and 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 extend 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 flat 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.

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 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 segments. Revenue increased 7% sequentially, primarily driven by growth in the data center and the client segments. 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 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 the 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 a data center GPU product. 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 the client segment. We expect embedded segment revenue to be up and the gaming segment to decline by a 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 products. We expanded gross margin significantly and drove earnings growth while increasing investment in AI. Looking forward, opportunities ahead of us are unprecedented and we 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.

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

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 roadmap for next year. Thank you so much.

Yes. Great, Ben. Thanks for the question. So first of all on 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 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 roadmap. I think we feel really good about our roadmap. 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.

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 about 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 update us on how you see the server market playing out over the next couple of quarters.

Yes, we are very pleased with the progress we have made with EPYC. Our fourth-generation EPYC, particularly between Zen 1 and Bergamo, is performing exceptionally well. We have seen broad adoption across cloud platforms as well as strong focus on enterprise and third-party cloud instances. We are starting to see good traction in enterprise among both new and existing customers, and we are also witnessing an increase in third-party cloud adoption. Overall, our EPYC portfolio has been successful. Looking ahead to the second half of the year, we feel optimistic. The market appears to be improving, with signs of increased spending in both enterprise and cloud sectors. Additionally, we are in the process of launching Turin, which began production in the second quarter, and we expect to roll it out widely in the second half of the year, contributing to our revenue. Overall, we believe that the server market and our ability to continue growing our share in it look promising as we move into the second half of the year.

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.

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 roadmap that we are planning.

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.

Yes, sure, Ross. So first, we are very pleased with our Client business results. I think we have a very strong roadmap, so I'm very pleased with the roadmap. 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.

And is the ARM side changing anything or not really?

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.

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 roadmap 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.

Yes, we are very pleased with the progress on the Instinct roadmap. This is definitely a long-term endeavor, paralleling the EPYC journey, which expands opportunities, workloads, and deployments with each generation. We are focused on the long game. In the near term, we achieved key milestones this year related to delivering hardware in volume to multiple hyperscalers and large Tier 2 customers. Our software has been deployed in various environments, and it has matured significantly. ROCm has seen great improvements in features, functions, and out-of-box performance, boosting our confidence through this process. We are also continuing to invest in the networking aspects of building out the rack scale and system-level components. Engaging in long-term discussions across multiple generations is essential. Overall, we see strong progress for MI300, but we still have much work ahead, and our roadmaps will help unlock more opportunities in the coming years.

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.

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 roadmap 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.

Thank you, Lisa.

Thanks, Vivek.

Thank you. I also wanted to ask about MI300. Could you discuss the difference between training and inference? I know the initial focus was on inference, but do you have any traction on the training side? And any idea of how that split might change over time?

Yes, thanks for the question, Joe. As we mentioned regarding MI300, it has several excellent features, particularly its leading memory bandwidth and capacity. Early deployments have primarily focused on inference, and we've seen outstanding performance in that area. We also have customers engaged in training, and we've made significant improvements to our ROCm software stack to facilitate easier training on AMD systems. I anticipate that training will gradually increase over time. Looking ahead, it appears that inference will outpace training in market size, but from AMD's perspective, I expect both areas to present growth opportunities for us.

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.

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.

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 and the Data Center GPU side, we are ramping the revenue. The business model can leverage very significantly even from the 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.

Thank you very much.

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 way off? Or how should we think about that apportioning out across the segment?

Yes. Maybe Stacy, let me give you the following color. So the Gaming business is down double digits 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. We expect to see growth in both the Instinct GPUs and the server side.

Hi, Lisa. From what I understand, the significant difference in adoption between your Instinct products and those of your closest competitor seems to stem from the rack-level performance and the associated infrastructure that you might be missing. You mentioned UALink, and I would like you to elaborate on that and provide more insight on when the gap might be closed. Is this a significant step for the industry to help close that gap? Any information you can share would be appreciated.

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.

Thank you, Lisa.

Thanks, Harsh.

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.

Yes. There are many aspects to your question, so let me address each one. Regarding your inquiry about supercomputing, that mainly pertained to the fourth quarter and partly to the first quarter. When considering our second quarter revenue, it is almost entirely from AI, specifically the MI300X for large AI, hyperscalers, and OEM customers targeting enterprise and Tier 2 data centers. In terms of what we're doing, regarding memory, there is a lot of noise in the system that I wouldn't focus on. We've experienced an incredible ramp, and I'm genuinely proud of the team for achieving the fastest product ramp to over $1 billion in the second quarter, with continued growth in the third and fourth quarters. We have multiple suppliers qualified on HBM3, and while memory can be tricky, we've managed it effectively and are also qualifying HBM3E for future products with various memory suppliers. The exciting part is how much better the ROCm capability has improved due to extensive customer usage. We focus on out-of-box performance and how quickly customers can get started with the MI300. Depending on the software used, particularly with higher-level frameworks like PyTorch, customers can be up and running in just a few weeks, which is fantastic for expanding our overall portfolio. We will keep investing in software, which is why we acquired Silo AI, bringing in 300 skilled scientists and engineers with experience in AMD hardware to assist customers. We view this as an opportunity to grow our customer base with talent from Silo AI and Nod.ai, which provided substantial compiler expertise, while we continue to hire organically. As Jean mentioned earlier, we see leverage in our model, but we plan to keep investing because the opportunity is enormous, and we have all the necessary components. This is all about scaling up.

Thanks so much.

Thanks.

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.

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.

Again. Thanks for bringing 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?

Yes, Chris, thank you for your question. We have made significant progress this year in expanding our gross margin, increasing it from 50% in 2023 to an expected 53.5% for Q3. The main reason for this growth is the rapid expansion of our Data Center business, which has increased its revenue contribution from 37% in Q4 of last year to nearly 50% now. This growth is a key factor in our gross margin improvement. In the second half of the year, we anticipate that the Data Center will continue to be the primary contributor to our revenue growth and help with margin expansion, although there are various factors to consider. As Lisa mentioned, the PC business is expected to perform better in the second half, typically driven more by consumer demand during this season, which introduces different dynamics. Additionally, we expect our Embedded business to show sequential growth each quarter, but its recovery will be gradual. Given these factors, the pace of our gross margin expansion may vary, but we do expect continued growth in gross margins. Regarding the MI300, we are confident that it will positively impact our overall average in the long term, and we believe that the Data Center business will remain a strong driver for our gross margin expansion.

Thank you.

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