Advanced Micro Devices AMD Q3 2021 Earnings Call Transcript

Speaker 1: (00:00) Hello, and welcome to the AMD third quarter 2021 earnings call and webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Laura Graves, corporate vice president, investor relations. Please go ahead, Laura. Laura Graves: (00:27) Thank you, and welcome to AMD's third quarter 2021 financial results conference call. By now, you should have had the opportunity to review a copy of our earnings press release and accompanying slideware. If you have not reviewed these documents yet, they can be found on the investor relations page of amd.com. Participants on today's conference call are Dr. Lisa Su, our president and chief executive officer, and Devinder Kumar, 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 we will host our Accelerated Data Center Premiere virtually on November 8th, with featured presentations by Dr. Lisa Su and Data Center executives Forrest Norrod and Dan McNamara. This event will also be available on amd.com. Dr. Su will also attend Credit Suisse's 25th Annual Technology Conference on Tuesday, November 30th. Ruth Cotter, senior vice president, worldwide marketing, human resources, and investor relations will attend the Barclays Global Technology, Media, and Telecomm Conference on Tuesday, December 7th. And our fourth quarter 2021 quiet time is expected to begin at the close of business on Friday, December 10th. Laura Graves: (01:44) Today's discussion contains forward-looking statements based on current beliefs, assumptions, and expectations, speaks only as of today, and as such involves 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. We will refer primarily to non-GAAP financial measures during this call. The full non-GAAP to GAAP reconciliations are available in today's press release, and in the slides posted on our website. Now with that, I'll turn the call over to Lisa. Lisa? Dr. Lisa Su: (02:21) Thank you, Laura, and good afternoon to all those listening in today. Our business performed extremely well in the third quarter as our leadership product portfolio and strong execution drove record quarterly revenue, operating income, net income, and earnings per share. We delivered our fifth straight quarter of greater than 50% year-over-year revenue growth, with each of our businesses growing significantly year-over-year, and datacenter sales more than doubling. Third quarter revenue grew 54% to 4.3 billion. Gross margin expanded by more than four percentage points, and operating income double year-over-year. Dr. Lisa Su: (03:03) Turning to our computing and graphics segment, third quarter revenue increased 44% year-over-year to 2.4 billion, driven by our latest-generation Ryzen, Radeon, and AMD Instinct processors. In client computing, sales grew by a strong double digit percentage year-over-year, and declined slightly sequentially. Ryzen 5000 processor shipments increased by a double digit percentage sequentially, resulting in a richer product mix as we believe we gained revenue share for the sixth straight quarter. In desktops, we launched our Ryzen 5000 processors with integrated Radeon graphics for the channel to strong demand as third-party reviews highlighted the leadership computing and graphics capabilities and energy efficiency of these processors. In notebooks, Acer, Asus, HP, and Lenovo all expanded their mobile offerings powered by Ryzen 5000 mobile processors as we continued gaining momentum in the premium consumer, gaming, and commercial markets. Commercial client growth year-over-year was based on new deployments across public sector and Fortune 1000 technology, energy, and automotive customers, as the number of AMD-based commercial notebook designs available from the largest OEMs increased significantly year-over- year. Dr. Lisa Su: (04:31) We're also seeing strong growth in the workstation market. According to IDC, Threadripper PRO processors now power the best-selling works stations in their category in both North America and EMEA as we continue winning high-volume deployments across key verticals, including media and entertainment, engineering, architecture, and automotive. In graphics, revenue more than doubled year-over-year, and grew by a strong double digit percentage sequentially, driven by shipments of our next-generation AMD CDNA2 datacenter GPUs, and demand for Radeon 6000 GPUs in the channel. AMD RDNA2 GPU sales grew significantly in the quarter as we ramped production and expanded our top-to-bottom portfolio with a launch of the mid-range Radeon RX 6600 XT cards that delivered leadership 1080p gaming performance at their price point. Datacenter graphics revenue more than doubled year-over-year and quarter-over-quarter, led by shipments of our new AMD CDNA2 GPUs for the Frontier exascale supercomputer at Oak Ridge National Laboratory. Dr. Lisa Su: (05:43) Frontier was architected specifically to deliver breakthrough HPC and AI compute performance, and provide a blueprint for how supercomputing, enterprise, and cloud customers can enable exascale-level performance over the coming years by combining AMD CPUs, GPUs, and software. We are very pleased with the performance of our AMD CDNA2 GPUs, and look forward to providing more details on their leadership performance next month. Turning to our enterprise, embedded, and semi-custom segment, revenue increased 69% year-over-year to 1.9 billion, driven by strong growth in EPYC processor and semi-custom sales. Semi-custom revenue grew sequentially and year-over-year, as demand for the latest Microsoft and Sony consoles remains very strong. We expect semi-custom revenue to increase sequentially in the fourth quarter as we further ramp supply to address the ongoing game console demand. Dr. Lisa Su: (06:42) Turning to server, we delivered our sixth straight quarter of record server processor revenue, as sales more than doubled year-over-year, and grew by a significant double digit percentage sequentially. Third-gen EPYC processors continue ramping faster than the prior generation, and contributed the majority of our server CPU revenue in the quarter. In cloud, multiple hyperscalers expanded their third-gen EPYC processor deployments to power their internal workloads, and both Microsoft Azure and Google announced multiple new AMD-powered instances. Cloudflare, Vimeo, and Netflix also all recently announced new deployments powered by EPYC processors, with Netflix highlighting how they doubled their streaming throughput per server while also reducing their TCO. Enterprise growth was particularly strong in the quarter as the more than 100 third-gen EPYC processor platforms from Dell, HPE, Lenovo, Supermicro, Cisco, and others ramp into broader end-customer deployments. Dr. Lisa Su: (07:50) We expanded our wins in the quarter with Fortune 1000 financial services, automotive, and aerospace companies, and see significant ongoing growth opportunities as our enterprise server pipeline has more than doubled year-over-year. In supercomputing, we won multiple installations in the quarter, highlighted by Argonne National Laboratory selecting third-gen EPYC processors to power the new Polaris supercomputer that will be used to test and optimize software in preparation for future exascale-class systems. Overall, we are very pleased with momentum we have built in our datacenter business, as server CPU and GPU revenue grew to a mid-20s percent of overall revenue in the quarter. Turning towards Xilinx acquisition, we are making good progress towards securing the required regulatory approvals and remain on track to close by the end of the year. The Xilinx acquisition provides significant benefits to AMD, including expanding our product portfolio with leadership, adaptive computing, and AI solutions, and further diversifying our customer base into complementary markets, including wired and wireless communications, industrial, and automotive. Dr. Lisa Su: (09:08) In closing, our record third quarter results and the significant acceleration of our business in 2021 demonstrate that we have the right products and strategies to drive best-in-class growth and significant shareholder returns. We continue growing faster than the market, driven by our consistent execution and the investments we have made to build leadership products. Our supply chain team has executed extremely well in a challenging environment, delivering incremental supply throughout the year, supporting our strong revenue growth. We are also investing significantly to secure additional capacity to support our long-term growth. Our product portfolio and roadmaps have never been stronger, and I look forward to sharing more details about our next-generation server CPUs and GPUs at our Accelerated Data Center Premier on November 8th. Now I'd like to turn the call over to Devinder to provide some additional color on our third quarter financial performance. Devinder? Devinder Kumar: (10:09) Thank you, Lisa, and good afternoon, everyone. AMD had another excellent quarter. Our leadership products and growing datacenter momentum are driving record revenue, record profitability, and significant cash flow generation. Third quarter revenue was 4.3 billion, up 54% from a year ago, driven by strong revenue increases across all businesses, and up 12% from the prior quarter. Gross margin was 48%, up 440 basis points from a year ago, driven by strong revenue mix and competitive products. Operating expenses were 1.04 billion, compared to 706 million a year ago as we continue to invest in our long-term product roadmaps and scaling our business. Operating income more than doubled to 1. 06 billion, up 530 million from a year ago, driven primarily by revenue growth. Operating margin was 24%, up from 19% a year ago. Net income grew to 893 million, up 392 million from a year ago. Diluted earnings per share was 73 cents, compared to 41 cents per share a year ago. This includes a 15% effective tax rate, compared to 3% a year ago. Devinder Kumar: (11:43) Now turning to the business segment results, computing and graphics segment revenue was 2.4 billion, up 44% year-over-year, driven by significantly higher client and graphics processor revenue. Computing and graphics segment operating income was 513 million, or 21% of revenue, compared to 384 million or 23% a year ago. The increase in operating income was primarily driven by higher revenue, which more than offset higher operating expenses. Operating margin was slightly lower year-over-year, primarily due to investments in R&D and go-to-market. Enterprise, embedded, and semi-custom segment revenue was 1.9 billion, up 69% from 1.1 billion the prior year. The strong revenue increase was primarily driven by significantly higher EPYC processor and semi-custom sales. EESC operating income was up significantly at 542 million, or 28% of revenue, compared to 141 million or 12% a year ago. Operating income growth was- Devinder Kumar: (13:03) ... 12% a year ago. Operating income growth was primarily driven by higher revenue and richer product mix, partially offset by higher R&D and go-to-market expenses. Devinder Kumar: (13:14) Turning to the balance sheet, cash, cash equivalence, and short term investments were 3.6 billion. We utilized 750 million to repurchase more than seven million shares of common stock in the third quarter of 2021, as part of our ongoing stock repurchase program. Free cashflow was 764 million, compared to 265 million in the same quarter last year, and 888 million in the prior quarter. On a quarter over quarter basis, free cashflow was lower as we made strategic investments in long term supply chain capacity to support future revenue growth. Inventory was 1.9 billion, up 137 million from the prior quarter, in support of continued revenue growth. Devinder Kumar: (14:10) Let me now turn to the fourth quarter outlook. Today's outlook is based on current expectations, and contemplates the current global supply environment and customer demand signals. We expect revenue to be approximately 4.5 billion, plus or minus 100 million, an increase of approximately 39% year over year, and approximately 4% sequentially. The year over year increase is expected to be driven by growth across all businesses, the quarter over quarter increase is expected to be driven by higher server and semi-custom sales. In addition for Q4 2021, we expect non-gap gross margin to be approximately 49.5%, non-gap operating expenses to be approximately 1.15 billion, non-gap interest, expense, taxes, and other to be approximately 170 million, and the diluted share count to be approximately 1.22 million shares. Devinder Kumar: (15:17) For the full year 2021, we now expect revenue to increase approximately 65% percent over 2020, driven by growth across all businesses, up from the prior guidance of 60%. In addition, we continue to expect gross margin to be approximately 48% for the full year. Devinder Kumar: (15:40) In closing, we delivered another outstanding quarter with very strong year over year revenue growth, significant financial momentum, and record profitability. Our leadership products position as well to drive future growth, significant cash generation, and strong shareholder returns. With that, I'll turn it back to Laura for the question and answer session. Laura? Laura/Lisa: (16:08) Thank you, Davinder. Operator, we're ready for our first question. Operator: (16:14) Thank you. We'll now be conducting a question and answer session. If you'd like to be placed into question queue, please press star one on your telephone key. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. Operator: (16:32) One moment please, while we poll for questions. Our first question today is coming from Blaine Curtis from Barclay's, your line is now live. Blaine Curtis: (16:40) Hey, good afternoon, and great results. Thanks for taking my questions. Just kind of curious, the overall outlook for Q4. So computing graphics being down, I was just curious if that was more a supply? You're still growing sequentially, and obviously I would assume you prioritize servers. Just kind of curious what you're seeing in the computing graphics market, and is it anything related to supply constraints for you that would be down sequentially, or maybe downstream constraints, and then maybe [inaudible 00:17:08]. You're still growing gross margin. I'm assuming now the semi-custom and service can offset each other. Just kind of walk us through the nice increase in gross margin for Q4. Laura/Lisa: (17:18) Yeah, sure, Blaine. Thanks for the question. So as it relates to the fourth quarter and where we are, we're overall very pleased with our performance, in terms of the second half of the year. It's playing out about what we expect it to be in the PC market, so you were asking about computing and graphics. We had seen that the PC market end user demand is strong overall, but the are some match set constraints in the PC market. And so for that reason, we've called the PC market really flattish. I would not have said down, I would have called it flattish, as we look into the fourth quarter. Laura/Lisa: (17:56) However, as we look overall at the business, I think the data center business has performed very well, and we see strong demand there and we're continuing to see that. And as well, the console business, overall gaming is also quite strong, and so we see growth in servers and semi-custom as we go into the fourth quarter. Laura/Lisa: (18:19) And then on the margin dynamics, Davinder, you want to cover that? Devinder Kumar: (18:20) For Q4? Laura/Lisa: (18:20) Mm-hmm (affirmative). Devinder Kumar: (18:22) Yeah. So Q4, it is up slightly, based on our guidance, one point from Q3, and that's really product makes higher margin from server, offset by semi custom revenue also being higher, going from Q3 to Q4. So very pleased with the progress of the gross margin, as you look at the Q3 results, up to 440 basis points from last year, up 80 basis point last quarter. And the progression in the Q4, obviously driven by the server, our revenue growing, very pleased with that also. Blaine Curtis: (18:55) Thanks. Laura/Lisa: (18:58) Thanks, Blaine. Operator: (19:00) Thank you. Our next question today is coming from Vivek Arya from Bank of America, your line is now live. Vivek Arya: (19:06) Thanks for taking my question, and congratulations on the strong results and the consistent execution. Vivek Arya: (19:12) Lisa, how are you feeling about the spending environment in the data center as we look over the next several quarters, and especially your server roadmap versus the competition? Because they're planning to launch several new and important products early next year, so I was just wondering how you are thinking about the competitive landscape and the spending landscape over the next year? Laura/Lisa: (19:37) Sure. So thanks Vivek, for the question. I think overall we're feeling very, very good about the server business, or the data center market, I think from a market standpoint we've seen a strong market here in 2021, in both cloud and enterprise, and we see that continuing into 2022. I think from a competitive position standpoint, I think Milan is extremely well positioned, so we were very pleased with the adoption rate of Milan. We said that we expected it to grow faster than Rome, and it has, and so the crossover with Milan and Rome in the third quarter is an important metric for that. Laura/Lisa: (20:20) Going into the fourth quarter, we continue to see a strong environment, and then as the competitive environment goes into 2022, we always expect the competition to be strong, but our focus has been consistent execution of our roadmap. And we feel very good about Zen 4 in Genoa in 2022. I think we feel very good about the competitive positioning there, and we continue to believe that data center is the most strategic part of our business, and we're making good progress with our customers and partners. Vivek Arya: (20:55) All right. And for my follow up, Lisa, AMD has done very well in terms of gaining share at the hyperscalers. Where are you in that journey? Is there still a lot of share gains to be had at hyperscalers, and importantly, can you repeat that in the enterprise, or do you think your competitors incumbency limits the share gain opportunity in the enterprise? Thank you. Laura/Lisa: (21:19) Yeah. So Vivek, what I would say there is our business has been more cloud weighted with the hyperscalers than enterprise, that continued here in the third quarter. I do believe that there is significant additional opportunity for us in the cloud. So as we work with these partners, it is about expansion of workloads. Really, there's more tailoring of workloads as well, as we go forward. And then there's also just more customers and broader penetration in both tier one and tier two cloud guys, so I think that's a good market for us. On the enterprise side, I would say we saw a very strong enterprise quarter here in the third quarter. I think the strength of Milan with our OEMs, in terms of the breadth of the platforms, is very good, and we're seeing a good traction with Fortune 1000 companies. So I would say, overall, I think we see a growth trajectory for both our cloud and enterprise business. I think in the enterprise, the key thing has been to get more familiarity with Epic, and we've made very good progress there, and so I feel very good about where that's going. Vivek Arya: (22:41) Okay. Thank you, Lisa. Laura/Lisa: (22:42) Thanks. Operator: (22:43) Thanks. Your next question is coming from Matt Ramsey from Calvin, your line is now live. Matt Ramsey: (22:49) Thank you very much. Good afternoon, everyone. Obviously, Lisa, some really strong progress with data center crossing, I guess a quarter of the business here with the results. I did want to ask a question specifically on your server business in China. Your competitor called out China and some of the turmoil that's gone over there as a reason why some of their cloud business had some hit headwinds in the third quarter, and maybe you could comment on how you see spending over the last quarter and then in the next couple of quarters specifically in that end market in China? And then I have follow up. Thanks. Laura/Lisa: (23:28) Sure, Matt. So again, what I would say is our data center business performed very well in the third quarter, that was across both cloud and enterprise. And in cloud, that was across geographies, so we haven't seen anything particular as it relates to China, or there. What I would say is we continue to work with a breadth of customers, and we're in the process of really rolling out sort of broader adoption across the customer set, so I think we saw a pretty normal environment for demand. Matt Ramsey: (24:06) No, thanks for clearing that up. As my follow up, kind of unrelated, you guys mentioned in the comments still plans to get the Xilinx deal closed by the end of the year, and I think that's important, as then there's a lot of things that you can talk about maybe more openly about the heterogeneous compute strategy for the business over the long term. Lisa, maybe you could walk us through, to the extent that you can talk about it... obviously there's some things that you can't talk about, but the extent you can... what milestones you've achieved behind the scenes that make you feel confident, and what hurdles are still there to have the confidence? Guess we got six weeks till we get into the month of December and things kind of slow down a little bit, regulatory wise. So I just wonder what gives the confidence that we can get there, and what we should expect. Thank you. Laura/Lisa: (24:58) Sure, Matt. So look, we've been working diligently on the closure of the Xilinx acquisition, I would say we're through the vast majority of what we need to do in the regulatory front. We're finishing up here, and there's very good progress on the integration side, so we've done a lot on the integration, I think we're excited with the plans that we have. And then on the regulatory front, again, as I said in the prepared remarks, we've made good progress and we believe we're on track to close at the end of the year. Operator: (25:37) [crosstalk 00:25:37] Thanks, next question. Speaker 2: (25:37) Go ahead. Operator: (25:40) Certainly. Our next question is coming from Toshiya Hari from Goldman Sachs, her line is now live. Toshiya Hari: (25:45) Hi, good afternoon. Thank you so much for taking the question, and congrats on the strong results. Lisa, I had two questions as well. First, on your outlook for 2022, I realize it's early and I certainly don't expect you guys to provide a point estimate, but I think- Toshiya Hari: (26:03) ...to provide a point estimate. But I think people are concerned that you've been overgrowing, if you will, relative to your longterm growth rate. You grew 45% last year. You're on track to grow 65% this year. Given your longterm through cycle growth target of 20%, again, there is concern that you could decelerate going into next year given PC dynamics and competitive dynamics and so on and so forth. So, again, I don't expect you to give any quantification of next year, but if you could describe the year qualitatively, what are the potential pluses and minuses at this point, that would be super helpful and then I've got a quick follow-up. Laura/Lisa: (26:40) Sure. So, look, as you said, it's a little bit early to talk about 2022 quantitatively. I'll say qualitatively, what we see is, look, we see a positive demand environment and that's a market statement, but that's also an AMD statement. I think the strength of our product portfolio has multiple growth vectors. Data center continues to be a very important one for us. I think we continue to make progress in the graphics market and we think graphics is a good growth vector. Our console business, I had mentioned earlier that it'd be up in the fourth quarter, and we would expect it to be up in 2022 just given the strength of the demand environment there. Laura/Lisa: (27:32) And so, on the PC side, the comments I'll make on the PC side are the end user demand appears to be strong, so there's a good amount of refresh going on, whether you're talking about high end consumer or commercial or gaming. There are some supply constraints around match sets that we believe will continue into the first half of the year. That being the case, what we're using from a planning assumption standpoint is that the PC market may be flattish as we go from 2021 into 2022. But even within that environment, we think there are opportunities for us to continue to grow. So overall I think we're very focused on execution, very focused on working with our customers to make sure that we're aligned with what they nee and overall feel very good about our product portfolio going into 2022. Toshiya Hari: (28:36) Got it. That's super helpful. Thank you. And then, as my quick follow-up, similar question on gross margins. Not sure if this is for Lisa or Davinder, you're guiding Q4 to 49.5%, which is obviously significant progress from a year ago. Given some of the dynamics you've talked about, whether it be the growth potential in server CPU, the mix within server CPU, and I'm sure the mixed dynamics on the client side, I think most of us do expect a pretty nice, positive trajectory into 2022, potentially with a five handle in terms of, again, gross margins. But any risks or any headwinds that we should be aware of? I think your [Foundry 00:29:20] partner is raising pricing, there is cost inflation generally across the board, but any risk items that we should think about at this point? Thank you. Davinder: (29:29) I wouldn't say risk item, but I think it's about managing the situation. As Lisa said, with the growth factors that we have, we expect to continue making progress from where we are currently and especially predicated on the competitive leadership products we have. We are very pleased with the progress we've made over the last few years, but without getting into specifics I think you can assume that we continue make progress with a mix of revenue, mix of products, and the competitive products that we are introducing also into 2022. Toshiya Hari: (30:01) Thank you. Speaker 3: (30:02) Thank you. Our next question is coming from Stacy Rasgon from Bernstein Research. Your line is now live. Stacy Rasgon: (30:10) Hi, guys. Thanks for taking my questions. My first one, I wanted to ask about data center GPU. I know you said it more than doubled, but can you give us an approximate feeling for how big that is? Are we still talking tens of millions of dollars or is it larger than that? And what are your expectations for how that's going to ramp as Frontier and some of the other supercomputers that a lot of this stuff is going into are ramping over the next couple years? Laura/Lisa: (30:32) Sure. So, Stacy, on the data center GPU side, the third quarter was a larger quarter for the data center GPU. This is where we shipped the Frontier shipments that are now in the build cycle. It is still a relatively small business compared to the CPU side, so our expectation is that going into the fourth quarter it's a lumpy business for us. Q3 was a strong quarter given the shipments for Frontier. We would expect as we go into the fourth quarter that it'll be down sequentially quarter on quarter, but still it's a strong growth year overall for a business that we think is a significant strategic growth driver for us over the next few years. Stacy Rasgon: (31:21) Got it. Thank you. For my follow-up, I just wanted to ask you about Q4. So, obviously, you had given implied guidance for Q4 last quarter. The guidance now is obviously decently higher. Can you just talk a little bit about what is driving that upside relative to where your expectations were last quarter? Laura/Lisa: (31:40) Davinder, do you want to talk about that? Davinder: (31:41) Go ahead, please. Laura/Lisa: (31:44) I'm sorry. Were you asking about revenue or margin, Stacy? Stacy Rasgon: (31:47) Well, both. If you're willing to answer both, both. Laura/Lisa: (31:49) Okay, all right. Let me start. I want to make sure we're answering your question. How's that? So, look, on the revenue side, when we look at the sequential growth, this is about really supply chain optimization and we have been able to secure some additional supply given some of the work that we've been doing. And we see strong demand across the board, but sequentially what we're guiding to is stronger server demand as well as gaming, and gaming includes the semi-custom game consoles as well as our graphics business is doing quite well as well. And then, in terms of the sequential margin, it's similar. I mean, we're having server, some improved mix in graphics driving upside, and that's partially offset by the consoles, which are below corporate average. But net-net, I think it's a positive sequential both on revenue and margin. Stacy Rasgon: (32:48) I guess what I'm asking is, for example, are your expectations for servers into Q4 now higher than they were three months ago when you gave implied guidance for Q4? Laura/Lisa: (32:57) Yes. Yes, it is. Stacy Rasgon: (32:59) Got it. Okay. Thank you very much. Laura/Lisa: (33:01) Sure. Speaker 3: (33:05) Thank you. Our next question today is coming from Joe Moore from Morgan Stanley. Your line is now live. Joe Moore: (33:09) Thank you. I'm wondering if you could talk about graphics a little bit. It seems like that's the business that's probably struggled the most to get silicon, and yet you've shown some pretty nice growth there. What's the prognosis for that business going forward? And in the past you've said you're comfortable that there's relatively low cryptocurrency exposure there. Is that still the case? Laura/Lisa: (33:33) Yeah, sure, Joe. Look, the graphics business did have a strong third quarter. I think that's true for graphics gaming as well as data center GPU. I think the portfolio that we have there with our DNA too has turned out really well. So we're pleased with how it's positioned competitively in the marketplace. And overall gaming has been a secular trend that has continued with various strong demand. In terms of crypto, our view is that it's really negligible revenue for us in the third quarter. It's not a segment that we have been servicing. We've tried very much to try to keep our game and graphics focused on gamers. And we were able to increase some of the supply for graphics. And that's one of the reasons that we saw the sequential growth that we saw. And going into the fourth quarter next year, again, I think we see gaming overall as a strong segment for us and the product set is very good. So, we feel good about it. Joe Moore: (34:39) Great. Thank you very much. Laura/Lisa: (34:41) Thanks. Joe Moore: (34:42) Thank you. Our next question is coming from Aaron Rakers from Wells Fargo. Your line is now live. Aaron Rakers: (34:47) Yeah. Thanks for taking the question. I have two quick questions if I can as well. Just sticking on the expectations into next year, appreciating that you're not going to give a full guide, I'm just curious how we should think about the semi-custom business given how sizeable that's been to the overall growth in 2021? Any framing of how you expect 2022 to shape up at this point? Laura/Lisa: (35:13) Sure, Aaron. So, again, if you look at the overall growth that we had in 2021 I would say was actually quite balanced across all of our businesses. The semi-custom business was in the second year of ramp and demand has exceeded supply. We've been able to ramp that as we've gone through the year. As we look into 2020, the historical view of game consoles has been year four is the peak. At least that's what it was in the last generation. What we expect in this generation is, again, very strong demand going into 2022, so we would expect it to grow into 2022, which would be the third year of the cycle, and then we'll see what happens after that. But overall I think our view is we have a very balanced business with multiple growth drivers across data center, PCs, graphics as well as consoles. Aaron Rakers: (36:08) That's very helpful. And then the follow-up question is, on your own supply chain side I know in the prepared comments you said working on securing adequate supply given your growth trajectory. Are you currently able to meet all of the demand that you currently see? And can you give any color of how we should think about the supply situation on your end? Laura/Lisa: (36:32) Yeah. So, I mean, we've been working on ramping the supply chain really for more than a year if you think about dynamics here. What I'd like to say is, overall, the demand has been very, very high. So the fact that we can grow revenue this year 65% year on year I think is a testament to the supply chain work. I think if we had more supply, we could certainly ship more. That being the case, I think we're prioritizing in the most strategic segments and we have invested significantly in capacity for additional capabilities, and we'll see some of that come online as we go through 2022. And we're going to continue to be aggressive to secure additional capacity because we believe our product portfolio will enable that growth. Aaron Rakers: (37:29) Thank you. Laura/Lisa: (37:31) Thanks. Speaker 3: (37:32) Thank you. Our next question today is coming from John Pitzer from Credit Suisse. Your line is now live. John Pitzer: (37:37) Good afternoon, guys. Congratulations, Lisa. Lisa, my first question is back on the supply side of things. I'm just wondering if you could help me better understand, was it more of an issue in your PC business or your server business? And, I guess, especially as we look into next year, as supply begins to loosen up, this year given how tight the overall ecosystem was, competing on price didn't make a lot of sense. As supply begins to accelerate across the ecosystem, how are you thinking about pricing, especially in lieu of your large competitor resetting their gross margins for next year? In your view, does that give them more wiggle room or do you think that they're being pretty benign on the pricing side of things on that gross margin reset? Laura/Lisa: (38:24) Yeah. There's a lot of various aspects to that, John, so let me try to take it in pieces. As it relates to current supply, I want to make sure that we're clear. I mean, we have brought on a tremendous amount of additional supply and that's part of the reason that we overachieved the Q3 results and then we guided higher in Q4. So I do think that we have done a lot of work on our supply chain. In the PC market in particular, I think the market is not necessarily constrained on CPU, but more constrained on match sets. And so we're trying to ensure... Laura/Lisa: (39:03) ... but more constrained unmatched sets. And so we're trying to ensure that we're not building inventory in the channel. And that's part of the optimization that we do, is to ensure that as we ship sell-in processors that we see matched sets to sell through. And so from that standpoint we think inventory is very healthy at the OEMs, and that's a important factor as we go into 2022. As it relates to what happens with the pricing environment as supply eases up, I think right now what we see is again it's an environment where most people are prioritizing supply. As we go into 2022 though, I think this is all about the product. Laura/Lisa: (39:48) And what we view is our focus in our product line has been moving up the stack, ensuring that we're providing significant value to our customers in terms of total cost of ownership on the server side, and innovative features and capabilities on the PC side and the graphic side. And we're going to continue to do that. We're excited about our product portfolio into 2022. We're going to continue to be very aggressive on the overall roadmap. And with that, I think our game plan is exactly what it always has been, which is lean into the product cycle and the deep customer relationships, and continue to build that out over time. John Pitzer: (40:36) That's helpful. And then as my follow up, Devinder you did a good job explaining the year-over-year changes in operating margins in the compute and graphics business. I'm wondering if you could talk a little bit about sequentially what happened? Revenue was up and op margins were down a little bit. Is that just the influence of the very strong growth in GPUs going into the datacenter? Because it sounds like, in the core compute business, mix probably got better sequentially for you. So I'm just trying to make sure I understand all the dynamics in play. Davinder: (41:07) Yeah. If you're talking about the CG segment, it's investments, some investments at R&D and go-to-market. And also we have a lot of new products coming into 2022 and there's expenditure involved ahead of the curve before you introduce the products in the next year. And that's really what happened in the transition, quarter over quarter. John Pitzer: (41:26) Perfect. Thank you. Speaker 4: (41:29) Thank you. Our next question today is coming from Chris Caso from Raymond James. Your line is now live. Chris Caso: (41:35) Yes. Thank you. Good evening. First question is about the supply constraints and how that affects seasonality as we go into the beginning of next year. And obviously you're making efforts to bring on more supply. You spoke about in PC these constraints with regard to matched sets. I'm sure at this point you don't want to provide guidance for Q1, but how should we be thinking about seasonality for Q1 as we contemplate these supply constraints? Laura/Lisa: (42:04) Yeah. Chris, I think it's a little bit early to talk about Q1. Let's see, what would we say about seasonality? I don't have a lot to say other than typically Q1 is down from Q4. That's typically what the pattern is, given the consumer-related businesses. It might be a little bit sub-seasonal as we go into this first quarter, just given the demand environment, but we'll have to see how things play out over the next couple of months. Chris Caso: (42:42) All right. Thank you. A little bit of a bigger picture question for my second question. We've heard and seen from some of the hyperscalers is a trend of in some cases doing some custom designs, doing it on their own, often with ARM-based designs. Do you consider that an opportunity or a threat for AMD? And and to what extent are you engaged with some of those hyperscalers on some of these custom designs, because you do have a IP portfolio yourself? Laura/Lisa: (43:12) Yeah. Chris, on that we definitely view it as an opportunity. So I think what's happening in the datacenter market is that as the need for compute gets larger, this tailoring of compute for the various workloads is an important trend. I think our IP portfolio today is very strong. I think it will even be stronger, given some of the things that we have in plan to allow more tailoring. And we are working very closely with a number of hyperscalers on the vision of compute over the next few years, and how we might put together some different solutions between our CPU, GPU, interconnect capability, and then with the addition of Xilinx as well coming into our portfolio. Lots of opportunity there for customization. I think that's a key trend that we're certainly going to lean into. Chris Caso: (44:14) Thank you. Laura/Lisa: (44:15) Thank you, Chris. Operator, two more questions, please. Speaker 4: (44:19) Certainly. Our next question is coming from Ross Seymour from Deutsche Bank. Your line is now live. Ross Seymour: (44:23) Thanks. Let me ask a question, echoed with the congrats of other people on the strong results. Lisa, I just wanted to ask about the comparison on your C&G side between the C and the G, and specifically on the client graphics side of things. Clearly this year has been a really strong year for AMD. Can you just talk about the go-forward on the client side? I think we're all pretty well aware of what's going to happen on the datacenter GPU side, but how do we reconcile your commentary on where you think the PC market would be in the flattish area, versus the strength you've had in GPUs this year, in a strong GPU market? Do you think that continues next year? How much of it is AMD-specific? Or if the PC market is weaker, is that something that's a little bit of a headwind for AMD? Laura/Lisa: (45:05) Yeah. Again, what I would say is our market share is still I would say underrepresented, whether you're talking about the client CPU or APU side, or the GPU side. I think what we have seen here in the third quarter and then into the second half of the year is our graphics business has performed quite well. It is channel-driven in the sense that there's still strong demand amongst gamers for GPUs. As we go into 2022, though, I don't view the PC market as a headwind for the company. Laura/Lisa: (45:52) As we look at all of these markets, of course we do a bunch of scenario planning, of if the market is up or if it's down. I think there are many who think that the market may be up. There's some who think that market may be down. And that's why we're choosing to model the base case as flattish. But even within that market, whether you're talking about client CPUs or client GPUs, we think we have opportunities to gain share and grow in that business, just given the strength of our product portfolio and the fact that we are underrepresented to what we can expect, given those products. Ross Seymour: (46:37) Thanks for that. And I guess as my follow up just one for Devinder on the OPEX side, and I'll give the same disclaimer that I know you're not going to give any specifics about next year. But you guys have done a great job of lowering your OPEX intensity throughout this year. I think you're going to be closer to 24% versus your 26% to 27% entering the year, and 25% as of last quarter. So great expansion there, and margin, and better leverage. As we look forward, though, I think the third quarter was the first time where you guys spent enough that it actually impacted a segment where the operating margin fell a little bit, and I think we all understand why you're doing that, and it feeds great growth so it's not a negative. But as I look into '22, do you think next year can be another year where your operating leverage is positive, or do you expect to be able to spend closer to your former targets in the 25% to 27% of sales range? Davinder: (47:30) I think fundamentally, and what you observe is right, very disciplined from an OPEX standpoint, investing in the growth is important. Many of the things that Lisa talked about earlier is all about growth in many different vectors. And obviously that requires funding from an OPEX standpoint, whether it's R&D, go-to-market, hiring, which we are doing from a viewpoint of the growth in the company. And I think from a modeling standpoint, our guidance standpoint, you can assume that the growth in OPEX will be lower in revenue. Margin continues to expand, OPEX flattish or even down. You can model it. But very disciplined from that standpoint. And making sure that we are investing for the growth is a top priority for us. Ross Seymour: (48:14) Thank you. Speaker 4: (48:17) Thank you. Our final question today is coming from Timothy Arcuri from UBS. Your line is now live. Timothy Arcuri: (48:23) Thank you for fitting me in. I had two. I guess first, Lisa, no invest about software yet. I was wondering if you can update us on your software efforts, and maybe as you get close to closing Xilinx, how much that changes things for you on the software side, and maybe how your search for software talent's been? And then I had a follow-up. Laura/Lisa: (48:40) Sure, Tim. So yes, we continue to invest heavily in software, particularly on the datacenter GPU side. With our next generation GPU architecture, MI200, which we'll be talking a little bit about in the next few weeks, we have made significant investments and progress. Our focus has been on using the Frontier Beachhead with high performance computing, and expanding that into AI and working with our partners on that software development. So overall continue to make good progress there. I think the Xilinx acquisition and bringing in that software talent also provides opportunities to optimize across the overall portfolio in terms of just the software infrastructure that people want in an overall ecosystem. So a very strategic area that we're making good progress in. Timothy Arcuri: (49:43) Thanks a lot. And then I guess just the last question from me. Server share. If I look at your guidance for Q4, it looks like you're going to be in the 12.5% to 13% share if I use the entire TAM. And that's up 500 basis points versus last year Q4. So I guess the question is, is that a reasonable trajectory into next year? If we're sitting here 12 months from now, would you be surprised if you gained another 500 basis points next year? And where do you think about where that year can go? Thanks. Laura/Lisa: (50:15) Yeah. I think overall our server trajectory has been very strong. I think we're very pleased with the trajectory here in 2021. I think having a number of quarters where we're doubling the revenue year-on-year speaks to the progress there. As we go into 2022 we still believe we are a share gainer in that environment, just given the strength of our portfolio, and let's call it platforms that are still yet to launch across our customer set. So we're continuing to play out the strategy of a datacenter being a place where our technology is very differentiated. And we think that's true in the third generation with EPYC, and we certainly are very focused on ensuring that the next generation, with Zen 4 and Genoa, are similarly well positioned in the market place. Timothy Arcuri: (51:15) Thanks a lot. Laura/Lisa: (51:17) Thank you, Tim. Speaker 4: (51:18) Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments. Laura/Lisa: (51:23) No, we're good. Thank you very much, operator. And thank you to everyone for joining us today. We appreciate your time and participation, and your support of AMD. Have a good afternoon. Speaker 4: (51:33) Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.