Image source: The Motley Fool.
Advanced Micro Devices (NASDAQ: AMD)
Q4 2023 Earnings Call
Jan 30, 2024, 5:00 p.m. ET
Breakdown of the Conference Call:
- Opening Statements
- Interactive Session
- Attendees
Opening Statements:
Operator
Welcome to the AMD fourth quarter and full year 2023 conference call. We’ll soon have a brief question-and-answer session following the formal presentation. [Operator instructions] And as a reminder, this conference is being recorded.
Here is Mitch Haws, vice president, investor relations, to begin.
Mitch Haws — Head of Investor Relations
Greetings, and welcome to AMD’s fourth quarter and full year 2023 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, available on the investor relations page of amd.com. We will refer primarily to non-GAAP financial measures during today’s call, and the full non-GAAP to GAAP reconciliations are available in today’s press release and the slides posted on our website. Participants on today’s call include Dr. Lisa Su, our chair and chief executive officer; and Jean Hu, our executive vice president, chief financial officer, and treasurer.
Additionally, please note forthcoming industry events our executives will attend: Mark Papermaster, executive vice president, and chief technology officer will attend the Bernstein Tech, Media, Telecom & Consumer One-on-One Forum on Tuesday, February 28th; and Jean Hu, executive vice president, chief financial officer, and treasurer will attend the Wolfe Research Semiconductor Conference on Tuesday, February 15th, and the Morgan Stanley Technology, Media & Telecom Conference on March 5th. 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.
Lisa?
Lisa Su — President and Chief Executive Officer
Thank you, Mitch, and good afternoon to all those listening in today. We finished 2023 strong as Data Center sales accelerated significantly throughout the year, despite the mixed demand environment. As a result, we delivered record Data Center segment annual revenue and strong top-line and bottom-line growth in the fourth quarter, driven by the ramp of Instinct AI accelerators and robust demand for EPYC server CPUs across cloud, enterprise, and AI customers. Looking at our financial results.
Fourth quarter revenue increased 10% year over year to $6.2 billion, driven by a significant double-digit percentage growth in our Data Center and Client segments. On a full year basis, annual revenue declined 4% to $22.7 billion as record Data Center and Embedded segment annual revenue was offset by lower Client and Gaming segment revenue. Importantly, Data Center and Embedded segment annual revenue grew by $1.2 billion and accounted for more than 50% of revenue in 2023 as we gained server share, launched our next-generation Instinct AI accelerators, and maintained our position as the industry’s largest provider of adaptive computing solutions for.
Let’s delve into the specifics of our business results for the fourth quarter.
Data Center segment revenue grew 38% year over year and 43% sequentially to a record $2.3 billion. Server CPU and Data Center GPU sales both set quarterly and annual revenue records as sales of our Data Center products accelerated throughout the year. We gained server CPU revenue share in the quarter, driven by significant double-digit percentage growth in 4th Gen EPYC Processor revenue and demand for our 3rd Gen EPYC Processor portfolio. In Cloud, while the overall demand environment remained soft, server CPU revenue increased year over year and sequentially as North American hyperscalers expanded 4th Gen EPYC Processor deployments to power their internal workloads and public instances.
Amazon, Alibaba, Google, Microsoft, and Oracle introduced more than 55 AMD-powered AI, HPC, and general-purpose cloud instances into preview or general availability in the fourth quarter. Exiting 2023, there were more than 800 EPYC CPU-based public cloud instances available. We expect this number to grow in 2024 based on the leadership performance, efficiency, and features of our EPYC CPU portfolio. In Enterprise, sales accelerated by a significant double-digit percentage in the quarter as we built momentum with Forbes 2000 customers.
We closed multiple wins with large financial, energy, automotive, retail, technology, and pharmaceutical companies, positioning us well for continued growth, based on expanded production deployments planned for 2024. A growing number of customers are adopting EPYC CPUs for inferencing workloads, where our leadership throughput performance delivers significant advantages on smaller models like Llama 7B, as well as
AMD Shows Strong Momentum Across Business Segments
The latest reports from AMD indicate that the company is maintaining its consistent purpose and theme in delivering remarkable progress across various business segments. From significant advancements in its data center GPU business to robust growth in client and gaming segments, AMD continues to reinforce its position in the industry.
Data Center Momentum
AMD’s upcoming Turin family of EPYC Processors is generating substantial anticipation among customers. This is set to be a game-changer, offering enhanced performance, efficiency, and total cost of ownership. The company’s internal and end customer validation work on Turin is progressing smoothly, positioning it to deliver outstanding performance across a broad spectrum of workloads upon launch.
Data Center GPU Business
AMD’s data center GPU business has witnessed a significant acceleration, surpassing revenue expectations. The company’s MI300X GPUs have been met with overwhelmingly positive customer response, driving accelerated production to fulfill demand from cloud, enterprise, and supercomputing customers.
Enterprise and HPC Supercomputing
AMD’s partnerships with leading server vendors and its significant progress in the high-performance computing space are reflective of the company’s growing influence. Shipments of the MI300A accelerators to various supercomputing projects, including the El Capitan supercomputer, further solidify AMD’s foothold in this critical segment.
AI Software Development and Ecosystem Expansion
The release of the ROCm 6 software suite and the collaborative efforts with AI developers underscore AMD’s commitment to expanding its software ecosystem. The company’s collaboration with Hugging Face is expected to further enhance the compatibility of AI models with AMD GPUs, showcasing its dedication to fostering a robust AI development environment.
Client Segment and AI PCs
The launch of Ryzen 8000 series processors and the industry’s first desktop CPUs with an integrated AI engine signify AMD’s pursuit of AI leadership in the client segment. Partnerships with major PC OEMs and Microsoft are propelling the company’s vision for AI-enabled PCs forward.
Gaming Segment and Radeon GPUs
In the realm of gaming, AMD’s revenue from Radeon GPUs has observed a favorable trajectory, driven by strong demand in the channel. The introduction of new GPU series and software enhancements further reinforces the company’s position in the gaming space.
Embedded Segment
AMD’s accomplishments in the embedded segment, particularly with the introduction of new solutions for aerospace, healthcare, communications, and automotive industries, reflect its ability to address diverse market needs. The company is poised for sustained growth in the embedded sector.
As AMD steers its business across these diverse segments, the company’s continued innovation, strategic collaborations, and responsive adaptations to market demands position it for long-term success. The historical context of AMD’s journey reinforces its current momentum, leaving investors hopeful for the company’s future.
AMD’s Expansive Growth and 2024 Outlook
AMD reported an impressive result with an expanded product portfolio driving more than $10 billion of design wins in 2023, marking a significant increase of over 25% compared to the previous year.
Robust Revenue Growth and Gross Margin Expansion in Focus
The company’s consistent focus on product innovation and expansion drove a revenue of $22.7 billion and earnings per share of $2.65, demonstrating a year-over-year revenue growth in the Embedded and Data Center segments despite a mixed market demand environment.
AMD’s revenue for the fourth quarter of 2023 reached $6.2 billion, showing a 10% year-over-year growth. Additionally, the company maintained a flat gross margin of 51%, indicating a balanced performance across segments.
Segment Performance Overview
The Data Center segment exhibited outstanding growth, with revenue surging to $2.3 billion, marking a remarkable 38% year-over-year increase. The Client segment also delivered impressive results, with revenue reaching $1.5 billion, representing a substantial 62% year-over-year growth.
However, the Embedded and Gaming segments experienced declines in revenue, yet the company remains optimistic due to its strong product portfolio and strategic initiatives.
Financial Outlook for 2024
Looking ahead to 2024, AMD anticipates a mixed demand environment, with substantial growth in the Data Center and Client segments, while the Embedded and Gaming segments are expected to face declines. The company remains confident in delivering strong annual revenue growth and expanding gross margin, primarily driven by the robustness of its product portfolios.
AMD sees the increased adoption of AI as a pivotal factor in shaping the computing market. With a positive outlook on the multiyear AI adoption cycle in the Data Center, the company predicts market growth for Data Center AI accelerators to reach approximately $400 billion in 2027.
Positioning for Future Growth
AMD has showcased exceptional customer traction, underpinned by its multiyear AI hardware and software road maps. The company is poised to capitalize on the burgeoning opportunities in AI by delivering cutting-edge solutions across its portfolio, particularly in the Data Center, PCs, and embedded markets.
With its Instinct GPUs gaining traction and strategic positioning for significant market share, AMD is well-prepared to lead the impending wave of AI transformation in the computing industry.
Balance Sheet and Cash Flow
Remarkably, AMD maintained a strong cash position, ending the quarter with $5.8 billion in cash, cash equivalents, and short-term investments. The company’s prudent capital allocation efforts were evident through its share repurchases and significant returns to shareholders throughout the year.
Outlook for Q1 2024 and Beyond
Looking at the first quarter of 2024, AMD expects a revenue of approximately $5.4 billion. The company foresees a flat Data Center segment revenue, a seasonal decline in the Embedded segment, and a significant double-digit percentage decline in Gaming segment revenue.
For the full year, AMD broadly anticipates growth in the Data Center and Client segments, along with an expansion of gross margin. Amid extensive investment in AI opportunities, the company aims to drive quicker earnings-per-share growth compared to its top-line revenue growth.
Conclusion
AMD’s strong financial performance, coupled with the continuous enhancement of its product portfolio, notably in the realm of Data Center GPUs for AI, sets a promising tone for the company’s trajectory in 2024 and beyond. With a favorable outlook, AMD is poised to leverage its leadership position and capitalizing on the advantageous market trends to drive substantial revenue growth and earnings expansion.
The Future of GPU Revenue and Market Projections: A Fireside Chat with Lisa Su and Jean Hu
At a recent fireside chat, Lisa Su, the President and CEO of a leading tech company, delved into the expectations for GPU revenue and market projections going forward alongside Jean Hu, the Executive Vice President and CFO. The conversation provided a comprehensive perspective on the company’s recent performance and offered insights into its future outlook, specifically in the Data Center GPU segment.
Robust Performance and Seasonal Expectations
Reflecting on the past quarter’s performance, Su highlighted the company’s robust showing in the Data Center GPU business, with revenues exceeding $400 million. She emphasized the significant positive impact driven by the strong customer demand, manufacturing ramp, and product qualifications. Su noted that the business’s performance was back-end quarter weighted, with strong momentum in the ramp of both HPC and AI products.
Looking ahead to the first quarter, Su and Hu discussed seasonal expectations for the server market, indicating a high-single-digit to low-double-digit growth. The speakers also shed light on other segments such as client, embedded, and gaming. For gaming, Hu highlighted the impact of the latest stage of product cycle in the gaming console, alongside inventory considerations, projecting a more than 30% sequential decline in Q1 gaming revenue.
Insights into Traditional Server Demand
Addressing traditional server demand, Su acknowledged the mixed outlook for the first half of 2024 driven by cloud optimization and cautious enterprise behavior. However, she expressed confidence in the company’s ability to grow its market share in the traditional server business. Su cited the strength of the company’s product portfolio, including the adoption of Genoa, Bergamo, and the upcoming Zen 5 product, Turin, as key drivers for growth, underpinning a bullish outlook for the traditional server CPUs in 2024.
Market Expansion and Growth Prospects
When asked about the company’s anticipated Total Addressable Market (TAM) of $400 billion by 2027, Su emphasized the substantial progress made in the Data Center GPU business, attributing the growth to the market dynamics and the company’s ability to gain share. She shared optimism about extending the momentum into the next few years, highlighting strategic customer engagements and multi-generational conversations, while refraining from making market share projections. Su underlined the significant growth potential driven by market demand and the company’s product capabilities.
On the financial front, Hu refrained from providing full-year guidance but expressed confidence in the growth prospects for both the Data Center and Client businesses in 2024. Hu highlighted the substantial incremental revenue opportunities from the Data Center, fueled by the expected growth in server market share and the significant ramp-up of the MI300 Data Center GPU.
In summary, the fireside chat provided investors with valuable insights into the company’s recent performance and the future expectations for GPU revenue, especially in the Data Center segment. The discussions offered a balanced view of the business, underscoring the company’s strength in navigating market dynamics and driving growth in an evolving technological landscape.
The Visionary Landscape of Accelerated Computing: An Insight into AMD’s Future
Adapting in Turbulent Times
In the fast-paced world of technology, AMD, led by President and CEO Lisa Su, is contending with a headwind from its Gaming segment. However, the company foresees a substantial double-digit decline in the segment, paralleled by a bottoming process in the Embedded sector, with prospects of a recovery in the second half of the year. These twists and turns epitomize the tumultuous journey that AMD is embarked upon.
Accelerated Computing: Navigating the Roadmap
Lisa Su expounds upon the traction garnered by the MI300 family. The utilization of chiplet technologies, facilitating the APU version and GPU version, has been instrumental in establishing AMD’s foothold in the market. With an eye on the future, the company is meticulously planning multiple roadmap generations, aligning with the exponential demand for compute. The trajectory is set for an accelerated roadmap that promises a competitive edge in training and inference over the years to come.
Deciphering the $400 Billion TAM
One of the key enigmas that has captured the investment community is AMD’s bold assertion of a $400 billion Total Addressable Market (TAM) by 2027. Lisa Su unveils the intricacies underlying this audacious claim. It encompasses substantial unit growth, coupled with soaring content and memory capacity, and a sustained sustainability in the growth rate over the next few years. The TAM primarily encapsulates accelerators, including GPUs and other ASICs, catering to a spectrum of use cases, while reinforcing the pivotal role of GPUs in training and inference on the grandest language models.
MI300: Forging New Frontiers
The deployment of the MI300 has been a resounding success, with robust progress witnessed in ROCm 6 and direct optimization with top cloud customers. Collaboration with cloud and enterprise clients to streamline training and inferencing workloads remains a top priority, underlining AMD’s endeavor to make the process seamless. The company’s concerted efforts across its ROCm suite and engagement with the open-source community have translated into rapid advancements, positioning it at the vanguard of innovation.
Forecasting the Future
Amidst the buzz surrounding AMD’s future, the forecast largely hinges on supply chain dynamics and demand fulfillment. The intricate interplay of supply chain operations and market dynamics looms large, raising the anticipation for the way ahead.
AMD’s Revenue Expectations and Competitive Positioning
Addressing Revenue Expectations and Supply Chain
When Lisa Su, the President and Chief Executive Officer of AMD, spoke recently about updated revenue expectations, she emphasized the significance of their customers’ firm commitments. The revenue has been revised from an original projection of $2 billion to $3.5 billion, aiming to provide context and boundaries to the industry conversation. Su assured investors that these customers have long lead times, necessitating early forecasts and highlighting the strong order book that instilled confidence in exceeding the $3.5 billion target. Additionally, she tackled the supply chain perspective, expressing the continuous goal of expanding supply and revealing significant capacity secured with supply chain partners. The inherent increase in capacity translates to a promising outlook for the year, with greater capacity expected in the second half. Su left the door open for further updates on the revenue expectations as the year progresses.
Revenue Trajectory and Customer Engagement
Toshiya Hari from Goldman Sachs further probed into the quarterly trajectory of MI300 and the engagement with potential cloud customers. In response, Lisa Su outlined a projected revenue increase in each quarter with more emphasis on the second half due to factors such as customer qualifications and supply chain ramping. She reassured investors about their engagement with major customers, underlining the early stage of their involvement in this domain while emphasizing the long-term roadmap that transcends specific products. The narrative was extended to include the engagement with AI-centric enterprises, alluding to a robust and promising customer landscape.
Gross Margin Progression and Industry Challenges
Shifting the focus to the gross margin side, Jean Hu, the Executive Vice President, Chief Financial Officer, and Treasurer of AMD, delved into the factors impacting the company’s gross margin. She highlighted the sequential increase in gross margin driven primarily by the higher Data Center contribution offsetting the decline in the Embedded business. Hu further detailed the anticipated impact of the Data Center GPU expansion and improvements in yield, painting a favorable trajectory for the second half while identifying Embedded business as a potential headwind, particularly in the first half.
Competitive Environment and Roadmaps
Ross Seymore from Deutsche Bank steered the conversation towards AMD’s competitive stance, focusing on the Instinct platform and the general server CPU market. Lisa Su responded confidently, acknowledging the enduring competitiveness in their environment. She projected the company’s strength in the inferencing environment and emphasized the ongoing gain in market share with each EPYC generation. Su elaborated on the competitive position of Zen 4 and provided insights into the current design phase for Zen 5, offering a glimpse into the company’s promising path ahead.
The 2023 Data Center GPU and CPU Prospects: A Roadmap to AMD’s Future Growth
Lisa Su Predicts a Bright Outlook for CPU Business
Lisa Su, President and Chief Executive Officer at AMD, suggests an optimistic outlook for the CPU business. With a focus on market growth and potential macro and capex trends, Su foresees a wave of refresh cycles driven by the enhanced energy efficiency and superior infrastructure footprint of newer generations. As the market evolves, the exact timing of this refresh remains to be seen.
AMD’s Revenue Expectations Soar to Over $3.5 Billion for Data Center GPU
In a response to a question, Lisa Su discusses the significant increase in AMD’s revenue forecast for data center GPU. The spike from $2 billion to over $3.5 billion is primarily attributed to the surge in customer demand signals and the successful shift from pilot programs to full manufacturing programs. Su emphasizes that AMD’s supply chain is geared for success, capable of efficiently accommodating demands far beyond the $3.5 billion benchmark.
The Question of Intel’s Technological Leap: Impact on AMD’s Future
Discussing potential competition, Lisa Su addresses Intel’s advancement in chiplet or tile technology. Su emphasizes that AMD has been at the forefront with the fourth generation of chiplet technology. Acknowledging the competitive landscape, Su reaffirms AMD’s commitment to innovation in architecture and design, underlining a strong roadmap in driving both CPU and GPU advancements aggressively.
The MI300 Value Proposition and Revenue Projection
When quizzed about the value proposition of MI300, Lisa Su emphasizes the performance per dollar benefit of AMD and intrinsically higher bandwidth and memory capacity compared to competitors. Highlighting the versatility of MI300, Su notes its usability for large language model inferencing and training applications. Jean Hu, Executive Vice President, Chief Financial Officer and Treasurer at AMD, affirms a possible $1.5 billion run-rate for MI300 by Q4 2024, underlining a focus on executing the current $3.5 billion-plus projection.
AMD’s Revenue Expectations Surge For 2023
Stacy Rasgon of Bernstein Research points out the unexpected surge in revenue for AMD, which clearly outperformed the earlier projected shallow ramp for the MI300. The inquiries by Vivek Arya of Bank of America Securities and Stacy Rasgon of Bernstein Research indicate a keen industry interest in AMD’s prospects.
AMD’s Lisa Su Discusses Demand Signals, Revenue Ramps, and the Competitive Landscape
Revealing Strong Demand Signals
At an AMD conference call, Lisa Su, President and Chief Executive Officer, revealed that the demand signals for the company’s products had strengthened. Su emphasized that the increased demand is not a result of pulling forward from the second half, but rather a consequence of customers gaining confidence in deploying a significant number of MI300 this year. Su’s remarks provide investors insight into AMD’s positive revenue outlook for the near term.
Clarifying Revenue Composition
Responding to questions about the $400 billion revenue projection, Su clarified that this number solely encompasses accelerator chips and does not include systems. The revenue composition also includes memory and other components packaged alongside GPUs. Additionally, Jean Hu, the Executive Vice President, Chief Financial Officer, and Treasurer added that memory will be a significant portion of the revenue.
Customer Concentration and Competition
When asked about the customer concentration once MI300 revenue ramps up, Su expressed her expectation for broad adoption of the product and downplayed the likelihood of one or two customers contributing a disproportionate share of the revenue. Moreover, in response to a question about Intel’s roadmap versus that of TSMC, Su expressed confidence in AMD’s partnership with TSMC and reiterated the company’s favorable position vis-à-vis the competition, emphasizing the strength of its architectural roadmap.
Closing Comments
Concluding the call, Mitch Haws, Head of Investor Relations, thanked the participants for their attendance, signifying the end of the discussion.
