Complex Micro Units, Inc. (NASDAQ:AMD) Barclays World Generation Convention December 7, 2023 1:25 PM ET
Corporate Contributors
Jean Hu – CFO
Convention Name Contributors
Tom O’Malley – Barclays
Tom O’Malley
All proper. I am Tom O’Malley, semi and semi cap apparatus analyst right here at Barclays. Very happy to have AMD CFO, Jean Hu, right here with us. Thanks such a lot for becoming a member of us.
Jean Hu
Yeah, thanks for having us.
Tom O’Malley
Yeah. Neatly, I sought after to mention, Jean, congrats on being within the CFO seat for a 12 months now. Time flies.
Jean Hu
Nearly.
Query-and-Solution Consultation
Q – Tom OâMalley
Nearly a 12 months. However I need to simply get started with what I do know everybody more or less needs to speak about and particularly, after your tournament the day prior to this, possibly it’s good to get started with simply highlighting what you introduced? Obviously, the inventory is reacting lately, however yeah, just a few of your spotlight bulletins and we will dive into a few of the ones.
Jean Hu
Yeah. We had an excessively thrilling day the day prior to this with our shoppers, the companions, the ecosystem. It is if truth be told an important milestone and inflection level for AMD to be a robust participant in AI compute area. Everyone knows the alternatives are super, and we’re truly happy we get to the purpose we will be very aggressive on this market. There are such a lot of bulletins the day prior to this. So, what I will do lately is simply spotlight one of the key issues we introduced the day prior to this. You’ll be able to completely pay attention to the webcast and it is tremendous thrilling. Initially is, we officially introduced MI300A and MI300X and highlighted the efficiency merit we’ve got, particularly while you take into accounts the inference, MI300X has the industry-leading reminiscence bandwidth and capability. So, it supply higher TCOs for purchasers. You’ll be able to both run extra fashions or you’ll use much less GPUs. So, it is a nice product, very aggressive. And as we stated throughout our remaining income name, MI300 would be the quickest income, $2 billion in our historical past. And we’re very assured in regards to the $2 billion-plus income quantity we speak about for 2024.
Secondly, instrument. That is truly vital. We introduced the ROCm 6. While you take into accounts the efficiency growth we’ve got made throughout an excessively brief time period between ROCm 6 and MI300X, we if truth be told advanced efficiency through 8 instances in comparison to prior technology. So, that is very thrilling. I believe one of the crucial vital factor is strategically and the power of ROCm, it is truly about embracing the open supply ecosystem. It can be crucial, as a result of we permit builders to write down moveable code to paintings on a media device, AMD device or different GPUs. So, it if truth be told give super flexibility and it is cheaper. It is thrilling and we introduced — we are going to release ROCm 6 and we make bigger our open supply ecosystem partnership considerably. I believe we introduced throughout the day prior to this, OpenAI goes to incorporate MI300X for his or her Triton 3.0 liberate very quickly. So that is not what came about in Triton 2 liberate. So this can be a very vital announcement.
After which 0.33 factor on networking aspect, we had a panel from Arista, Broadcom, and Cisco to truly communicate in regards to the ecosystem, how we paintings with the Ethernet and Extremely Ethernet Consortium. Everyone’s running at the ecosystem to ensure the Generative AI adoption, the huge clusters we will use, give you the highest TCO. So, very thrilling. And also you all — a few of you almost certainly already noticed the client checklist we’ve got. We now have an excessively large buyer engagement the day prior to this. We best have the primary set of consumers appearing up, which come with Microsoft, Oracle, Meta. At the OEM/ODM aspect, you recognize, we’ve got Dell, we’ve got Supermicro, Lenovo, and a large number of extra shoppers that we’re enticing with. And one of the crucial instance I believe you need to know is Meta actually, they carry up MI300X at OCP. They actually commented it is the quickest bring-up from design to deployment of their historical past. So, that is truly a robust evidence level of no longer best the {hardware} capacity, however instrument adulthood.
So, we are very fascinated by the alternatives we’ve got. After all, along with all of the {hardware}, instrument, networking, we additionally communicate in regards to the PC aspect. We now have the AIPC. AMD if truth be told used to be the primary to incorporate the AI engine within the PC with the Ryzen 7000 collection. We if truth be told already shipped hundreds of thousands of devices and we introduced subsequent technology product, which can come with the AI engine. The article about us is we take into accounts the portfolio, we take into accounts end-to-end AI, and we’ve got a robust portfolio to give you the entire answers from PC aspect to the information heart aspect.
Tom OâMalley
Highest. Thanks for protecting all the ones. I sought after to only dive into your reiterated view of the $2 billion subsequent 12 months. So, obviously, there is a handoff between the A and the X collection, proper? You talked on remaining income, you guided December to $400 million after which through $300 million gross sales, adopted through a flattish March. And the remainder of the 12 months will get you to $2 billion. You’ve some HPC and you then transfer to a couple hyperscale shoppers. Is that transition and the way it is so clean, a serve as of 1 buyer, or is that the entire shoppers, possibly the entire ones you had on degree the day prior to this, all ramping in no time?
Jean Hu
Yeah, a excellent query. After we speak about MI300 ramp, we did point out in This autumn, predominantly it is from the supercomputer MI300A. That is one buyer. The deployment of a supercomputer have a tendency to be lumpy. They deploy the entirety in a single quarter, then subsequent quarter, in Q1, it is if truth be told very minimal. After which Q1, we additionally stated it is round $400 million. It is from more than one shoppers, proper? More than one, no longer best cloud shoppers, additionally undertaking shoppers and startups. So, we’re very happy with the client lineup and the manufacturing, the dedication from shoppers.
Tom OâMalley
When it comes to the open ecosystem that you simply discussed and the qualification cycles for the ones new shoppers, there may be been one introduced buyer for some time and it is legit, with more than one approaching degree. Are you able to speak about from the time a buyer chooses to make use of your product, how briefly can they get that deployed of their cloud? Specifically, you discussed, you recognize, ROCm, you might have a instrument layer and a {hardware} layer.
Jean Hu
Yeah, nice query. It is very other. Other buyer engagement, what sort of workload they need to qualify. It takes other time. A few of our massive shoppers, we’ve got been running with them for years and a large number of you recognize, Microsoft, we’ve got been running with them for a very long time. Meta, we additionally discussed that we paintings with them from MI100, 200 to now, 300. So the ones are longer-term dedication and a large number of workload. However one of the undertaking shoppers, for the reason that nature of ROCm, they if truth be told can port it in no time, months, and we additionally mentioned considerably the day prior to this is out-of-box revel in with ROCm. So, for a large number of startup, quite simple workload. They actually can take it out of field, make it occur. So, it is a variety of issues. However I believe a very powerful factor is we’ve got made super growth at the instrument aspect to mature it to the purpose other shoppers may have other revel in and port it in no time.
Tom OâMalley
Useful. So I believe you are obviously very certain on that $2 billion outlook for subsequent 12 months. However I believe one thing that persistently comes up together with your competitor is capability. And in the event you have a look at how a lot it’s good to exceed that $2 billion, do you run right into a wall at any level the place capability turns into a subject matter? And extra in particular, does reminiscence transform a subject matter subsequent 12 months, simply as you might have heard increasingly about constraints in that {industry}?
Jean Hu
Yeah, capability is really nonetheless very tight. What we’ve got accomplished is we’ve got labored with our provide ecosystem considerably for a very long time, no longer simply now, however again to 6 months, seven months, 8 months in the past to ensure we will protected capability. We completely have greater than $2 billion capability to reinforce the income upside. And our view is, we truly need to be certain we’re situated for luck, as a result of we do have an excessively aggressive product portfolio. And in the event you have a look at the client engagement we’ve got, the day prior to this, it is only an excessively small portion of the shoppers. It took like two hours. It is a lengthy, lengthy tournament. It is because we simply have such a lot of shoppers who need to come, who need to be a part of this announcement. I believe there are much more engagement past the day prior to this’s firms available in the market. So, we do really feel lovely excellent about it.
Tom OâMalley
Useful. So, NVIDIA has put themselves on a trail to liberate new generations on a every year cadence. They simply lately introduced their H200 product, however they are the use of extra HBM to near the distance as neatly. Are you able to speak about what your deliberate cadence is on your platforms? And do you assume that this will probably be extra HBM, extra HBM, extra HBM, or is there a strategy to building up efficiency at that fee from the compute viewpoint that will get you there?
Jean Hu
Yeah, I believe the Generative AI marketplace is so other from what we’ve got noticed prior to now. The cadence of — from each NVIDIA or AMD, it is truly for the reason that buyer call for, proper? The client is using that vital exchange and adoption and the will, the requirement for {hardware} answers. So, for us, I believe in the event you glance again, proper, it is — we’ve got been creating GPU for a very long time. And even though you have a look at the MI collection of product, 2020, after we had our first MI300, so MI300 — 200 to 300, we even have 250. We if truth be told, inside 4 years, we did have more than one technology of MI300. And with the client reinforce, truly, no longer best on us, at the entire {industry}, we will be able to boost up our cadence. I believe we’ve got the aptitude and we’re making an investment in R&D internally. We’re reallocating our useful resource to extend significantly R&D in information heart, particularly GPU aspect. So, we really feel lovely excellent in regards to the crew, the useful resource, and the aptitude of the corporate.
Tom OâMalley
I believe a commonplace pushback on any new entrant right into a marketplace is, in particular, if there is a instrument stronghold, it is, how do you get into those shoppers? And I believe you discussed with one of the bulletins that you simply mentioned the day prior to this that you are looking to create an open ecosystem such that your chip can have interaction together with your shoppers identical to the sector of CUDA and NVIDIA lately. While you have a look at the following 12 months, are you able to speak about what it might take out of your shoppers to each have luck on inner workloads, in addition to exterior workloads? And the way briefly do you assume your instrument ecosystem takes a grasp the place it is getting used throughout the entire hyperscalers?
Jean Hu
Yeah, that is an ideal query. We’re the brand new entrants right into a marketplace, and the instrument building NVIDIA has had for like a decade and even longer. I believe there are two sides of our technique. The primary is, we’ve got been doing this for no longer simply remaining two years, if truth be told 4 years to 5 years. A very powerful strategic choice for us is if truth be told our ROCm instrument stack is open supply in nature. We plan to paintings with the open supply, the ecosystem, and spouse in combination to deal with this instrument factor or problem. So, it is not simply us, we’ve got the entire open ecosystem. In case you simply have a look at how briskly the advance of all of the framework, AI framework, the library, the compilers and the fashions throughout the remaining three hundred and sixty five days, it is super. So, I do assume through partnering with the open supply ecosystem, and secondly, we additionally make investments aggressively in our personal capacity and useful resource. In combination, we if truth be told supply our shoppers a a lot more cost-effective, versatile answer, proper? As a result of in any case, you probably have this sort of massive marketplace alternatives, shoppers truly need to select the {hardware} they would like, and the ecosystem additionally need to write the fashion in no time. In order that they — a large number of persons are writing the fashion at the AI framework. They are the use of the libraries, the compilers, no matter brazenly to be had. So, we do assume what we’re looking to do at the instrument aspect is spouse with the gadget, with the ecosystem, and truly advance the straightforward and the versatility of — everyone can write their fashion briefly.
Tom OâMalley
Useful. So, let’s pivot to a marketplace the place you were not a brand new entrant, however a minority entrant, then you might have truly grown your proportion, which is within the DC CPU aspect. So, you might have gotten your proportion as much as the high-20s. Are you able to communicate in regards to the time horizon so that you can get to that fifty/50 proportion? Is {that a} purpose of yours? And what do you assume the trade dynamic can be as an affect of that? Is there a margin differential in getting from this vary to the 50% vary? Is there some way that you want to engage with shoppers that is other? Any lend a hand — any main points there can be useful.
Jean Hu
Yeah, possibly the very first thing is, let’s take a step again to take a look at how we get to our marketplace proportion. So, Q3, we introduced our income. Our income marketplace proportion if truth be told is 29.7%, so it is as regards to 30%. I believe how we get there may be — a few of you almost certainly keep in mind 2017. That is when AMD had the primary server product portfolio, Gen 1. And throughout the following 4 years, 5 years, we proceed to execute at the very complex roadmap to give you the buyer the most productive TCO, highest efficiency according to watt, the most productive efficiency according to greenback. And every technology, we’re main our festival considerably. So, attending to the marketplace proportion we’ve got lately is on account of the generation and the innovation we had. And while you have a look at the marketplace proportion we’ve got lately, within the cloud marketplace, we’re if truth be told attending to as regards to 50% of the marketplace proportion. However within the undertaking, we’re nonetheless on the mid-teens. So, any longer, going ahead, we will proceed to pressure the product management and ensure we will lead, give you the highest TCO. We will proceed to achieve proportion in cloud marketplace, however most significantly, we’ve got invested considerably in go-to-market throughout the remaining a number of years. And as you almost certainly know, undertaking marketplace could be very other. You’ve hundreds of consumers. Every buyer, they purchase much less servers and also you actually wish to paintings with every buyer, give them TCO and so they — after they discovered, they may be able to get extra efficiency, they may be able to save persistent, save area, save working charge. They’re very excited to undertake, nevertheless it takes time. So, it is a procedure. After we have a look at the design wins we’ve got, have a look at the undertaking buyer adoption, we do assume, going ahead, we will proceed to achieve proportion in cloud, however undertaking proportion achieve, as a result of our effort and the paintings, we will have to see that get advantages going ahead.
Tom OâMalley
So, you do have that generation lead, which has ended in a large number of those proportion positive aspects. However let’s simply, create a global at some point. So, subsequent 12 months, Genoa and Bergamo are the use of 5 nanometer from TSMC. Intel continues to be on Intel 7. Let’s rapid ahead. Shall we say Intel’s roadmap is a success. That has them attaining parity, no less than of their eyes, rather quickly. If we get into — we do not wish to get into the weeds at the aggressive specifications, however in a global during which you’re extra at generation parity, what does that appear to be to you from a CFO? And do you spot any exchange available in the market in that example?
Jean Hu
Yeah, I believe something about AMD is Lisa Su and the crew, they at all times made assumption that the marketplace is aggressive. The belief is our competition will probably be as aggressive as we’re at the procedure generation. In case you glance again on the luck of the corporate, one of the crucial issues I discovered is truly it is not as regards to the method generation. It is if truth be told the combo of structure, 3-d packaging, running with the foundry companions, chiplet design, and all the ones issues AMD has truly labored very onerous for the decade. So, the combo of the ones issues to provide us like a smaller die, proper? So, it is extra cost-efficient and power-efficient. And all the ones issues give you the TCO merit. I believe from my viewpoint, truly, we had to keep leading edge. And we will introduce in Turin, our next-generation, Gen 5, subsequent 12 months, which we really feel lovely excellent in regards to the management, the efficiency, the TCO we will supply.
Tom OâMalley
Highest. Spectacular getting thru that query with the comments there. However do you might have a view of the standard server marketplace into subsequent 12 months? I believe you noticed cannibalization of wallets this 12 months with the increase of AI. And I believe there is a large confrontation on what the go back to expansion will have to appear to be, if there may be any.
Jean Hu
Yeah, I believe, 2023, there is not any doubt, it is a difficult time for the standard server marketplace. I believe a large number of you observe that marketplace. Everyone knows, year-over-year, it if truth be told declined, basically for the reason that unit quantity declined rather considerably. Our view is there are two basic causes. The primary one is throughout the COVID, a large number of firms, simply as all of the different semiconductor phase, constructed stock. In order that they had been digestion of stock from the COVID aspect of the oversupply scenario. After which 2nd part and in a while, truly, you are proper, is in your level, the Generative AI, the CapEx wish to prioritize AI spending, certainly crowding out one of the server spending. But if we take into accounts it’s — in the event you have a look at the aim of a server is to reinforce the transaction processing and the fundamental workload. While you take into accounts Meta, their Instagram, Fb, WhatsApp, Amazon’s buying groceries, all of the basic fundamental workload we do lately, it is being accomplished through server. And albeit, the ones information proceed to extend, doubling and the will for compute continues. Our view is while you take into accounts how buyer deploy {hardware}, it is all about highest economics, how they may be able to get highest TCO.
So, for all the ones conventional workload, servers be offering the most productive TCO. We expect it’s the case lately and it’ll be the case at some point. So, what we are going throughout the degree is truly the digestion, the prioritization or optimization, however the server depreciation lifestyles, everyone prolonged to 6 years. Past six years, what — the demanding situations you will have is, with older server, you if truth be told want extra persistent, you want extra space, as a result of while you have a look at the Genoa, sixth Genoa can exchange 12 Sapphire Rapids. And when you want area, you want the ability, you want the potency, you truly wish to improve. So, our view is, the server marketplace goes to return again. It will serve the fundamental conventional workload as opposed to the incremental AI want going ahead. It isn’t going to be like excessive expansion marketplace, however ASP will proceed to extend because the {industry} proceed to pressure the core depend building up.
Tom OâMalley
Useful. I need to pivot to the buyer trade. You guided income expansion into This autumn, however have noticed some weaker information coming in from ODMs. So, I suppose, a multi-part query. I do know you had been undershipping marketplace for a lot of the 12 months, however how is visibility lately and are you continue to seeing the power that you simply pointed to at income?
Jean Hu
Yeah, I believe it is value to only do a snappy recap in regards to the PC marketplace. It is a very cyclical marketplace. It is one of the crucial semiconductor phase that were given into cyclical downturn first, proper? It actually came about a 12 months in the past, and this downturn if truth be told used to be rather critical. It used to be one of the crucial worst throughout the remaining, no matter, 3 many years. And so, the primary part of the 12 months, while you have a look at 2023, the entire {industry} used to be going throughout the stock digestion. So, we each mainly bought in a lot much less as opposed to promote out, permit the downstream stock proceed to digest. That is what is the first part. After which 2nd part, it is any other other scenario, as a result of stock in large part get ate up. So, you do see the {industry} begin to be normalized. And while you have a look at the Q3 and our This autumn information, it is a part of a normalization, I believe stabilization of what you assert is — I believe presently, in the event you have a look at IDC, our third-party’s forecast for subsequent 12 months is, they do consider subsequent 12 months, the PC marketplace unit quantity will arise, however it is like a low-single digit. So our view is, itâs normalized, it is stabilized. Going ahead, you’re going to see the standard seasonality in Q1 after which, you recognize, subsequent 12 months, in accordance with {industry} and it is economic-sensitive sector, too. So, we do not know what the macroeconomic scenario will probably be. However in any case, the PC marketplace is stabilized. That is the excellent news. I can say, as we introduced the day prior to this, it is thrilling in the end with AIPC, as a result of, sooner or later, a large number of AI paintings had to be accomplished on the software stage. You can not do the entirety at — within the cloud. I believe, almost definitely no longer 2024, however certainly 2025, we will see super momentum from AIPC. That can lend a hand the substitute cycle.
Tom OâMalley
Useful. And I simply need to hit on pricing in that marketplace as neatly. Are you seeing any further aggressiveness on your competitor? I believe you guys have accomplished a excellent task of more or less getting forward of the rage in that trade. However proportion has come again slightly because the pandemic, however it is more or less stabilized right here. What is going on from a pricing viewpoint?
Jean Hu
Yeah, I believe we received proportion in Q3. Yeah, rather a large number of proportion, if truth be told, in Q3. I believe at the pricing aspect, this can be a aggressive marketplace. I believe our view, our technique has at all times been specializing in the premier aspect of the marketplace, the economic marketplace, extra for mid vary to excessive finish, as a result of we wish to pressure winning expansion, proper? In case you simply develop topline income with out profitability, then it does no longer make financial sense. So, I believe what you’re going to see us is proceed to truly pressure the winning expansion and concentrate on the phase we consider we’ve got a aggressive merit.
Tom OâMalley
Useful. I need to shift once more to the embedded trade. It used to be down materially in September, you guided down double digit once more into December. The availability chain is blended. I believe you are listening to possibly some restoration subsequent 12 months simply off of those low ranges. However I simply sought after to get your tackle that marketplace, and obviously, there are a number of finish markets inside there. If it’s good to spend a while on simply what is inflicting some power, what is inflicting some weak point?
Jean Hu
Yeah, the embedded trade, Xilinx, the purchase we did, Suresh if truth be told is right here. He will have to speak about it. However I believe the efficiency after acquisition, it used to be super. Actually, it grew like 17%, double digit remaining 12 months. I believe what came about is, in the event you glance right now, the semiconductor stock correction, it is if truth be told staged. In case you have a look at the embedded stock correction, actually, it is three hundred and sixty five days at the back of the PC correction. It is nice. AMD, we’ve got an excessively diverse portfolio, we’ve got PC gaming, after which we’ve got embedded and knowledge heart. So that you if truth be told can see the other correction coming on the other time. For embedded, actually, Q3 and This autumn, we simply get into this very steep correction. We stated it is going to decline double digit sequentially remaining income name and we guided that we expect Q1 goes to be very identical, as it most often takes a number of quarters. I might say, through other marketplace, certainly, you spot the commercial, one of the auto have some stock, they’re digesting. When lead time drop from 52 weeks to fourteen weeks, what the shoppers habits in an instant will probably be? Hello, let me take this chance, like, digest my stock. I used to assume I want three hundred and sixty five days, as a result of you might have 52 weeks lead time. So, I believe it might take a number of quarters in large part. We do have the phase like aerospace, protection, and in addition emulation. The ones are proceeding to accomplish. So it is a other image inside the finish marketplace. However total, our trust is, the second one part, we will have to see the restoration. And in addition after we have a look at our portfolio, we do have a truly robust set of portfolio, we’ve got persevered to achieve design win marketplace proportion most often when the marketplace restoration gets a tailwind to lend a hand the entire trade.
Tom OâMalley
Fascinated about all of the markets that you simply mentioned, you might have an excessively powerful ramp within the information heart trade, you might have a strong ramp in AI. PC turns out stabilized. The embedded trade, which has historically been first rate margin is down, however then up once more in the second one part or, with a bit of luck, making improvements to in the second one part. Why should not these types of elements result in a greater gross margin ramp as neatly?
Jean Hu
Yeah, you nailed it. It will have to, and we certainly would pressure that gross margin enlargement. It can be crucial for us to proceed to make bigger our gross margin. Basically, it is a mirrored image of the IP, proper, the R&D paintings our crew has been doing. So, the tailwind of embedded trade, presently, it is truly headwind. In case you have a look at the embedded trade, it used to be like 24% of our income, and now, it is like 16%, 17%. That is an enormous headwind on gross margin aspect, and we’re managing thru it, as a result of we do have the PC consumer aspect, the gross margin coming again. However the second one part of subsequent 12 months, we do assume we will get extra tailwind from embedded and proceed to make bigger the gross margin.
Tom OâMalley
Closing one, briefly, as we run out of time. You’ve this large AI ramp at some point. It feels like you are rather certain about it. You’ve nonetheless a big sum of money in your steadiness sheet. Are you able to speak about priorities in relation to the place you will spend that cash? If this ramp is truly coming, will have to we be purchasing again our inventory presently?
Jean Hu
Yeah. Given the considerably higher alternative and important ramp of income, making an investment is really our primary precedence. We will proceed to speculate organically and thru acquisition. However our trade fashion generates a large number of money. So, we will proceed to do buyback. It is crucial for us to go back money to shareholders, too.
Tom O’Malley
Highest. Thanks such a lot for being right here. In reality respect it. Thanks, all.
Jean Hu
Yeah. Thanks.