Advanced Micro Devices Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
May 3, 2022

Key Takeaways

  • Record Q1 financial results: AMD delivered $5.9 billion in revenue (up 71% YoY) and $1.6 billion in net income (more than doubled), with non-GAAP gross margin expanding to 53%.
  • Xilinx acquisition closed: The deal added $559 million of revenue in 6 weeks; on a full-quarter pro forma basis Xilinx exceeded $1 billion (+20% YoY) and is expected to be accretive to 2022 non-GAAP EPS.
  • 2022 guidance raised to ~60% revenue growth: Up from the prior 31% outlook, driven by organic strength in servers and semi-custom plus the inclusion of Xilinx contributions.
  • Data center/server momentum: Enterprise, Embedded & Semi-Custom revenue more than doubled YoY, led by EPYC share gains, Milan-X 3D-stacked launches and strong pipeline for Genoa (H2) and cloud-optimized Bergamo (H1 ’23).
  • PC market softness: AMD now models overall PC TAM down high-single digits for 2022, though it expects to continue gaining client processor revenue share in premium, commercial and gaming segments.
AI Generated. May Contain Errors.
Earnings Conference Call
Advanced Micro Devices Q1 2022
00:00 / 00:00

There are 14 speakers on the call.

Operator

Hello, and welcome to the AMD First Quarter 2022 Earnings Call. 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. Laura, please go ahead.

Speaker 1

Thank you, and welcome to AMD's Q1 2022 Financial Results Conference Call. By now, you should have had the opportunity to review a copy of our earnings press release and accompanying slides. If you have not reviewed these documents, they can be found on the Investor Relations page form of amd.com. Today, we will discuss AMD's 1st quarter results, including partial quarter contributions from the acquisition of Xilinx, which closed on February 14, 2022. We will also discuss AMD results on a stand alone basis for the Q1 of 2022.

Speaker 1

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. Participants on today's conference call are Doctor. Lisa Su, our Chair and Chief Executive Officer and Devinder Kumar, our Vice President, Chief Financial Officer and Treasurer. Victor Peng, President of AMD's Adaptive and Embedded Computing Group will also join us for Q and A.

Speaker 1

This is a live call and will be replayed via webcast on our website. Before we begin, I would like to note AMD will host its 2022 Financial Analyst Day on Thursday, June 9, and our Q2 quiet time is expected to begin at the close of business on Friday, June 17. 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 With that, I would like to turn the call over to Lisa Su. Lisa?

Speaker 2

Thank you, Laura, and good afternoon to all those listening in today. For the last several years, we have been on a journey to both scale and transform AMD. We have consistently executed our strategy, expanded our portfolio of leadership products and diversified our business, all while driving best in class growth. We reached a significant inflection point in our journey during the 1st few months of 2022 Xilinx acquisition to our long term goals cannot be overstated. As the industry's number one provider of FPGA and adaptive computing solutions, Xilinx significantly expands our technology and product portfolio.

Speaker 2

Xilinx also adds multiple high margin long term revenue spanning a new set of markets and customers further strengthening and diversifying our business model. Importantly, Xilinx has successfully executed its own growth strategy in recent years with the increased adoption of adaptive silicon across data center, communications, automotive and other large embedded markets. With Pensando, we will further expand our data center solutions capabilities. Pensando will add a proven team that has developed an industry leading DPU and software stack already deployed with key customers, including IBM, HPE, Microsoft, Oracle and Goldman Sachs. Pensando's differentiated technology further expands our product portfolio and will enable AMD to innovate at the silicon, software and platform levels to deliver leadership solutions for our cloud, enterprise and edge customers.

Speaker 2

Now turning to our Q1 financial performance. We started the year very strong with record quarterly revenue and net income. 1st quarter revenue, including the contributions from 6 weeks of Xilinx, grew 71% year over year to a record 5,900,000,000 We expanded gross margin 7 percentage points to 53% and more than doubled both operating and net income year over year. Excluding Xilinx, revenue grew 55% year over year to a record $5,300,000,000 gross margin expanded 5 percentage points to 51% To our Computing and Graphics segment, revenue increased 33% year over year to $2,800,000,000 driven primarily by the ramp of our latest Ryzen and Radeon products. Client Compute revenue grew by a strong double digit percentage year over year based on higher Ryzen mobile and desktop processor sales.

Speaker 2

As a result, we believe we gained client processor revenue share for the 8th straight quarter. In desktop, we expanded our processor portfolio with the introduction of 7 new Ryzen CPUs, including the Ryzen 5800X3d CPU, which is the industry's fastest gaming CPU and 1st desktop processor featuring 3 d stacked chiplets. In notebooks, record mobile processor revenue was driven by the launch of our Rembrandt Ryzen 6000 mobile processors that extend the leadership compute, gaming and battery life capabilities of our mobile processors. In commercial, we recently introduced our latest Ryzen 1,000 Pro Processors with leadership performance in battery life and modern security and manageability features. We are well positioned to accelerate our growth in commercial notebooks in 2022 based on the expanded number of design wins on track to launch.

Speaker 2

Remains on the premium, gaming and commercial portions of the market where we see strong growth opportunities and we expect to continue gaining overall client revenue share. In graphics, revenue grew by a strong double digit percentage year over year with record desktop graphics channel sales. Desktop GPU sales nearly doubled year over year as sales of our Radeon 6000 series graphics cards were strong. In mobile, the first notebooks featuring our latest Radeon 6000 mobile GPUs launched in the quarter and we expect sales to ramp over the coming quarters. Data center graphics revenue was flat year over year as we launched our Instinct Mi 210 accelerators.

Speaker 2

We expanded our engagements with large cloud customers in the quarter and launched our Rockom 5 software suite targeting exascale class HPC and AI applications. Turning to our Enterprise, Embedded and Semi Custom segment. Revenue increased 80 8% year over year to $2,500,000,000 driven by record server, semi custom and embedded processor sales. Semi custom sales grew by a significant double digit percentage year over year based on strong demand for Sony and Microsoft consoles as well as Valve's new Steam Deck. Sales for this game console generation continued to outpace all prior generations and we expect 2022 to be a record year for our semi custom business.

Speaker 2

Turning to our embedded business, revenue more than doubled year over year led by growth in automotive. We also secured multiple design wins in next generation security and firewall devices from Tier 1 networking providers. Turning to server, we had another record quarter as revenue more than doubled year over year and increased by a double digit percentage sequentially. We have more than doubled server processor revenue year over year in 8 of the last 10 quarters, highlighting the growing demand for EPYC Processors with cloud, enterprise and HPC customers. Cloud revenue more than doubled year over year as Hyperscalers expanded their internal infrastructure deployments and 70 new AMD powered instances launched from Alibaba, Amazon, Baidu Cloud, Microsoft Azure, Google and others.

Speaker 2

There are now more than 4 60 AMD based cloud instances available from the largest hyperscalers with additional instances on track to launch in the coming quarters. In enterprise, revenue more than doubled year over year with strong growth in key verticals including IT infrastructure, financial services and database Our sales pipeline continues to be very strong and we saw our win rate grow in the 1st quarter across a broad set of enterprise end customers. We launched our 1st EPYC processors with 3 d stacked chiplets in the quarter. This technology extends our performance leadership in technical computing workloads by up to 66% compared to our prior generation. Atos, Cisco, Dell, HPE, Lenovo and Supermicro all launched servers featuring the new CPUs in the quarter.

Speaker 2

Excitement for our next generation Genoa server processors continues to grow as we expanded customer and partnering sampling in the quarter. We expect Genoa will be the industry's highest performance general purpose server CPU, further extending the performance, Energy efficiency and TCO advantages of our EPYC Processors. We remain on track to launch Genoa in the second half of the year and expect to continue our share gain trajectory based on expanded cloud, enterprise and HPC customer adoption. In addition, development of our higher core count Bergamo processors optimized for high throughput cloud workloads continues to progress well, with shipments on track to begin in the first half of twenty twenty three. Turning to the Xilinx business.

Speaker 2

For the weeks following acquisition close, Xilinx revenue was $559,000,000 On a pro form a basis for the full quarter, Xilinx delivered its 4th quarter of greater than 20% year over year revenue growth and the 2nd straight quarter of greater than $1,000,000,000 of revenue. In data center, 1st quarter demand was led by expanded FPGA as a service and SmartNIC deployments at Tier 1 hyperscalers In wireless, Versal based 5 gs deployments continue ramping in multiple regions and we secured a strategic design win with a Tier 1 communications equipment provider to power their next gen baseband solutions with a Versal ACAP solution. We saw strong demand across the Xilinx embedded markets led by record pro form a full quarter revenue in automotive, Industrial, Vision and Healthcare and Consumer. Looking forward, we see very strong demand across all of the Xilinx end markets and are focused on and we expect to see significant product and revenue synergies. We now have the best portfolio of high performance and adaptive computing engines in the industry And we see multiple opportunities to leverage our expanded technology portfolio to deliver even stronger products.

Speaker 2

As one example, we're integrating Xilinx's differentiated AI engine across our CPU product portfolio to enable industry leading capabilities with the first products expected in 2023. We have also identified significant additional revenue synergy opportunities with some of our largest customers as we can now address a larger portion of their compute needs with our expanded product portfolio. In summary, the start of 2022 is a significant inflection point for AMD marked by record top and bottom line financial results driven by our leadership product portfolio and strong execution and the close of our Xilinx acquisition. We have now delivered greater than 45% year over year revenue growth for 7 straight quarters and increased net income by more than 60% year over year for the last 10 quarters. Based on higher AMD organic growth as well as the addition of Xilinx with strong demand across multiple end markets, We now expect annual revenue to grow by approximately 60% year over year, up from approximately 31% growth we guided at the beginning of the year.

Speaker 2

Longer term, I'm incredibly excited about our additional growth opportunities as we add the Xilinx and Pensando teams. We now see a significantly larger TAM opportunity for AMD across a diverse set of end markets based on our broader portfolio of leadership compute engines and expanded solutions capabilities. I look forward to sharing more about the products and technologies that will enable the next stage of our growth journey at Financial Analyst Day in June. Now I'd like to turn the call over to Devinder to provide some additional color on our Q1 financial performance. Devinder?

Speaker 3

Thank you, Lisa, and good afternoon, everyone. The Q1 was an excellent start to the year with strong demand for our leadership products, resulting in record quarterly revenue, continued gross margin expansion, record profitability and announce our intention to acquire Pensando. 1st quarter consolidated revenue was $5,900,000,000 up 71% from a year ago, driven by significant growth across all businesses and the inclusion of Xilinx revenue for the partial period. Excluding the Xilinx contribution, AMD revenue was 5,300,000,000 up 55% from a year ago with data center revenue doubling year over year. Gross margin was 53%, up 660 basis points from a year ago, driven by higher server processor revenue and high margin Xilinx revenue.

Speaker 3

Gross margin for AMD, excluding Xilinx, was 51%, up 4.80 basis points year over year, primarily driven by higher server processor revenue. Operating expenses were $1,300,000,000 compared to 8 30,000,000 a year ago as we increase investments in our long term product roadmaps to support the future growth of our business. Operating income more than doubled from a year ago to a record $1,800,000,000 up $1,100,000,000 primarily driven by significant revenue growth and higher gross margin. Operating margin was 31%, up from 22 a year ago. Net income was a record $1,600,000,000 up $947,000,000 from a year ago.

Speaker 3

Diluted earnings per share was $1.13 per share compared to $0.52 per share a year ago. Now turning to Q1 business segment results. Computing and Graphics segment revenue was $2,800,000,000 up 33% year over year driven by higher client and graphics processor revenue. Computing and Graphics segment operating income was $723,000,000 or 26 percent of revenue compared to $485,000,000 or 23 was $2,500,000,000 up 88% from $1,300,000,000 in the prior year. The strong revenue increase was driven by higher server, semi custom and embedded revenue.

Speaker 3

EESC segment operating income grew significantly to $881,000,000 or 35 percent of revenue compared to 2 were driven by increased revenue, richer product mix and an $83,000,000 licensing gain. Xilinx revenue for the partial quarter was $559,000,000 with operating income of $233,000,000 of 42% of revenue. On a pro form a basis for the full quarter, Xilinx generated over 1,000,000,000 of revenue up 22% compared to a year ago with growth across all Xilinx major expect the addition of Xilinx to be accretive to non GAAP earnings per share for 2022. Turning to the balance sheet. Cash, cash equivalents and short term investments were $6,500,000,000 at the end of the first quarter.

Speaker 3

We deployed $1,900,000,000 to repurchase common stock in the Q1. To date, we have utilized $3,700,000,000 of our initial $4,000,000,000 stock repurchase program. We also announced a new $8,000,000,000 share repurchase program during the quarter. In total, we had $8,300,000,000 in remaining authorization at the end of the first quarter. Quarterly free cash flow was a record $924,000,000 compared to $832,000,000 in the same quarter last year facility to replace our existing $500,000,000 facility.

Speaker 3

This further demonstrates our commitment to our corporate ESG goals. Inventory was $2,400,000,000 up $476,000,000 from the prior quarter due to the addition of Xilinx inventory. Before I turn to our financial outlook, let me cover our financial segment reporting. Beginning with the Q2 of fiscal 2020 the current global supply environment and customer demand signals. For the Q2 of 2022, We expect revenue to be approximately $6,500,000,000 plus or minus $200,000,000 an increase of approximately 69% year over year and approximately 10% quarter over quarter.

Speaker 3

The year over year increase is expected to be driven by the addition of Xilinx revenue plus higher server, semi custom and client revenue. The quarter over quarter increase is expected to be primarily driven by Xilinx revenue plus higher server revenue. In addition, for Q222, We expect non GAAP gross margin to be approximately 54%, non GAAP operating expenses to be approximately 1.56 or 24 percent of revenue, non GAAP interest expense, taxes and other to be approximately $270,000,000 based on the 13% effective tax rate and the diluted share count to be approximately 1,640,000,000 shares. For the full year 2020, we now expect revenue to be approximately $26,300,000,000 an increase of approximately 60% driven by Xilinx and higher server and semi custom revenue. We expect non GAAP gross margin to be approximately 54%, non GAAP operating expenses to be approximately 24% of revenue, non GAAP effective tax rate to be 13% and non GAAP cash tax rate to be approximately 10% Due primarily to U.

Speaker 3

S. Tax requirement to capitalize R and D and the full utilization of our U. S. Net operating losses and tax credits in 2022. Fiscal year 2022 will be a 53 week year across all businesses.

Speaker 3

We are pleased to have completed the Xilinx acquisition, which strengthens our business model to welcome the Xilinx team to AMD. Looking ahead, AMD is very well positioned for long term growth, margin expansion and cash generation driven by our leadership products and roadmaps. With that, I will turn the call back over to Laura to begin the Q and A portion of our call. Laura?

Speaker 1

Thank you very much, Devinder. Operator, we're ready to go ahead and begin our first question.

Operator

Our first question today is coming from Matt Ramsay from Cowen. Your line is now live.

Speaker 4

Thank you very much everybody. Good afternoon. Congratulations, Lisa, on Obviously, getting Xilinx closed and the strong results. I guess there's a lot going on from a macro perspective in the markets that you serve in the supply chains, Lisa. So I mean the first half of the year, I think you're doing, I don't know, 54%, 55% organic growth in the Q1.

Speaker 4

Maybe you could talk me through a bit the puts and takes in the quarter. I think there's a perception that you have additional supply coming online. There's obviously supply constraints and lockdowns in China, your server business doing extraordinarily well in the numbers that you just printed, and then maybe some

Speaker 2

Yes, absolutely, Matt. Thanks for the question. So we did have a very strong Q1. There is a lot going on without a doubt in the business. I would say, if you look at the strength in our business in the Q1, it was really broad based.

Speaker 2

So very, very strong server results. We continue to gain share. We continue to bring more supply online there. Also, a very strong results in our customer game console business as well as in the client and graphics businesses. There is some softness in the PC market, But we had for the last number of quarters actually been shifting our mix to the higher end or the more premium segments of the PC market.

Speaker 2

And so that's where more of our exposure is. And we actually saw a significant growth in our PC business sequentially as we started ramping our Ryzen 6,000 notebooks, and that resulted in strong ASP growth as well as just our key market segments of premium, commercial and gaming being covered there. As we go forward, obviously, All of the things that you talked about are in play. That being the case, I think we've managed through the supply situations very well. We continue to work with our customers and ensure that we're optimizing our builds to their builds.

Speaker 2

And with the addition of Xilinx, we also have another set of end markets that have very strong demand that are all additive to our business.

Speaker 4

Thank you for that, Lisa. I appreciate all the color. I guess as my follow-up question, I wanted to Examine the full year guidance that you've given. Obviously, it includes Xilinx, so it's a little bit apples and oranges from last year. But I think in the comments on magnitude there.

Speaker 4

That would be helpful. And then I think just, what investors would love to hear from you is maybe your view commentary about PCs maybe being flattish coming into this year. I imagine there's some new puts and takes to that. So just some thoughts on how you guys Constructed the guidance for the year, especially relative to the original 31% would be really helpful. Thank you very much.

Speaker 2

Yes. So lots of questions in there, Matt. So let me try to go through them. So first on the full year 2022 guide, it is a significant increase in guidance, up 60%. There are a couple of pieces to that.

Speaker 2

On the organic side of the AMD business, we originally guided up 31% based on what we saw in the market in January. As we look at the market now and our own sort of customer and supply situation, we see that organic growth higher into the mid-30s. That's primarily driven by very strong demand in our server business, very strong demand in our console or semi custom business, additional supply coming online. We have taken a bit more of a conservative perspective on the PC market. Again, I think the softness is in certain parts of the market.

Speaker 2

It's not in all parts of the market. And our focus is on where we add the most value in the market and that is in the premium segments. In terms of the Xilinx piece of it, the full year addition of 3.5 quarters of Xilinx is a significant add. On a pro form a basis, the Xilinx business is also growing very well, and it's growing sort of like in the low 20s if you consider full year compared to calendar year 2021. So overall, I think we have a lot of broad based set of growth drivers and multiple levers for growth as we go through the year.

Speaker 2

And We continue to work on working with our customers on where the demand is and ensuring that we're satisfying that demand.

Speaker 4

Really appreciate the color, Lisa. Thank you.

Operator

Thank you. Our next question is coming from Toshiya Hari from Goldman Sachs. Your line is now live.

Speaker 5

Thank you for taking the question and congrats on the strong results and completing the acquisition as well. I had Two questions myself. I guess first on the supply chain situation, Lisa. Obviously, there's a lot going on in terms of The China lockdowns are impacting your business directly or indirectly, are you assuming any impact to revenue and profitability in the second quarter?

Speaker 2

Sure, Toshiya. Thanks for the question. So on the supply environment, we've been working on this really for the last 18 months. We've made a lot of progress on both the wafer side and significant investments on the substrates. I would say that we continue to get sort of very Good support from our suppliers.

Speaker 2

That's one of the reasons we can increase our guidance the way it is. From a overall, you mentioned the China COVID situation. From our standpoint, we haven't had any significant impact on our own shipments and our own supply chain. We have been working with some customers that have had some customer build delays and that is contemplated in our Q2 guidance.

Speaker 6

We're going

Speaker 2

to continue to work on supply optimization. With the addition of Xilinx, some of the, let's call it, more mature nodes, 16 nanometer and above Wafer supply is still somewhat constrained. We're working with sort of the larger scale of AMD to try to bring more supply on board there, As well as continuing to ramp our overall capacity to support a very strong sort of next few quarters. Hopefully that answered your supply questions.

Speaker 5

Yes, for sure. Thank you. And then my second question, my follow-up question was on the data center business. It's great to hear that you're, you've decided to resegment your business. So thank you for that.

Speaker 5

Curious how meaningful data center about the medium to long term opportunity in both your classic data center GPU business as well as the FPGA business. I think in data center GPU, You mentioned that it was flat in the quarter, but you also talked about being engaged with more cloud customers. So curious what you're seeing there. And then on the FPGA side, I think Victor and team, prior to the deal announcement, was pretty vocal about the long term growth opportunity there as well. So any update from your perspective would be great.

Speaker 7

Thank

Speaker 2

you. Right. Okay. So again, a few pieces to that. Let me try to I'll give you some color and then maybe Victor will add on the FPGA side.

Speaker 2

So in terms of yes, we are going to change our segment reporting as Devinder said as of the second quarter to be to give you more alignment to the markets. In terms of this quarter for the pieces that you mentioned, on higher revenue, the data center of those pieces was, let's call it, low 20s percentage of our overall revenue. And then in terms of the longer term data center picture, We are incredibly excited about the opportunity in data center. When you look at the pieces we have now, I mean, the CPU franchise is very strong, continuing to get stronger. We're excited with how Genoa looks and how Bergamo looks and sort of the engagements with customers there.

Speaker 2

We're excited about the GPU portfolio as well. GPUs for us are a longer term sort of roadmap similar to what we did on the CPU side. We had been more focused on, let's call it, supercomputing and HPC. So that was strong for us last year, and that's why we're flattish year on year. We're very engaged on the AI front now, continuing our investments in our software stack and working with cloud guys to optimize Our software stack.

Speaker 2

And then moving on to FPGAs and then also our adaptive SoCs and then The Pensando acquisition. I think what we now have is just an incredibly strong portfolio when we're dealing with whether you're talking about the largest Cloud hyperscalers or you're talking about enterprise. And then with Pensando and Xilinx, it also gives us exposure to the edge And so between we have all the compute engines and are able to optimize that. So I think you should expect to hear a lot more from us In the data center, certainly is at our Financial Analyst Day, but really strong opportunities there. Maybe Victor, you want to add on something?

Speaker 2

Yes.

Speaker 8

I think you covered well. The only thing I would add is just again, I think not only do we have a really broad portfolio of all the compute engines, but We are doubling down on the networking side, right, since we had strength in that and SmartNIC and then with Pensando, The kind of solutions that we could provide to customers in the overall infrastructure, right? It's not about point things, it's about the total solution. And as you probably know, scale out and just a lot of these applications you could be throttled by the network. So we really can optimize all.

Speaker 8

And the customers really want optimized, customized solutions. And I think that's what we could do with both the former Xilinx SmartNIC as well as Pansendno even going further.

Speaker 4

Thank you

Speaker 5

for all the details.

Speaker 2

Thank you.

Operator

Thank you. Next question is coming from the Zackaria from Bank of America. Your line is now live.

Speaker 9

Thanks for taking my question. Lisa, my first one is on the server market. Milan helped you take and continues to help you take a lot of share in the market. I'm curious, what's the state of play in front of the next gen Genoa versus the Sapphire Rapids server cycle from 2 perspectives? So just from the industry adoption of DDR5, can that be a bottleneck to adoption of these next generation servers?

Speaker 9

And second perspective is that you will have 2 different flavors of Genoa with the cloud optimized version coming later. So just give us your sense of how this Next generation cycle plays out versus the very strong success you had with Milan so far?

Speaker 2

Yes, absolutely, Vivek. The way to think about it is the data center market and particularly in servers, people are getting much more optimized for workloads. And so there are different flavors. And we see that even in Milan today with Milan and our Milan X, X3D sort of The X3D we introduced. And so I think it's natural for these solutions to sit side by side.

Speaker 2

I think as you go into Genoa, The next generation platform, we would expect again the adoption there's a lot of excitement on Genoa and there's a lot of customer demand for Genoa. I do I expect that Genoa will sit again side by side with Milan for quite some time because you're not going to move the infrastructure instantaneously And then when you think about Bergamo, which is the cloud optimized, I think that will be more specific for specific large hyperscalers who have the need for, let's call it, a more performance per dollar, performance per watt solution. So the way to think about this Vivek is as our business has grown, we can invest more broadly and that will give us just a more optimized solution for our customers' formalities.

Speaker 9

Very helpful. And then Lisa, my second question, kind of 2 or 3 interrelated question on the PC market. So what is your new sense of what the PC TAM can be this year versus what you thought before? And then I think as part of that, your competitors has mentioned several times that they are back in the market with Alder Lake and they are taking a lot of share. So I'm wondering what you have seen there?

Speaker 9

And then finally, what's your share in the commercial market today versus what it was last year? So just something on TAM, Competition and commercial exposure. Thank you.

Speaker 2

Sure. So Vivek, when we kind of started the year, we were thinking that PC TAM could be flat to let's call it down, let's call it low mid single digits. I think given sort of how we've started this year and then some of the other things in the market. We're taking a more conservative approach to the PCTEM. So for our modeling for the full year guidance, we're modeling something like down high single digits.

Speaker 2

Now a lot of things can happen between now and then. So I would say that I think That's a good place for us to model. Within that, we've always been very focused on where we can add the most value and the premium segments. Ryzen 6000, our Rembrandt product is extremely well positioned from a battery life or performance standpoint. We have a number of commercial, very good systems that are in the process of being launched.

Speaker 2

I think we're excited about that. To your question about commercial share, we're still underrepresented in the commercial market and we know that and that's A focus area for us. I think overall from a market share standpoint, we believe we're focused in the right segments. And so even under the backdrop of let's call it A softer PC market that we will we can continue to expect to gain revenue share in the process. And that's sort of our overall strategy.

Speaker 2

But I think the other piece of it is we have so many levers in the business now as we go forward. I think the strength in the business is really looking at the overall data center portfolio, the PC portfolio, the gaming portfolio and the Xilinx portfolio together. There are lots of levers for growth. And as we go through this year, we see that being very helpful.

Speaker 9

Thank you, Lisa.

Operator

Thank you. Our next question today is coming from Stacy Rasgon from Bernstein Research. Your line is now live.

Speaker 10

Hi, guys. Thanks for taking my questions. My first one, I wanted to ask about data centers. So it more than doubled last year and more than doubled again this quarter. Do you guys have the supply available to double that business again for the full year?

Speaker 10

Like if you can get the and I guess if the formal Why is there like you think it can be fulfilled?

Speaker 2

Yes. So Stacy, I think the data center business, particularly the server CPU business, continues to be very strong for us. I'm not going to proclaim a certain will it double every quarter. I will say that we expect to grow very strongly over the next few quarters. And we are continuing to bring on additional supply to do that.

Speaker 2

The demand is there. And it really is about continuing to work with our customers on that. But I think our confidence level in data center growth is very high.

Speaker 10

Thank you. For my follow-up, I wanted to ask just a quick question on PC. So in the context of a PC market TAM that you see down or modeling down high single digits. Given your mix shifts and your share gains, do you think you can actually grow your client revenues year over year in 2022 for the full year?

Speaker 2

Yes, Stacy. We are expecting that we will grow client revenues on a year over year basis. In that time environment and we continue to mix shift to let's call it the more premium segments. And so, it's a revenue share statement.

Speaker 10

Got it. But fair to say much more of the year over year revenue growth is things like servers Yes. And putting Xylinx aside for a minute, data center and servers and consoles more than client?

Speaker 2

Yes. That is true. But our expectation though is, again, we have a number of growth drivers in the business. But in terms of What has allowed us to increase the full year guide, from an organic standpoint, it is Strong visibility in server, strong visibility on the console side, strong visibility just from an overall

Operator

Our next question is coming from Aaron Rakers from Wells Fargo. Your line is now live.

Speaker 11

Yes. Thanks for taking the questions. I'll stick to 2 if I can. I guess my first question is we think about the server market and your share gains, but more importantly, we also think about the proliferation or expansion of the product portfolio. I'm curious of just what you're From a competitive perspective and your thoughts around continuing to mix higher in terms of the server market, thinking about the blended ASP trends in your server business.

Speaker 11

How should we think about that as we think about Milan X, Genoa, I guess Bergamo thereafter, just that trend looking forward?

Speaker 2

Yes. So, Erin, obviously, it depends on the mix between cloud and enterprise. But in general, as we offer more value, let's call it more performance, more capability. We would expect our ASPs to mix up. And in any given quarter, it's more of a what is of the cloud versus enterprise mix.

Speaker 2

But look, I'm very pleased with the fact that we're growing both cloud and enterprise Very substantially. So I think that tells you that we're growing across the entire server market. And we're going to continue to, of Let's call it optimized products, so that, one, our customers get more capabilities and we get more value for our technology.

Speaker 11

And then the second quick question is on the capacity discussion, I'm curious as you bring Xilinx into the model, you scale the business Going forward, how could we think about flexibility from a perspective of capacity? If PC slowdown, Can your capacity be fungible and move that capacity over to servers or even Xilinx capacity into server CPUs? I'm just curious of How we should think about that ability to mix across product segments as you think about your wafer capacity agreements?

Speaker 2

Yes. Erin, the way to think about that is, so both the Xilinx portfolio and sort of the organic AMD portfolio do use TSMC. So we are complementary there as our primary wafer supplier. We use very similar substrate suppliers as well. The Xilinx portfolio tends to be on more mature nodes, although there is some 7 nanometer.

Speaker 2

The majority of the portfolio is on And from the standpoint of overall supply, I think you've heard it from Devinder. I mean, we have invested Significantly over the last 18 months in sort of securing the supply and capacity and we're seeing it come online and that's again, What I'd like to do is, as you see it come online, that's when it'll go into our revenue forecast. But I feel very good about the progress that we're making. And we're continuing to dimension the company for just a much larger business. And so it's a lot of supply that we're bringing online.

Speaker 2

We're working very much with Victor and his team as well because he has strong backlog and strong demand and We're looking to use all of the AMD assets to also accelerate some of his builds.

Speaker 11

Thank you.

Operator

Thank you. Our next question today is coming from Harlan Sur from JPMorgan. Your line is now live.

Speaker 12

Good afternoon and congratulations on the solid results in closing the acquisition. Lisa,

Speaker 6

the team has done

Speaker 12

a great job of supporting all the major workloads on your latest generation Epic and driving strong wins on the enterprise side with all of the OEM server guys out there. I'm just wondering how much of the strength in the server business is being driven by the strong enterprise design win traction? And given your pipeline of wins and orders, how big will enterprise be as a percent of your server business maybe exiting this year?

Speaker 2

Yes. So, Harlan, thanks. So we've made great progress on the cloud side. So we have strong adoption on internal as well as We've also made strong progress on the enterprise. I mean, as you said, all major OEMs Have Epic throughout the portfolio.

Speaker 2

And in this past quarter and in general, we've grown the enterprise business about at the same pace as the cloud business. We're still cloud weighted, but I believe that it's going to be fairly balanced growth across both portfolios.

Speaker 12

Perfect. And then maybe a question for you or for Victor. But when I think about the embedded markets, auto, industrial, aerospace and defense, infrastructure consumer. Just given the strong market position here by Xilinx, I mean, they're in a good position to catalyze Epic attach to catalyze Ryzen attach to their FPGA solution. So maybe Victor can help us understand like what percentage FPGA solutions in the embedded markets.

Speaker 12

It's next to either an X86 or high performance ARM processor because I think that the process opportunity in embedded is much larger than the FPGA opportunity. And I believe that embedded is a pretty small percentage of overall business for AMD. So pretty big opportunity, but wanted to get your views.

Speaker 8

Yes. Maybe I'll take this one. I agree with you. Actually, one of the things that many things that's really exciting since we joined AMD is We've done some customer visits and they're really excited about exactly that point. There's we have a broader portfolio and on processors and even in In some areas, GPUs is also, great interest.

Speaker 8

The embedded business at A and D has been selling APUs and embedded versions of both the server as well as the client kind of products. And now with the FPGAs and adaptive SOCs we have, we really can give a much more complete solution. And so that is definitely on the menu of things in terms of revenue synergies, which we'll discuss more at the Financial Analyst Day. But yes, we're really excited about what we have even with the existing products. And then we're already working on our roadmap for creating more value going forward.

Speaker 8

So it's a great observation.

Speaker 12

Great. Thank you.

Operator

Our next question today is coming from Mark Lipacis from Jefferies. Your line is now live.

Speaker 6

Hi. Thanks for taking my question. Lisa, I think maybe an easier way for investors to have thought about AMD historically, particularly more recently is you've been successful in delivering server CPUs for data processing in the data center. And I think people or at least I have thought about Xilinx historically doing networking and communications solutions for base stations as well as data centers and they've kind of moved into this adaptive computing mode where they're doing more data processing also. And I wonder, You've seen other companies with general purpose computing solutions, kind of opportunity for more data processing at the network edge, like say, at the base station where Xilinx has historically The base station for the combination of data and communications network processing.

Speaker 6

Do you think that ultimately it looks very similar to what you see Deep in the hyperscale data centers, deep in the cloud.

Speaker 2

Yes, sure, Mark. So, I think the answer is yes. Formal And maybe I'll generalize it a bit more. We're a big believer. I mean, the whole strategy behind AMD is to have the best form of compute engines and then put them together in solutions for specific end markets.

Speaker 2

So I think our CPUs, GPUs, the FPGAs, the adaptive SoCs and then the DPU that we're adding from Pensando there. As Victor mentioned, we've been to a number of our joint large customers, And there is absolute interest in trying to put these solutions together. And more broadly though, I think What we see in terms of growth going forward, there will be more customization around solutions for large for these large customers, whether it's cloud customers or large telcos or even some edge opportunities. And having these compute engines will allow us to basically optimize those solutions together. So we look forward to telling you sort of a lot more about sort of how we're thinking about these roadmaps as we go into our Financial Analyst Day in June.

Speaker 6

And a follow-up, if I may. How as you develop those more customized solutions for your larger customers, how important is it to have your own software ecosystem versus to kind of pull everything together versus

Speaker 2

Yes, Mark. So the software is very, very important. And software across all of those engines is important. And Xilinx comes with a very strong Software stack, we have our own software stack. You'll see us unify them and that will be an important part of our roadmap going forward.

Speaker 2

And to your open source point, we do believe in open source. We think collaboration is an important part of the ecosystem as well. So all of those are things that we are working on, to provide more complete solutions for our customers.

Speaker 6

Great. Thank you.

Operator

Our next question is coming from Ross Seymore from Deutsche Bank. Your line is now live.

Speaker 7

Thanks for letting me ask a question. Congrats on the strong quarter and closing the Xilinx Bill, Lisa, I just again, a lot of moving parts. You've said that a bunch of times, so forgive me if I dive into them a little bit. But as we think about your 2nd quarter guide, I Just wanted to get some of the moving parts that you're assuming there. So if I take out the Xilinx side or just give you the full quarter of it and a little bit of guidance there, it looks like Core AMD is kind of growing low single digits sequentially.

Speaker 7

You've mentioned about the PC side seeing some weakness. You've talked about that a bunch. And then the strength on the server and the semi custom side. So any sort of color about the puts and takes to get you that organic growth?

Speaker 2

Yes, sure. Ross, thanks for the question. So for the Q2 in particular, the Q2 guide is driven by sort of 1 is the full quarter of the Xilinx business and strengthen our server business primarily as we see The Q2. There are other puts and takes, I would call them on the smaller side of that. If you recall, I mean, if you think about whether you talk about PC business or the gaming business, they tend to be more second half weighted.

Speaker 2

So the second quarter doesn't tend to be a strong quarter for those businesses. And so that's not the driver of the sequential increase.

Speaker 7

Perfect. And I guess a similar question, Perfect segue in your answer there. When I think about the full year guide, obviously incredibly impressive. You talked about the organic increases. It looks like especially with that extra week that you're kind of going up low or mid to high single digits in one of those quarters and Flattish after that just to get to the full year.

Speaker 7

So similar sort of question. What are the puts and takes there? Is the PC seasonality is something you're kind of leaning against a little bit relative to the high single digit drop you've talked about where you guys We'll still grow, but maybe not as fast as in years past given that backdrop, or is there something else that plateaus out in the second half?

Speaker 2

I'm not sure that I see a plateau, Ross. So I wouldn't say that. What I would say though is if I give Yes, so the puts and takes of the second half of the year, the again, we expect That the server business will continue to grow, as we said, good visibility there. We expect the console business to grow in the second half versus The first half also that's typical seasonality. Typical seasonality in PCs would also have the second half higher than the first half.

Speaker 2

I think we're modeling for a little bit sub seasonal, just given sort of all the puts and takes in the market there. And then we expect the Xilinx business to also grow in the second half as more supply comes online given the strong demand. So if you see all those pieces, I don't think there's a plateau. I think it's a continued improvement as we see 1 strong demand and also more supply coming online in the second half of the year.

Speaker 7

Thanks for that and apologies for the plateau word.

Speaker 2

No one ever apologizes to me. So that's really nice, Ross.

Speaker 1

Operator, we'll take 2 more questions, please.

Operator

Certainly. Our next question is coming from Timothy Arcuri from UBS. Your line is now live.

Speaker 10

Thanks a lot. My first question is really around semi custom. The rest of the business has been asked quite a bit. So I guess my question on Semi customers, Lisa, do you think that it can be a $4,000,000,000 business this year? It sounds like it can get pretty close, maybe even get there.

Speaker 10

And I guess also as part of that question, I I think you were thinking next year would be an up year also for semi custom, but given some of the consumer uncertainty, do you still think that it can be up next year? And then I had a second question. Thanks.

Speaker 2

Yes, sure, Tim. So without going into the exact numbers, I would say the semi custom business is a strong growth driver. We have we work with these customers very closely. We have good views of where they think the demand is. We're still in a place.

Speaker 2

If you were to look into the retail channel, you would say that the demand is underserved today in the semi custom business. And Their real build is towards holidays. So the answer is we do believe that semi custom will be at a record for us. This year, we have more content. We also have the Valve steam deck that also has gotten very strong reviews and Is ramping as we go into the second half of the year.

Speaker 2

And then on 2023, I do believe that 2023 will be another year for semi custom and would be up. And again, if you look at the history of these ramps, it's really around the 4th year That you see that you really see the business kind of hit its peak. In addition to that, just knowing some of the game releases That are from a software standpoint that are coming out. There are obviously, there's a good lineup there, but there's It's also an expected strong lineup as we go forward. So, yes, that's our current view of the semi custom business.

Speaker 10

Thanks a lot. And I guess just following up on the overall server market. I know that you're not at the best read because you're gaining so much market share. But there have been some comments from some of the big cloud customers about moderating or slowing investment. And there's some debate about does that mean that there's There'll be some slowdown in procurement of servers.

Speaker 10

So if you strip out your sort of share gain, I'm curious of your assessment of just overall strength in the data center market. Do you see it slowing at all later on this year or even into next year? Thanks.

Speaker 2

I would say, Tim, we haven't seen that. We haven't seen that particular phenomena. What we do see is that There needs to be good planning. So good planning with our server customers and our large cloud. And we're doing that and our planning extends beyond 2022, extends into 2023 as well.

Speaker 2

And from what we can see, it's robust demand.

Speaker 10

Thank you so much.

Operator

Thank you. Our next question is coming from Brett Simpson from Arete Research. Your line is now live.

Speaker 13

Yes. Thanks very much. Lisa, I wanted to get your perspective on the AI silicon markets and You've obviously focused on HPC with the Mi200s and you've got CPU roadmap on the server side that's A big host processor for AI. But can you share with us how we should think about AMD in the next sort of 2, 3 years around, it is like AI training, it is like inference, particularly the GPU portfolio, MI300, etcetera. And when do you think this platform is really going to be able to sort of compete and win in the AI training and inference space?

Speaker 13

Thank you.

Speaker 2

Yes, absolutely. Let me start, Brett, and then I'll ask Victor to also make some comments. No question, AI is a huge opportunity for us And it's one where we're thinking about it very holistically in terms of how we address. So on the Server CPU side, a lot of inference is done on the server CPU side. We've been investing in that area.

Speaker 2

On the GPU side For both training and inference, there a lot of it is around the software stack. And so our focus is on optimizing our software stack with our large cloud customers and partners. And then what Xilinx brings to our portfolio is actually a lot of capability on the AI inference side, in their current portfolio and then additive to the AMD portfolio. So I think you'll see a much broader set of offerings from us in AI as we start talking about sort of the broader product roadmaps. And Maybe Victor, do you want to give some more?

Speaker 8

Yes. I mean, look, we've been we have this AI engine that is already deployed in production in a number of embedded Applications and endpoints, and also edge devices like in cars. They're doing a lot of image recognition, all kinds of Inference applications and that same architecture can be scaled and brought into the CPU product portfolio. And as As we've alluded to, that is exactly our plan. We're also in a moment ago, there's a discussion about software.

Speaker 8

We're absolutely working on the unified overall software enable the broad portfolio, but also especially in AI. So you'll hear more about that at the Financial Analyst Day, but we're definitely going to be lenient in AI, both inference and training and I would say end to end because we have endpoints, we have edge devices both computing and embedded devices and in the cloud and enterprise. So we're very excited about that revenue synergy opportunity, Ashley.

Speaker 1

Brett, did you have a follow-up? Great.

Speaker 13

Yes. Thanks, Laura. Yes, just as a follow-up, in terms of AMD from a software monetization perspective, we are obviously seeing big changes in the way you're addressing software, you're moving up the software stack to a high level of abstraction. Is this somewhere you think over the next 2 or 3 years, will you do you plan to charge for software? And can you share with us maybe how we might think about AMD as a software business going forward?

Speaker 13

Thank you.

Speaker 2

Yes. I think Brett, we have maybe it's a broader conversation about our overall software strategy. But as Victor mentioned, The unified software capabilities around AI are very, very important. We also have with the acquisition of Pensando, they have a very strong full software team and effort around their DPUs and what we can do there. So I think as a total, you should see us Investing a lot more in software.

Speaker 2

And then in terms of the monetization and stuff, I think we can address that more as we think about the overall solution space formal that we'll be offering across all of these compute engines. And again, much more great conversation that we can have as we come into formal financial Analyst Day in June.

Speaker 1

Thank you, Lisa. And as a reminder to everyone on the call, our Financial Analyst Day will be on Thursday, June We look forward to having you there. We'll also be webcast from our website. And thank you to everyone for your participation in today's earnings call. As always, we appreciate your support of our company and look forward to speaking with you again soon.

Speaker 1

Thank you. Thank you and take care.

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