Advanced Micro Devices (NASDAQ:AMD) reported robust financial results for Q3 2023, with revenue rising 4% YoY and 8% sequentially to $5.8 billion. This growth was primarily driven by record server CPU revenue and strong Ryzen processor sales. The company forecasts sustained growth in its Data Center business, offset by a potential decline in the Embedded business due to high inventory levels.Key takeaways from the call include:- AMD's Data Center segment revenue was $1.6 billion, unchanged YoY but up 21% sequentially, propelled by strong demand for 3rd and 4th Gen EPYC processors.- The Client segment revenue surged 42% YoY to $1.5 billion, driven by higher sales of Ryzen mobile processors.- The Gaming segment revenue declined 8% YoY to $1.5 billion, counterbalanced by increased sales of Radeon GPUs.- The Embedded segment revenue decreased 5% YoY to $1.2 billion.- The company expects robust growth in the Data Center business, led by EPYC and Instinct processors.- AMD's CEO, Lisa Su, highlighted growth opportunities in the Embedded business, driven by design wins and a diverse product portfolio.- The company anticipates Q4 revenue to be approximately $6.1 billion, with a non-GAAP gross margin of about 51.5% and non-GAAP operating expenses projected to be around $1.74 billion.During the earnings call, CEO Lisa Su expressed confidence in the company's growth prospects, particularly in its Data Center business, which is expected to grow approximately 50% in the second half of the year compared to the first half. Su also discussed the adoption rate of their AI solutions, giving them confidence in the Q4 revenue number and the progression in 2024. In terms of the overall server CPU market, Su mentioned that while unit growth may be more modest, average selling price (ASP) growth due to the core count and compute capability will contribute to overall growth. The company expects the Embedded business to be weak in the first half of the year due to headwinds in the communications and industrial end markets. However, they believe demand is solid and expect to return to growth in the second half of the year. In the PC market, AMD anticipates some growth going into 2024, driven by the AI PC cycle and Windows refresh cycles. The company believes the PC market will return to a normalized run rate. When asked about their AI portfolio, Su highlighted the capabilities of their MI300 product and mentioned their partnership with other companies to provide full systems. In terms of gross margin, Jean Hu, CFO of AMD, explained that while the Embedded segment declined sequentially, the growth in the Data Center segment and improvement in the Client segment contributed to gross margin expansion. Looking ahead, Hu expects mix dynamics to drive gross margin, with significant improvement expected in the second half of 2022 when the Data Center segment expands and the Embedded segment recovers. In terms of operating expenses (OpEx), Hu stated that AMD plans to increase R&D and go-to-market investments to address opportunities in AI and the Data Center, with the objective of driving top-line revenue growth faster than OpEx growth. Finally, when asked about competition in the server space, Su emphasized the holistic optimization of AMD's products, including process technology, packaging, architecture, and design, to provide the best total cost of ownership (TCO) and performance efficiency to customers. She believes that AMD's portfolio of CPUs, GPUs, FPGAs, and DPUs gives them an advantage in optimizing different workloads in the data center. Su also expressed confidence in the long-term growth prospects of AMD's CPU business, stating that they have consistently gained market share and have untapped potential in enterprise and cloud markets.
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