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Advanced Micro Devices (NASDAQ: AMD)
Q3 2024 Earnings Call
Oct 29, 2024, 5:00 p.m. ET

AMD Reports Strong Q3 2024 Results Driven by Data Center Growth

Overview of Financial Performance

Operator

Greetings, and welcome to the AMD third-quarter 2024 conference call. [Operator instructions]. As a reminder, this call is being recorded. I will now introduce Mitch Haws, vice president of investor relations.

Thank you, Mitch. You may begin.

Mitch Haws — Vice President, Investor Relations

Thank you, and welcome to AMD’s third-quarter 2024 financial results conference call. By now, you should have reviewed our earnings press release and accompanying slides. If you haven’t, you can find them on the Investor Relations page of amd.com. We will focus on non-GAAP financial measures during today’s call.

The full non-GAAP to GAAP reconciliations are in today’s press release and slides available on our website. Participants on today’s call include Dr. Lisa Su, our chair and CEO; and Jean Hu, our CFO and treasurer. This is a live call and will be available for replay via webcast on our website.

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Before we move on, I’d like to mention that Forrest Norrod, executive vice president and general manager for data center business solutions, will attend the UBS Annual Technology Conference on December 3, and Jean Hu will attend the Barclays Global TMT Conference on December 12. Today’s conversation includes forward-looking statements based on current beliefs and assumptions and involves risks that could lead to actual results differing materially. For further details, please check the cautionary statement in our press release. I will now turn the call over to Lisa.

Lisa T. Su — President and Chief Executive Officer

Thank you, Mitch, and good afternoon to everyone listening today. We experienced strong revenue and profit growth in the third quarter, exceeding expectations. Revenue rose 18% year-over-year to a record $6.8 billion, primarily driven by unprecedented sales in our Instinct and EPYC product lines, alongside solid demand for Ryzen PC processors. We increased our gross margin by 2.5 percentage points and boosted earnings per share by 31% year-over-year, with Data Center segment revenue more than doubling.

Segment Performance Highlights

Data Center segment revenue soared 122% to a record $3.5 billion. We believe we gained significant market share in server CPUs this quarter, boosted by accelerating enterprise wins. Major cloud providers increased their usage of EPYC CPUs, and we began the initial rollout of our fifth-generation EPYC processors.

EPYC has established itself as the preferred CPU for modern data centers, with our multi-generation product offerings delivering superior performance and notable total cost of ownership (TCO) advantages across nearly all cloud and enterprise workloads. In the cloud sector, EPYC CPUs are powering vital services such as Office 365, Facebook, and Netflix. For instance, Meta deploys over 1.5 million EPYC CPUs within its global data centers.

Public cloud instances grew 20% year-over-year, exceeding 950, as Microsoft, AWS, and others expanded their EPYC offerings. Enterprise sales also showed strong growth, particularly with significant contracts from companies like Adobe, Boeing, and FedEx. Contributions from Dell, HPE, and Lenovo increased the number of fourth-generation EPYC platforms available by 50% over the past year.

In total, over 200 distinct EPYC solutions are optimized for diverse enterprise and edge workloads. In the third quarter, we welcomed notable enterprise wins across various sectors, such as technology, energy, and finance. We launched our next-generation Turin family earlier this month, which has already set over 130 performance records spanning virtualization, AI, and energy efficiency.

Looking forward, we remain well-positioned for sustained growth in…

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AMD Reports Strong Growth in Data Center AI and Client Segments, Eyes Future Innovations

Strategic Partnerships and Product Launches Drive Momentum in Key Markets

AMD is experiencing significant growth, particularly in the Data Center AI and Client segments, which reflects the effectiveness of its EPYC portfolio and the strong relationships with cloud and enterprise clients. A notable endeavor this quarter involved advancing the x86 architecture. AMD formed an ecosystem advisory group alongside Intel, industry experts, and top cloud leaders to foster innovation, ensuring consistent compatibility across the x86 instruction set and architectural interfaces and reinforcing x86’s role as the preferred compute platform for developers and customers.

The Data Center AI business has seen a notable revenue increase from GPU sales, with MI300X adoption rising among cloud, OEM, and AI customers. Major players like Microsoft and Meta have expanded their utilization of MI300X accelerators for internal processes. Microsoft now relies on MI300X to enhance several co-pilot services powered by GPT 4 models. Meanwhile, Meta has optimized MI300X for its demanding Llama 405B model, exclusively using it for live traffic workloads. AMD continues to collaborate with Meta to broaden the scope of MI300X across various AI tasks, showcasing its total cost of ownership advantages.

Moreover, the public availability of MI300X instances has broadened significantly. Key cloud providers, including Microsoft and Oracle Cloud, now offer performance-leading AI instances tailored for widely-used models. Startups and established companies alike, such as Essential AI and Databricks, are adopting MI300 instances to support their modeling and service needs. Since the launch of MI300 ten months ago, the ROCm software stack has seen enhancements across all layers, bringing the total number of compatible models to over one million. The performance for MI300X inferencing has surged 2.4 times since its introduction, with trading performance improving by 80%. Many customers report a 30% boost in performance compared to rival products, underlining AMD’s commitment to optimizing AI solutions.

At a recent AI event, AMD was joined by leaders in AI software development, who have begun integrating support for ROCm within key frameworks like Triton and TensorFlow. Their collaborative efforts are establishing a solid foundation for ROCm as a scalable and open software alternative for AI developers. To further bolster its capabilities in AI infrastructure, AMD has agreed to acquire ZT Systems, a leader in providing integral AI infrastructure for top hyperscale computing firms. This acquisition will allow AMD to streamline the design and validation of next-generation AI silicon and systems, quickly enhancing the deployment of AI solutions in data centers.

Positive customer feedback emphasizes how this acquisition is facilitating rapid AMD infrastructure deployment at scale. Regulatory progress has also been evident, with AMD passing the required HSR waiting period for U.S. approval, keeping them on track for a merger completion by the first half of 2025. As part of this venture, AMD intends to sell ZT’s U.S.-based data center manufacturing segment while generating noteworthy interest from potential buyers.

Recently, AMD launched its MI325X GPU, which boasts increased memory capacity and bandwidth, along with up to 20% higher inferencing performance compared to its rivals. Anticipation among customers and partners for the MI325X is high. Production is set to begin this quarter, with extensive system availability anticipated from major manufacturers like Dell and Lenovo starting in early 2025. Looking to the future, AMD is also progressing on its next-generation MI350-series silicon, expected to launch in the latter half of 2025, promising the largest AI performance increase to date, along with ongoing development on the MI400 series for a 2026 launch.

Overall, traction in the Data Center AI business is impressive, with AMD forecasting Data Center GPU revenue to surpass $5 billion in 2024, a substantial jump from the previously projected $4.5 billion and significantly higher than the $2 billion earlier in the year. Shifting focus to the Client segment, AMD reported revenue of $1.9 billion, up 29% year-over-year, propelled by high demand for the Zen 5 processors.

Sales of Ryzen desktop processors saw a significant uptick, particularly following the launch of the Ryzen 9000 series, which has exhibited leading productivity and gaming performance. As 2024 approaches, new Ryzen 9000 X3D processors are scheduled for release, which are expected to deliver top-tier gaming performance. In mobile computing, Ryzen AI 300 Series sales have markedly increased, driven by new launches from major brands like Acer and HP.

Furthermore, AMD has strengthened its foothold in the commercial PC market, securing several large contracts with firms such as AstraZeneca and Bayer. The introduction of the Ryzen AI Pro 300 Series CPUs is also noteworthy; these processors are designed with advanced security and manageability features tailored for business needs. Companies like HP and Lenovo plan to significantly increase their lineup of Ryzen AI Pro platforms in 2024, strategically positioning AMD for future market share growth as businesses look to upgrade their aging Windows 10 systems by 2025.

In terms of the Gaming segment, AMD reported a 69% revenue decline year-over-year to $462 million, heavily influenced by reduced inventory levels from key partners Microsoft and Sony. Sony’s announcement of the PS5 Pro highlights improvements in graphics and AI-driven performance through a new AMD semi-custom SoC, showcasing the strength of their ongoing partnership. Meanwhile, AMD is preparing for a shift to next-generation Radeon GPUs based on the upcoming RDNA 4 architecture, which promises enhanced gaming performance as well as increased capabilities for ray tracing and AI functionalities.

AMD’s Financial Highlights: Strong Growth in Data Center and Client Segments

AMD is set to introduce its first RDNA 4 GPUs in early 2025. Turning to the Embedded segment, third quarter revenue fell 25% year-over-year, totaling $927 million. While embedded demand is gradually recovering, it has been primarily driven by strength in test and emulation, contrasted by ongoing softness in the industrial market.

The company reports exciting progress in its Versal family of adaptive SoCs, especially with the growing demand for the Versal premium VP 1902. This product is noted as the world’s largest adaptive SoC in FPGA, powering multiple platforms used by the three largest EDA vendors. Moreover, the Versal portfolio has found a significant customer in aerospace, such as SpaceX, which recently launched broadband satellites utilizing Versal AI Core adaptive SoCs. AMD is keen to build on this success, having taped out Telluride last quarter—the first product in the second generation of Versal, boasting up to 10x more compute power that accelerates AI applications on a single chip.

As AMD measures progress, design wins are notably strong, with expectations to grow more than 20% year-over-year in 2024. This positions the company to grow its embedded business at a pace faster than the market. In summary, AMD saw business accelerate in the third quarter and anticipates sustained strong demand for its Instinct, EPYC, and Ryzen processors, resulting in significant year-over-year growth.

Reflecting on his tenure, this month marks the 10th anniversary of Lisa Su as AMD’s CEO. Over the past decade, she has overseen the transformation of AMD, establishing a strong financial and operational foundation conducive to continued growth. Highlighting the pride in past achievements, there’s also excitement about the upcoming growth opportunities across Data Center, Client, and Embedded segments fueled by the rising demand for computing power.

The rapid adoption of AI amplifies these opportunities, transforming high-performance computing into an essential part of daily life. In the Data Center alone, it’s estimated that the AI accelerator Total Addressable Market (TAM) will grow more than 60% annually, reaching $500 billion by 2028—equivalent to the total sales of the entire semiconductor industry in 2023. Beyond Data Centers, AMD is integrating AI capabilities across its product range and engaging with various partners to deliver unique AI solutions at scale.

This moment presents a compelling opportunity for AMD, provided by the extensive technology portfolio, robust customer relationships, and diverse markets. As AMD approaches its next chapter, it aims to establish itself as a leader in end-to-end AI solutions.

Jean Hu — Executive Vice President, Chief Financial Officer

Thank you, Lisa, and good afternoon, everyone. Let’s review our financial results and outlook for the fourth quarter of fiscal 2024. We are pleased with our strong third quarter performance. Year-over-year, our Data Center segment revenue more than doubled, while the Client segment experienced a 29% increase.

Additionally, we expanded our gross margin by 250 basis points, achieving a 31% growth in earnings per share. For the third quarter of 2024, total revenue reached $6.8 billion, reflecting an 18% year-over-year growth. Revenue gains in the Data Center and Client segments were partially offset by declines in the Gaming and Embedded segments, while revenue increased 17% sequentially, largely due to growth in Data Center and Client segments. Gross margin stood at 54%, up 250 basis points from the prior year, primarily due to increased Data Center revenue.

Our operating expenses totaled $1.96 billion, a 15% year-over-year increase as we continue investing in R&D and go-to-market initiatives. Operating income was reported at $1.7 billion, translating to a 25% operating margin. Taxes, interest expense, and other costs amounted to $211 million, while diluted earnings per share hit $0.92—up 31% year-over-year and 33% sequentially.

Looking at individual segments, the Data Center reached a record quarterly revenue of $3.5 billion, up 122%—a nearly $2 billion increase year-over-year and a 25% sequential rise. The success is attributed to robust AMD Instinct GPU shipments and growth in AMD EPYC CPU sales, with the Data Center segment now contributing 52% of total revenue. Operating income for this segment was $1 billion, representing 29% of revenue compared to $306 million (19%) a year ago, highlighting significant growth driven by increased revenue.

In the Client segment, revenue increased to $1.9 billion, reflecting a 29% year-over-year increase and a 26% sequential uplift. This growth is largely due to strong demand for Zen 5 AMD Ryzen processors. Operating income for the Client segment reached $276 million, or 15% of revenue, an improvement from the prior year. However, the Gaming segment saw a revenue drop to $462 million, down 69% year-over-year and 29% sequentially due to decreasing semi-customer revenue, leading to an operating income of $12 million.

For the Embedded segment, revenue was recorded at $927 million—down 25% year-over-year—as customers normalized inventory levels. A sequential increase of 8% was noted as demand improved across various markets. Operating income for the Embedded segment was $372 million, or 40% of revenue, a decline from last year’s figures.

Analyzing cash flow, AMD generated $628 million in cash from operations, with free cash flow standing at $496 million. After excluding certain nonrecurring payments, free cash flow rose to $619 million. Inventory levels increased by $383 million to $5.4 billion to support Data Center product demand. Cash holdings, short-term investments, and equivalents total $4.5 billion.

During the third quarter, we returned $250 million to shareholders through the repurchase of 1.8 million shares, with $4.9 billion remaining in authorization.

Looking ahead to the fourth quarter of 2024, we expect revenue of approximately $7.5 billion (plus or minus $300 million), which signals a 22% year-over-year growth, primarily driven by Data Center and Client segment growth alongside anticipated sequential increase of about 10%.

We expect to maintain a non-GAAP gross margin of around 54%, with non-GAAP operating expenses at about $2.05 billion, while forecasting non-GAAP effective tax rates at 13%. The diluted share count is projected to be around 1.64 billion shares. In conclusion, we are pleased with our execution in the third quarter and anticipate another record revenue quarter in the fourth, bolstered by continued momentum across our Data Center and Client segments.

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AMD Sees Strong Data Center Growth, Boosts Financial Outlook

AMD’s Strategic Moves to Lead AI Infrastructure

AMD is positioning itself as a leader in AI infrastructure and has made strategic investments to ensure long-term profitability. Now, let’s shift to the Q&A session led by Mitch Haws.

Questions & Answers:

Operator

Thank you, Mitch. [Operator instructions]. Our first question comes from Toshiya Hari at Goldman Sachs. Please go ahead with your question.

Toshiya Hari — Analyst

Good afternoon. My first question concerns the Data Center GPU business. Lisa, you’ve raised your 2024 outlook by $500 million. What drove that increase? Looking ahead to 2025, while I understand you won’t provide specific numbers now, could you share your thoughts on growth prospects for Instinct among both large cloud and enterprise customers? Additionally, will you be adding any new cloud customers for Instinct?

Lisa T. Su — President and Chief Executive Officer

Thank you, Toshiya. We had a strong third quarter for the Data Center, particularly for our Instinct products. We achieved key customer milestones and exceeded our initial expectations.

Due to this success, we raised our overall guidance from exceeding $4.5 billion to exceeding $5 billion for the year. Looking toward 2025, we see a positive market trend across AI workloads as customers invest heavily in necessary infrastructure.

Our product lineup is continuously improving, with launches of the 325 model later this quarter and 355 in the second half of next year. We’re also expanding customer engagement; our largest cloud customers are increasing their AMD Instinct workloads, and we are collaborating with several large enterprises on optimizing their tasks, which we believe will yield favorable opportunities in the coming quarters.

Toshiya Hari — Analyst

Thanks, Lisa. My follow-up is for Jean regarding gross margins. You’re guiding for a flat gross margin in Q4. Could you explain the factors affecting it? Also, as you look toward 2025, with expected growth in the Data Center and a potential recovery in the Embedded business, do you anticipate higher gross margins? What are the challenges we should be aware of?

Jean Hu — Executive Vice President, Chief Financial Officer

Thank you for your question, Toshiya. We’re pleased with our Q3 gross margin at 53.6%, guiding approximately 54% for Q4.

The improvement in our gross margin has mainly come from our Data Center business, which now represents over 50% of our revenue mix. This growth should also benefit our margins moving into 2025.

As mentioned, the Data Center, especially both CPU and GPU segments, will be significant growth drivers. The Embedded business shows signs of recovery, which will also aid margin improvement. However, challenges remain, particularly in our Client business, which primarily targets consumer markets at lower margins. Lastly, our operational efficiency continues to improve, and as we scale, we anticipate benefiting from economies of scale.

Operator

Next, we have Aaron Rakers from Wells Fargo. Please go ahead.

Aaron Rakers — Analyst

Yes, I have two questions. First, how would you describe your supply chain, given the increase to the $5 billion revenue outlook? What measures have you taken regarding lead times and production cycles for the MI300 and MI325 GPUs as we approach 2025?

Lisa T. Su — President and Chief Executive Officer

Our supply chain has improved significantly over the past quarters. While it remains tight, we have ensured we have sufficient capacity across our supply chain, contributing to the strong Instinct revenue in Q3.

As we look ahead to 2025, we expect the supply environment to remain tight, but we’ve prepared for substantial growth in that year. Overall, we are confident in our supply chain capabilities.

Aaron Rakers — Analyst

Thank you. As a quick follow-up, regarding your revenue guidance, at the midpoint, you’re expecting an increase of about $680 million sequentially. Can you break down how much of this comes from the Client versus Data Center segments?

Lisa T. Su — President and Chief Executive Officer

For the sequential guidance, the Data Center business is the largest contributor. It represents over 50% of our Q3 operations and is set to grow further in Q4. The Client segment is also expected to perform well due to successful product launches for both desktop and notebook markets, while other segments, like Gaming and Embedded, will see modest growth.

Operator

The next question comes from Ross Seymore at Deutsche Bank. Please proceed.

Ross Seymore — Analyst

Lisa, congratulations on reaching your 10-year anniversary. Jean, in your segment guidance, I noticed Embedded wasn’t mentioned as growing. However, Lisa, you suggested it is on an upward trajectory. Could you clarify?

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AMD Shows Mixed Signals in Embedded and Data Center Markets

Understanding the Fourth Quarter Guidance for Embedded Business

Lisa T. Su, President and CEO, addressed inquiries regarding AMD’s Embedded business performance in the fourth quarter. She noted improvements while acknowledging variability across subsegments. The test and emulation segment has performed well, bolstered by the new Versal platform. Meanwhile, aerospace and defense continue to show strength, yet communications remain lackluster, and the industrial segment is softer than expected. Anticipating modest growth, Su emphasized that 2025 might see a mixed performance across these segments.

Growth in the EPYC Business Amidst Competition

Ross Seymore, an analyst, expressed interest in AMD’s EPYC business performance. Su highlighted solid progress in this sector, noting that large cloud customers are increasing their data center capacities, leading to a notable improvement in demand. The recent release of the Zen 4 portfolio, including Genoa and Bergamo, demonstrates strong market reception, and there’s also demand for the Zen 3 Milan family. This robust product lineup positions AMD favorably within the evolving server market.

Potential for Increased Market Share in Server Offerings

Ben Reitzes from Melius Research inquired about AMD’s Turin and its role in maintaining server momentum. Su explained that Turin is designed to cater to a wide variety of workloads, which is crucial as AI becomes more integrated into CPUs. As AMD expands its collaboration with major cloud providers, it sees positive growth indicators, particularly with enterprise customers, although sales in this sector tend to require longer lead times due to extensive proof of concept processes.

Outlook for the PC Market in 2025

Addressing concerns regarding consumer demand, Su conveyed that AMD’s PC business usually experiences stronger sales in the second half of the year, thanks to recent product launches like the Zen 5 and Ryzen 9000 series. She predicted some seasonality in early 2025 but remains optimistic about overall market growth, estimating mid-single-digit increases. The combination of strong AI integration and the impending end of Windows 10 support in 2025 are anticipated to drive further demand.

Prospects for Data Center GPU Revenue Growth

When queried about the potential of the MI325X and MI355 GPUs to boost revenue, Su confirmed AMD’s success in the Data Center GPU space. Having launched MI300 earlier in the year, the company has not only achieved key customer milestones but has also seen a solid trajectory toward its projected $2 billion revenue target for 2024. As AMD continues to scale its data center operations, there is optimism surrounding its future growth in this competitive landscape.

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AMD Eyes $5 Billion in AI Revenue by Next Year Amid Strong Market Growth

AMD is gearing up for a significant milestone, projecting over $5 billion in revenue for 2024, fueled by strong customer demand and a growing product portfolio. According to CEO Lisa T. Su, the company is experiencing success in various workloads, especially in data centers.

Optimizing Product Performance and Customer Engagements

Su expressed confidence in AMD’s advancements over the last few quarters. The company has made strides in enhancing out-of-the-box performance, optimizing workloads, and improving software support. Additionally, they are expanding engagement efforts with customers to ensure smooth operations at scale and optimal total cost of ownership (TCO).

Building Strong Partnerships with Major Tech Giants

Opportunities lie ahead as AMD collaborates with major players like Meta and Microsoft to expand the use of its technology in advanced applications. Meta, for instance, is transitioning its workloads from inference on large language models to training, showcasing a robust partnership with AMD. This illustrates the deepening engagement with clients at large organizations, which bodes well for future growth.

Stable Growth on the Horizon

Analyst Timothy Arcuri of UBS pointed out that AMD’s Data Center GPU revenues were impressive, estimating them to hit around $2 billion by December. In response, Su confirmed that the company had indeed surpassed initial revenue expectations in this sector and noted the approaching equality between their GPU and CPU business scales.

Potential Revenue Flux and Market Adaptations

Looking forward to 2025, Su mentioned that while they feel optimistic about growth potential, it might not follow a consistent upward trend due to varying customer needs. Companies are exploring different cooling systems and infrastructures, such as air-cooled and liquid-cooled options. This variability means growth may occur unevenly across quarters, but overall, AMD is positioned well for continued success.

Revenue Split Between Training and Inference

Joe Moore from Morgan Stanley sought clarification on AMD’s projected AI revenue breakdown, particularly the balance between inference and training. Su indicated that while inference currently dominates, they anticipate a more equal split as they continue to grow in the training market.

Closing the Technology Gap With Rivals

In discussing competition, Vivek Arya from Bank of America Securities raised concerns about AMD’s position relative to industry leaders. Su defended AMD’s trajectory, asserting that their MI300 and MI325 products are well-matched against their competitors’ offerings. She reiterated that demand remains high and noted the challenge of volume production as they ramp up new technologies.

Channel State and Growth Prospects

Finally, addressing the PC market, Su reported a 26% sequential growth in client revenues, but acknowledged that sell-through numbers have not been as strong. She emphasized that growth in average selling prices (ASPs) is a factor, but AMD is also focused on unit sales. Looking into 2025, she remains confident that ASP strength will continue to favor AMD’s market position.

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AMD’s Financial Performance Shows Promise Amid Market Dynamics

Key Insights on Desktop and Notebook Channels

AMD has noticed distinct trends in its desktop and notebook sectors, demonstrating robust performance in the desktop channel. The company’s share in this area remains strong, with Q3 reflecting impressive sell-through rates that positively impacted revenue results. In contrast, the notebook segment is more consumer-driven, leaning towards a second-half performance boost, especially with the increase in AI PC technologies. AMD’s latest Risen AI 300 processors are seeing good activation rates, indicating growing interest, albeit early in the AI PC lifecycle.

Enterprise Growth and Cloud Demand Outlook

Harlan Sur from J.P. Morgan inquired about AMD’s core EPYC business, noting recovery in the enterprise sector during the last quarter. Lisa T. Su, AMD’s CEO, confirmed that enterprise growth is showing a broad recovery, driven by both on-premises and cloud deployments. Continued migration from older models to modern AMD solutions presents a positive outlook for both Enterprise and Cloud segments as AMD anticipates further sequential growth in server business for Q4.

Opportunities in the Chinese Market

Su highlighted the potential for AMD to gain more market share in China, particularly in services where the company is currently underrepresented. The upcoming launch of the Zen 5 portfolio is expected to strengthen AMD’s offerings and create additional prospects for growth in 2025.

Data Center GPU Revenue Insights

Stacy Rasgon from Bernstein Research raised a question about AMD’s data center GPUs, which reportedly are approaching $1.7 billion in revenue. Su affirmed that the GPU revenue is projected to exceed $5 billion for the year, though the full-year figure needs slight adjustment to maintain growth expectations. The variability in the data center GPU segment is influenced by a few key customers, leading to fluctuations in demand.

Acknowledging Market Challenges and Future Opportunities

Harsh Kumar of Piper Sandler commended AMD’s past achievements while raising concerns about competition in the AI market. Su reframed potential challenges as opportunities, stressing that building customer trust and familiarity with their product lineup takes time. AMD’s EPYC series has evolved significantly, showing promise for faster growth as the market matures. Su remains optimistic about AMD’s upward trajectory in the competitive landscape.

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AMD’s Data Center Growth Strategy: Insights from the Latest Earnings Call

AMD executives express confidence in ongoing progress during the company’s earnings call, highlighting evolving customer dynamics and product launches.

Confidence in Future Growth Amid Challenges

“We believe this is a multi-generational journey,” noted a company representative. They emphasized the importance of expanding both their customer base and workload in the upcoming year. With the anticipated MI400 series, the firm sees robust potential in its new product line. “Overall, the ramp is proceeding well. Large customers are open to AMD, giving us a fair chance to earn their business,” they added.

Understanding the Financial Landscape

Harsh Kumar — Analyst

“Can you shed light on how the gross margins for the MI300 and MI325 products compare to corporate margins?”

Jean Hu — Executive Vice President, Chief Financial Officer

Hu responded positively about the revenue trajectory of their Data Center GPU operations, even as gross margins remain below the corporate average. “Next year, our priority is to meet customer demand and enhance our market presence to drive significant revenue growth,” she explained.

Looking ahead, Hu highlighted the long-term potential of the data center business. She noted that revenue from this segment has more than doubled year-over-year, while operating income has tripled. This, according to her, positions AMD to improve gross margins progressively.

Product Launch Timeline and Market Insights

Operator: “Our next question comes from Thomas O’Malley at Barclays.”

Tom O’Malley — Analyst

“Will the MI325 platform impact sales in Q4, or should we anticipate more significant contributions in Q1?”

Lisa T. Su — President and Chief Executive Officer

Su clarified that the majority of the sales mix in Q4 will still come from MI300, as MI325 is launching late in the quarter. She added that the ramp-up for MI325 will extend into the first quarter of the next year.

As for market trends leading into 2025, Su mentioned that several sectors like aerospace, defense, and automotive are beginning to show signs of recovery. However, the communications and industrial sectors still need more visibility for consistent growth.

Closing Remarks

Operator: “We’ve reached the end of our Q&A session. I’d like to turn the floor back to Mitch Haws for any closing comments.”

Mitch Haws — Vice President, Investor Relations

“That concludes today’s call. Thank you all for participating.”

Operator: [Operator signoff]

Duration: 0 minutes

Call Participants:

Mitch Haws — Vice President, Investor Relations

Lisa T. Su — President and Chief Executive Officer

Jean Hu — Executive Vice President, Chief Financial Officer

Toshiya Hari — Analyst

Aaron Rakers — Analyst

Ross Seymore — Analyst

Ben Reitzes — Melius Research — Analyst

Joshua Buchalter — Analyst

Timothy Arcuri — Analyst

Joe Moore — Analyst

Vivek Arya — Analyst

Harlan Sur — Analyst

Stacy Rasgon — Analyst

Harsh Kumar — Analyst

Tom O’Malley — Analyst

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