On the finish of each monetary name, invited monetary analysts have a chance to probe the important thing members of the corporate on the numbers, in addition to future merchandise. We simply had AMD’s This autumn 2020 Monetary name, masking all of This autumn developments in addition to 2020 as a complete. On the decision was CEO Dr. Lisa Su and CFO Davinder Kumar.
It is a transcription with further readability added.
Barclays: Your numbers showcase a strong annual steering for 2021, with AMD stating that you just anticipate to see all segments up in income. Are you able to give us any coloration or element with regards section and product strains?
Lisa Su: So we’re excited as we transfer into 2021. 2020 was a fairly a robust progress yr for us. For our annual steering, we anticipate to see energy throughout all of our companies. This can naturally be led by our giant segments: Server, PC, and Semi-custom/console. We may even see progress in graphics throughout shopper graphics and datacenter graphics as we ramp out the complete product strains throughout 2021. Total progress in 2021 will come from the energy of our new product portfolio coupled with optimistic demand atmosphere.
Q: For the form of income in 2021, you acknowledged that will probably be higher than seasonal as we enter the yr. Are you able to speak about your ideas on the general PC market, in addition to how AMD’s yr will likely be formed by the semicustom enterprise in H1 in comparison with H2?
Lisa Su: You noticed a little bit of our expectations in what we mentioned with our Q1 steering – Q1 can have higher than regular seasonality. In a standard yr we see usually see the primary half on a decline, beneath the second half which is commonly shopper robust. From the form from market popping out of 2020, we see that the PC and gaming segments are performing higher than seasonally anticipated, they usually even have pent up demand. We’re additionally seeing robust datacenter progress, with server demand up sequentially in Q1. That is on the energy on our Rome product and the Milan product ramp. It implies that the 2021 yearly efficiency can have a special form in comparison with regular, however with robust demand throughout our three key segments: PC, datacenter and gaming.
Cowen: Within the server numbers, we’re seeing an even bigger greenback contribution to progress in comparison with prior years. Lisa talked about accelerated progress for the datacenter in 2021, off of a enterprise that doubled final yr. Are there drivers of server progress alongside merely launching Milan?
Lisa Su: We’re proud of our DC progress, and 2020 was a robust yr. We anticipate to see a robust progress of our DC enterprise in 2021. Cloud enterprise is strengthening as we go into the primary half of the yr, each with present technology Rome in addition to next-generation Milan. The reception to Milan from our prospects is robust, with a superb efficiency profile. We began shipments of Milan to key cloud prospects in This autumn, and we’ll proceed in Q1 (full launch in March). We anticipate to see extra new prospects, and extra present prospects adopting our Milan platform. We can have a really robust enterprise portfolio, and robust time-to-market partnerships with key OEMs. That is a part of our launch plan later in Q1. Total we’re optimistic in DC, and we see a variety of want for compute within the cloud and for the enterprise market. In that occasion, Milan may be very effectively positioned.
Q: It’s no secret that business is provide constrained, each as a consequence of market progress in addition to the pandemic. May you characterize the magnitude of provide constraints AMD is dealing with, and will they be hindering progress? Most analysts thought that the large CAPEX enhance from TSMC might need been as a consequence of Intel ordering provide – however as you look via this yr, does the steering for FY2021 incorporate growing provide and assumption of higher provide?
Lisa Su: As we have a look at the atmosphere in 2020, it was robust. That led to a robust income ramp in our enterprise, in addition to the companies of our friends. For AMD, the demand exceeded our planning, and because of this we did have provide constraints as we ended the yr. This was principally confined to our PC market choices, significantly the low finish of each PC and gaming. Because it pertains to our manufacturing companions, we’re getting nice assist from them, particularly because the business wants to extend capability. However we now have added capability, with extra coming on-line via 2021 into the second half. How we give it some thought all, with respect to our full yr 2021 steering, is that we now have good visibility into each our provide facet and the anticipated demand facet, that is the rationale we’re assured in our steering.
Financial institution of America: Are you able to assist us dissect the Q1 and 2021 outlook, significantly with and with out the semi-custom enterprise? Are you able to clarify the transferring drivers?
Lisa Su: In Q1, we do anticipate to see the PC market and console enterprise to be a bit higher than seasonal. Usually consoles can be seasonally down double digits, and we anticipate consoles to be modestly down, however nonetheless larger than what’s seasonally regular. We anticipate to see a sequential QoQ enhance within the server enterprise and graphics as we ramp merchandise there. As we go into 2021, we’re in a spot the place we now have 3 companies that scale. Our FY2021 steering encompasses progress in all three – PC, DC, and Gaming. That is as a result of visibility we now have on these platforms into launches and the energy of our portfolio. We see a lot of demand throughout all three segments, and effectively balanced demand between the three. We additionally anticipate to see progress in shopper graphics and datacenter graphics as a consequence of new merchandise and deployments as effectively.
Q: In Q1 this yr, Intel can also be launching its datacenter server product. Within the close to time period, there was some dialogue about cloud digestion of server processors. May you deal with that, and the demand atmosphere you might be seeing from cloud and HPC prospects? As we play out to 2021, each AMD and Intel will likely be nearly on the identical manufacturing node – how that may play a job to your determination making for purchasers? Typically the dialogue is one dimensional in regards to the node, however what’s your confidence and visibility within the DC market?
Lisa Su: Close to time period, cloud is a interval for us that’s seeing robust demand. We noticed energy and demand in This autumn, and we see sturdy demand in Q1. These are good indicators for us. For 2021, we’re enthusiastic about Milan as it is a robust product. We have already seen what Zen 3 can do within the desktop and pocket book markets, and it builds upon what we did in Rome. With the manufacturing course of, whereas it’s one facet of competitiveness, we have additionally centered on general efficiency and system efficiency each in cloud and enterprise. Milan is probably the most balanced product we now have each for enterprise purposes in addition to cloud purposes. For visibility, we now have higher visibility this yr than we have had in previous years. That is our third gen EPYC, and we’ve developed deeper buyer relationships – a lot of selections have already made by our prospects through the testing our merchandise. It will likely be an thrilling yr, and we’re happy with Milan’s efficiency and degree of market curiosity.
Stacy Rasgon, Bernstein: A query about server margins. In This autumn we noticed ‘excessive teenagers’ (15-19%) server income about $600m as a part of the income for the quarter. However the gross margins from AMD missed steering by just a few tenths of p.c, regardless of the server market being a excessive gross margin enterprise. Is that this as a result of console enterprise (which has decrease margins) and the combo of consoles over servers? Additionally an identical factor with AMD’s 2021 steering – consoles are anticipated to development down in Q1 with all else up, however gross margins are solely barely growing.
Lisa Su: On This autumn, we noticed energy throughout a few completely different companies in comparison with our steering. We noticed energy in our console deliverables in addition to PC and the datacenter. Total our income was weighted to PC in 4Q for our shopper enterprise. It’s about what we anticipated for the quarter. In Q1 2021, we’ll see our PC and console income a bit higher than seasonal – at a time when consoles are sometimes down double digits, we see them nonetheless down however not as a lot. We may even see datacenter additionally up. As we glance to the complete yr, we see the combo of enterprise adapting the place there’s demand.
Q: With regards the pricing atmosphere on servers – your principal competitor has talked a few extra aggressive atmosphere within the server market, the end result being an influence on their common promoting costs (ASPs) and general margins. What did you see in This autumn for AMD’s server enterprise, and what have you ever included into your 2021 steering for this?
Lisa Su: In This autumn, we really noticed our server ASPs up sequentially quarter on quarter, principally due to the product combine chosen by our prospects in addition to our first Milan shipments and the ramp of Milan. As we go into 2021, the server atmosphere continues to be aggressive, because it has all the time been. Our focus is not to compete on value, however on general worth and complete price of possession (TCO) as we go into 2021. For us ASPs are decided extra by the combo of merchandise that our cloud and enterprise prospects use. We’re nonetheless cloud weighted, and we will likely be cloud weighted going into 2021. For us, the ASP atmosphere is what it has been for some time.
Goldman Sachs: Are you able to converse to the expectations for the PC market this yr? Is there any concern as a consequence of a robust 2020? What’s embedded in steering for this? Additionally what traction do you see within the industrial market over the patron market?
Lisa Su: 2020 was robust yr for us within the PC market, and you’ve got heard this from OEMs as effectively. In 2021 most individuals are saying the section can have a center single-digit (3-7%) kind of progress, and we see comparable market forces. The form of that income distribution is predicted to be a bit completely different to regular, with the primary half of the yr stronger than most individuals anticipate. Our focus within the PC market is obvious – it’s in segments the place we are able to transfer up the stack to a extra premium product. This implies segments such because the gaming markets, the premium shopper pocket book market, and industrial markets. At AMD we now have made industrial progress with Ryzen, and that enterprise develops over a number of quarters. Total our expectation for the PC market is robust as we go into 2021. It is one in every of our components of our progress. We’re centered on progress in industrial as effectively, progress in gaming, and premium shopper. Ryzen 5000 has had robust reception on each desktop and cell.
Q: OpEX. AMD’s price of spend is in step with progress, however nonetheless fairly quick. How is that spend profile transferring into progress over the following couple of years? Earlier this yr AMD was guiding 20% progress via to 2023, however with +45% final yr and AMD guiding +37% this yr, is 20% nonetheless the proper quantity to think about?
Lisa Su: It is a nice time to put money into the enterprise. AMD’s mannequin has been to repeatedly funding, however at a price slower than income progress so as to get leverage in our mannequin. Our precise spend of OpEx has decreased as a share of income, however precise greenback quantities have gone up as income has elevated and as we construct out. AMD has a robust spend on R&D, on increasing product portfolio, and we now have leaned arduous on our CPU and GPU experience. We’ve got our GPU cut up out into gaming and compute, so we now have aggressive choices in each, for instance. We’ve got extra funding going ahead in system IP to hyperlink the CPU and GPU, in addition to software program, and investments going into the market. We’re changing into an organization of scale, and that helps guarantee we now have breadth and depth of roadmap and buyer assist for long run targets.
Wells Fargo: On Milan, on the analyst day AMD talked about increasing its capacity to handle workloads. As we take into consideration Milan, how do you evaluate it to Rome, how ought to we take into consideration ASP uplift in comparison with Milan because it ramps.
Lisa Su: We see the growth of our competitiveness throughout enterprise workloads in addition to broad cloud workloads. We need to enhance TCO for our prospects, in order our product efficiency goes up, we do anticipate some ASP raise as effectively, however general for purchasers it’s so necessary that the TCO improves technology over technology. Notably with Milan, the only threaded efficiency uplifts are useful – some enterprise workloads that may’t use the entire cores will be capable of profit from Milan’s single threaded efficiency. We’re launching Milan later this quarter, and general we really feel excellent about its positioning.
Q: On DC GPU facet, income has been lumpy from quarter to quarter. Is there a degree at which you see it as an everyday income stream, and sooner or later as a progress driver?
Lisa Su: Our datacenter GPU market is coming into its personal. It’ll nonetheless doubtless be lumpy Q-to-Q as a consequence of variety of prospects we now have for that product line. We see 2021 as a progress yr for DC GPU as our CDNA merchandise allow larger manufacturing in bigger HPC installments, in addition to our cloud merchandise in ML and AI. We anticipate to see it as a multi-year progress driver over a number of years. 2021 is a crucial yr for our DC GPU enterprise, in addition to subsequent few years.
Q: Deutsche Financial institution. Chatting with the GPU facet for the shopper. Whereas AMD has carried out an ideal job on its CPU shopper share, is AMD optimistic within the shopper GPU house, and what are challenges/alternatives right here?
Lisa Su: Our GPU enterprise has been centered on making certain consistency in our roadmap. The primary technology of RDNA had 50% efficiency per watt enhance, and we launched the following technology RDNA2 just a few months in the past, and we’ll fill out that portfolio. Consistency is required, and there’s pent up demand for GPUs and gaming. It is a lovely marketplace for us, and the patron GPU enterprise will develop for AMD in 2021. We anticipate to make progress with OEM and AIBs. Over the approaching years, the workforce can also be working very arduous on RDNA3. For us we’re taking a look at consistency, a high to backside stack providing, and utilizing depth and breadth of buyer relationships to drive this enterprise.
Q: Trying to gross margins (GM) in 2021 as a complete, it’s good to see the steering rising to 47%. What are the places and takes right here? If the semicustom enterprise is rising (usually decrease GM), what’s offsetting that to maintain the GM rise?
Devinder Kumar: So for AMD, we anticipate server and shopper revenues to be up in 2021. The semicustom enterprise had a 2020 ramp in Q3/This autumn, and we’ll see progress in 2021. We’re speaking about our GM transferring from 45% to 47% YoY, and semicustom is a decrease GM than common. Our shopper and server progress offsets this.
Lisa Su: Consoles are usually what we name a beneath company common gross margin product, nevertheless it gives fairly an inexpensive operational margin. Server is above that company common, and our server income is predicted to develop considerably in 2021. The PC enterprise is predicted to see combine enchancment in direction of larger GM merchandise as we transfer to extra premium components within the stack.
Credit score Suisse: Once more on GM – given the product combine in This autumn, with the primary quarter of the console ramping up, the gross margin numbers put up by AMD had been fairly good. How ought to we take into consideration GM with out consoles – as we see 2021 we must always see GM enhance over time, so what is the exit price of GM within the 2021 steering? Why is not it larger as a consequence of tail winds?
Lisa Su: At this level it’s early within the yr – whereas we now have good visibility in places and takes, there’s nonetheless tons to unfold. All of the statements you make are correct, and console margins have historical past of enhancing over time. We are going to simply have to have a look at the combo of all of the enterprise because it performs out. By the tip of the yr ramp, you will note enhancements over the yr, and it is all in regards to the product combine in any given quarter.
Q: The semiconductor enterprise is changing into extra strategic to world governments. Intel is lobbying arduous for incentives in Washington. How can AMD be a part of that dialog, based mostly on AMD’s IP and market share? AMD is way a nationwide champion in semis as Intel, however the focus in Washington is in on the manufacturing. How do you get Washington to think about AMD necessary in that blend?
Lisa Su: Because it pertains to the federal government deal with manufacturing, that is effectively documented and traditionally been the case. That being mentioned, there’s additionally a deal with vanguard analysis and ensuring it’s effectively supported. We take part in most of the business associations right here, and the secret is to put money into vanguard analysis and manufacturing to push the envelope. We make investments loads, and we agree that as an business we must always make investments.
Q: Do you anticipate to be direct beneficiary of any incentives that come out of Washington, or will it’s via business companions?
Lisa Su: We are going to see the way it performs out. Whether it is to be via manufacturing, then we’ll see the profit via our companions. However we’re robust on analysis, and we’ll proceed to be there.
RBC Capital Markets: Chatting with manufacturing, AMD has had three merchandise ramp in This autumn. What would the gross margins appear to be if TSMC’s yields regarded like what they did in 2018? Is TSMC yield enhancing as per a standard atmosphere?
Lisa Su: On gross margin, we’re proper the place our long run roadmap says we might be. The roadmap is monitoring to 50%. There are ebbs and flows based mostly on product cycle, and we’re seeing progress in 4 or 5 of our giant companies directly, and the combo between shopper/industrial, cloud/enterprise, and the combo between shopper/DC graphics all come into play. Once we put that collectively and we’re happy we grew margins by 2pts final yr, and guiding up 2pts in 2021. Yields play into this after all.
Q: The overall addressable marketplace for PCs is surprisingly up. Are you able to speak about AMD’s 3 main markets – what’s the business going to do?
Lisa Su: In PCs, if you happen to have a look at what the sources are saying, we expect mid single-digit (3-7%) progress. Within the server market, each enterprise and cloud are anticipated to see modest progress. Gaming is tough to name as a result of it is on a special product cycle. We mentioned we anticipate +37% progress via 2021, and that’s principally as a consequence of portfolio and progress alternatives, and we predict we’re rising forward of the market. The 2020 market was stronger than most projected at starting 2020, so we’ll see what 2021 brings.
Morgan Stanley: The cloud enterprise for our server merchandise – AMD has talked about the necessity to promote the cloud as a service when promoting to the cloud. The place are you with inside cloud workloads vs enterprise dealing with workloads dealing with the cloud?
Lisa Su: In case you have a look at the cloud atmosphere, we speak about each inside workloads for the cloud suppliers and exterior workloads that their prospects run on the cloud situations. We have carried out very effectively with inside cloud workloads. We’ve got seen lots of these cloud inside purposes ramp on AMD in Q3/This autumn, and prospects are happy with the efficiency. We are going to see that carrying over to Milan. The transfer from Rome to Milan is not too heavy a raise, and we’ll proceed this effort into 2021. For exterior workloads, we have spent effort the enterprise growth engine that sells together with cloud distributors and enterprise OEM options. Our dialog with enterprises is a hybrid dialog with OEM companions. We talk about on-premises cloud vs cloud vendor choices with prospects. It has all progressed properly, resulting in optimistic commentary. In the end we now have seen progress in inside and exterior workloads.
Q: For the DC GPU market, there’s speak about merging purposes. However with AMD’s cloud gaming initiative, what is the state right here, and what the portion of the enterprise is it?
Lisa Su: Cloud gaming portion was a bigger portion in earlier years. In 2021 we do have further cloud gaming engagements that may ramp, however it will be a smaller portion of the biz, as HPC can be the bigger portion because it ramps up.
UBS: On datacenter renveues, it feels like AMD’s server CPU share is 12.5% based mostly on the $20 billion TAM numbers you gave final yr. We’re at present in a state of affairs the place Milan is ramping, and you’ve got visibility into your choices and market in 2021. What’s the subsequent mile put up for AMD in server CPU share as you look into 2021?
Lisa Su: We do not have a brand new goal to share! It is a given with the variance available in the market. We’ve got given the view that the server enterprise is a excessive tends % of income, predominantly in server CPUs on condition that DC GPU was a small half. As we go into 2021, our server CPU choices will likely be a big progress driver. We offers you updates over 2021 because it grows as a relative measurement of the enterprise.
Q: On the DC GPU enterprise, we’ve seen it flattish this yr, and to develop over 2021. How a lot can it develop – ought to we anticipate double YoY? Whereas it isn’t large from a greenback perspective, how large would Frontier (the all-AMD Exascale supercomputer coming on-line in 2021) be to that enterprise?
Lisa Su: DC GPU continues to be comparatively small for us. It was really down YoY as a result of a few of the cloud gaming ramps in 2019 paused in 2020 as a result of world state of affairs. For 2021 we see it as a progress driver as relative measurement – sure it might double. However to consider it, we mentioned that we would like that enterprise to be $500m as a primary milestone, and we’re making progress to that milestone.