Advanced Micro Devices, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Results: Second quarter revenue hit a record $7.7 billion (+32% YOY), with over $1 billion in free cash flow. Excluding an $800 million inventory write-down related to export controls, gross margin was 54%.
• Data Center: Strong EPYC and Ryzen sales offset Instinct headwinds. EPYC set records for cloud and enterprise CPU sales, with broad adoption in cloud, enterprise, and HPC. AI segment saw MI350 series ramping but faced export control impacts on MI308.
• Client and Gaming: Record client CPU sales, strong Ryzen 9000 series and mobile notebook demand. Gaming benefited from semi-custom normalization and new console collaborations like with Microsoft.
• Embedded: Gradual recovery with new FPGA shipments and design win momentum, tracking ahead of last year's records.
• AI Initiatives: Progress with ROCm 7, MI400 series development on track for 2026 launch, and acquisitions to enhance software (Brium, Lamini) and hardware (ZT Systems) capabilities.

Segment Performance

• Data Center: Revenue increased 14% year-over-year to $3.2 billion. Driven by strong EPYC CPU revenue and share gains across cloud and enterprise. AI segment revenue declined due to U.S. export restrictions, but MI350 series is ramping. Excluding export control impacts, EPYC set records for cloud and enterprise CPU sales.
• Client and Gaming: Segment revenue jumped 69% year-over-year to $3.6 billion. Client revenue reached $2.5 billion (67% YOY) led by record desktop CPU sales and Ryzen 9000 series. Gaming revenue was $1.1 billion (73% YOY) with semi-custom normalization and new console collaborations.
• Embedded: Revenue decreased 4% year-over-year to $824 million. Gradual recovery with mixed market demand, but saw first production shipments of Spartan UltraScale+ FPGAs.

Guidance

• Third Quarter 2025: Revenue expected ~$8.7 billion (+/-$300M), ~28% YOY growth. Driven by MI350 series ramp in Data Center, Client and Gaming growth, and Embedded return to growth. Non-GAAP gross margin ~54%, operating expenses ~$2.55B.
• Longer Term: Bullish on AI business scaling to tens of billions, with MI400 series development on track for 2026 launch and strong customer interest.

Risks

• Export Controls: Impacted Instinct sales to China, licenses for MI308 shipments under review by U.S. government, with regulatory uncertainty affecting revenue and supply chain.
• Market Volatility: Fluctuations in demand, supply chain issues, and competitive pressures could impact financial performance.

Question and Answer

• Q: Client business pull forwards and Intel 18A impact A: Lisa Su stated the Client business is performing extremely well, gaining share, and not flat to the first half. Strong portfolio and enterprise traction are tailwinds.
• Q: China MI308 approval and contribution A: Lisa Su mentioned licenses for MI308 are under review, working with the administration, and inventory is in work in process; contribution depends on license approval.
• Q: MI product gross margin and sales level A: Jean Hu said MI product margin is below corporate average, but focus is on revenue growth and TCO, with operational efficiency expected to improve margins over time.
• Q: Data Center GPU ramp and seasonality A: Lisa Su noted MI355 ramping faster than expected, Client growth to be single-digit sequentially, Gaming flattish to Q2, and console business down in Q4.
• Q: MI400 time frame and workloads A: Lisa Su said MI400 development is on track for 2026, with tens of billions opportunity driven by large-scale deployments and inference/training complexity requiring rack scale architecture.
• Q: ZT sale proceeds and capital allocation A: Jean Hu stated proceeds will be used for investing in AI opportunities and returning cash to shareholders via share repurchase.
• Q: China MI308 approval and contribution detail A: Lisa Su added it will take time to ramp MI308 shipments even with license approval, as inventory is in work in process.