AMD's big bet to further move beyond chips for PCs has 'gone very well,' CEO says

Published Wed, Nov 2 20226:22 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Advanced Micro Devices (AMD) CEO Lisa Su believes the chip designer's blockbuster Xilinx acquisition has gone to plan since it closed in February, with more benefits awaiting on the horizon. Buying Xilinx helped AMD further diversify its business away from personal computers, significantly boosting the company's ability to help power industries like aerospace, automotive and telecommunications. This is in addition to AMD's multiyear push around data center, a central reason we like the company's long-term prospects despite our more cautious view on chips stocks at present . "Things have gone very well. Our acquisition thesis has played out exactly as we had hoped for," Su said Wednesday in a CNBC interview, one day after the Club holding reported third-quarter earnings amid a tough macroeconomic environment for semiconductor companies. The results were slightly softer than analysts expected, even though AMD preannounced disappointing preliminary numbers in early October. While falling short of estimates, Q3 revenue increased 29% to $5.57 billion. AMD expects fourth-quarter revenue of around $5.5 billion to be roughly flat quarter-over-quarter. The only two segments where AMD sees revenue growing sequentially in the fourth quarter are data center and what it calls "embedded," home to Xilnix's sales in the aforementioned industries and others such as defense. By contrast, management expects AMD's traditional end markets — PCs and gaming, primarily on the graphics card side — to see further weakness in Q4 compared with Q3. This demonstrates how the company's diversification strategy can work in cyclical downturns, which the semiconductor industry is known to experience from time to time. Its more recent areas of focus — data center and embedded — are holding up for now while there's weakness in parts of the company's consumer-focused end markets. While it's not clear when these tough times in the chip sector will end, Su told Jim Cramer that the AMD-Xilinx pairing has the potential to get even better thanks to intellectual property synergies. After all, it's been less than a year since the companies began to share a roof. "With the Xilinx portfolio, we've been able to actually help accelerate the growth in that [embedded] business when you look at the supply chain and just all the demand for those products. It's worked out very well," Su said. "I'm actually even more excited about what we'll see in the future as we integrate some of our products together with the AMD processor IP with some of the Xilinx AI and other acceleration IP. We think it's going to be a fantastic portfolio." So far, AMD's data center business has proven "relatively resilient" in the face of economic headwinds, Su said, growing 45% year-over-year to $1.6 billion in the third quarter. In the second quarter, data center revenue was $1.5 billion, up 83% compared with 2021. As mentioned, AMD expected data center revenue in its current fourth quarter to exceed the $1.6 billion it generated in the three months ended Sept. 24. AMD is set to unveil its latest data center chip next week, called Genoa, falling under the company's Epyc brand of server processors. This is a notable development in the company's market-share battle with Intel (INTC) because under Su's leadership, AMD has tried to be consistent in delivering product innovations to the market. Intel's next-gen data center chip, called Sapphire Rapids, has faced delays and is now set to launch next year. In recent years, AMD has taken advantage of Intel's missteps. AMD has started some shipments of Genoa chips to "select customers," Su said on Tuesday night's earnings call. Production is ramping up in the fourth quarter. "I think [Genoa] continues to give us strength in cloud data centers, as well as in the enterprise," Su told CNBC Wednesday. "What we see here is we're really extending our lead as it relates to not just performance, but also the importance of power efficiency, especially today when energy prices are going up all over the world." It's also worth noting that while U.S. restrictions on certain high-end chip sales to China have hurt semiconductor companies like Nvidia (NVDA), AMD reiterated on its post-earnings conference call Tuesday evening that those rule-changes won't be material to its business. It's the same thing AMD said when the government export measures were first revealed at the end of August. (Jim Cramer's Charitable Trust is long AMD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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Lisa Su, President & CEO of AMD

David A. Grogan | CNBC

Advanced Micro Devices (AMD) CEO Lisa Su believes the chip designer's blockbuster Xilinx acquisition has gone to plan since it closed in February, with more benefits awaiting on the horizon.