+ PC recovery driving revenue growth. PC revenue growth saw a sharp reversal after 4 quarters of ~50% YoY contraction. Its 42% YoY (46% QoQ) increase was the main driver for overall revenue growth, and was attributed to strong demand for AMD’s Ryzen 7000 series processors as inventory levels normalised. AMD guided to a sequential double-digit increase in PC revenue for 4Q23e. We believe the stronger demand into 4Q23e is a huge positive, and is an early indication of a cylical recovery in the PC market.
+ Data centre revenue stable on normalizing customer inventory levels. DC revenues held steady YoY, but increased 21% QoQ as AMD saw record quarterly server processor revenue of its 3rd & 4th Gen EPYC CPUs (>50% QoQ) from strong Cloud and Enterprise demand. The key highlight was significant customer traction in AMD’s new MI300 chips (Data Centre GPUs), with the company expecting ~US$400mn in revenue for 4Q23e and >US$2bn for FY24e as it expects to increase market share in the data centre GPU market (vs NVDA).
– Weakness in Gaming and Embedded. AMD’s Gaming (GPU) segment was down -5% YoY on weaker semi-custom revenue, with AMD expecting Gaming to decline double-digit QoQ due to continued weakness in the console cycle. It’s Embedded segment was also down -15% YoY due to softening 5G rollouts and industrial demand, and is also expected to decline double-digit QoQ and remain weak into 1H24e as customers continue to work through excess inventory. We expect both segments to be a drag on FY24e revenue growth.
– Higher R&D expenses and tax to impact 4Q23e profitabilty. R&D expense growth for 9M23 was 20% YoY, significantly higher than our estimates of ~10% growth due to higher AI-related investments. In addition, AMD expects to incur a US$550mn tax expense in 4Q23e which was previously deferred due to California disaster relief efforts. We increase our FY23e R&D forecast by ~US$500mn, and increase our tax expense by ~US$600mn, resulting in a -10% cut in FY23e EBITDA, and PATMI lowered by ~US$1bn.