Earnings Call: Q2 2019

Jul 30, 2019

Greetings, and welcome to the Advanced Micro Devices Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Laura Grace. Please go ahead. Thank you, and welcome to AMD's Q2 2019 conference call. By now, you should have had the opportunity to review a copy of our earnings release and slides. If you have not reviewed these documents, they can be found on the Investor Relations page of AMD's website, amd.com. Participants on today's conference call are Doctor. Lisa Su, our President and Chief Executive Officer and Devinder Kumar, our Senior Vice President, Chief Financial Officer and Treasurer. This is a live call and will be replayed via webcast on our website. Before we begin, I would like to highlight some important dates for you. AMD will officially launch our 2nd generation EPYC data center CPU on Wednesday, August 7th. On Tuesday, August 27th, Forrest Norod, Senior Vice President and General Manager of our Data Center and Embedded Solutions Group, will present at the Jefferies 2019 Semiconductor, Hardware and Communications Infrastructure Summit in Chicago. On Tuesday, September 10, Devinder Kumar, Senior Vice President, Chief Financial Officer and Treasurer, will present at the Deutsche Bank Technology Conference in Las Vegas. And on Friday, September 13, 2019, our Q3 quiet time is expected to begin at the close of business. Today's discussion contains forward looking statements based on the environment as we currently see it. Those statements are based on current beliefs, assumptions and expectations, speak only as of the current date and as such involve risks and uncertainties that could cause actual results to differ materially from our current expectations. We will refer primarily to non GAAP financial measures during this call, except for revenue and segment operational results, which are on a GAAP basis. The non GAAP financial measures referenced today are reconciled to their most directly comparable GAAP financial measure in today's press release, which is posted on our website. Please refer to the cautionary statements in our press release for more information. You will also find detailed discussions about our risk factors in our filings with the SEC and in particular AMD's quarterly report on Form 10 Q for the quarter ended March 30, 2019. Now with that, I'd like to hand the call over to Lisa. Thank you, Laura, and good afternoon to all those listening in today. We made history in the Q2, both as the first company to simultaneously launch high performance CPUs and GPUs and the first to ramp 7 nanometer high performance processors across PCs, gaming and the data center. I am extremely pleased with our execution in the quarter as we ramped production on Ryzen 3,000 CPUs, Radeon 5,700 GPUs and early volumes of our 2nd generation EPYC Processors in advance of their 3rd quarter launch. Looking at the Q2, revenue of $1,530,000,000 increased 20% sequentially driven by growth across both of our business segments. Revenue declined 13% year over year in line with our expectations as clients and server processor revenue increases were offset by lower graphics channel and semi custom revenue. Turning to our Computing and Graphics segment. Revenue declined 13% year over year as significantly higher client processor sales were offset by lower graphics channel sales. Mobile client processor revenue increased by a double digit percentage year over year and sequentially, driven by our highest quarterly unit shipments in 5 years. In desktop, we launched our industry leading Ryzen 3,000 Processors featuring our new Zen 2 Core to overwhelmingly positive customer response. Numerous third party reviews highlighted the superior performance of our 7 nanometer Ryzen CPUs in both multi threaded and single threaded applications while consuming less power than competitive offerings. Ryzen 3,000 Processor customer demand has been very strong with sales at global e tailers and retailers outpacing our previous generations of Ryzen by more than 3 times at the same point following their respective launches. Based on the market response to our latest mobile and desktop processors and the growing number of AMD powered commercial and consumer PCs, we expect to gain share in the high volume back to school and holiday periods. In graphics, revenue decreased year over year driven largely by lower channel sales, partially offset by a significant increase in datacenter GPU sales. GPU revenue increased by a double digit percentage sequentially, driven by increased channel sales of our RX 500 series GPUs and the launch of our Radeon 5,700 family. The Radeon 5,700 series with our new Initial demand for our new GPUs has been strong as 3rd party reviewers have highlighted our leadership gaming performance at relevant price points. We are well positioned for growth in the second half of the year as we continue to ramp our Radeon 5,000 GPU family. We had another quarter of strong year over year data center GPU sales growth, driven largely by HPC and cloud wins. We continue making progress expanding this margin accretive part of our business based on our strategy to focus on working closely with marquee customers. We also announced a strategic partnership in the quarter with Samsung to bring Radeon Graphics to their future smartphone and mobile SoCs. The partnership showcases our strategy to engage with industry leaders across the ecosystem to drive Radeon everywhere. We now have deep partnerships across the PC, game console, cloud and mobile markets that contribute to a growing developer ecosystem and installed base for our Radeon graphics architecture. Turning to our Enterprise Embedded and Semi Custom segment, revenue decreased 12% from a year ago due to lower Semi Custom revenue. In semi custom, we have extended our game console leadership as both Microsoft and Sony have now both announced they will use custom AMD SoCs to power their next generation game consoles. We are very proud to power back to back generations of the world's highest performing game consoles. As we look into the second half of the year, we are seeing additional softness in game console demand, which is now reflected in our full year guidance. In server, CPU revenue grew significantly year over year and sequentially, driven by initial shipments of our continued to increase in the quarter. Amazon expanded availability of its EPYC processor powered instances to more than 15 regions and dozens of new configurations. And Microsoft launched general availability of its Azure HB Supercomputing virtual machines that for the first time ever enabled customers to run demanding HPC workloads in the cloud. Turning to our next generation Rome server processor, Rome is on time and exceeding expectations, delivering leadership performance and TCO across a significantly expanded number of cloud and enterprise workloads. Customer excitement continues to grow. Compared to our 1st generation EPYC processors, we have more than twice the number of platforms in development with a larger set of partners. We also have 4 times more enterprise and cloud customers actively engaged on deployments prior to launch. As a result, Rome is on track to ramp significantly faster than our 1st generation EPYC processor. We are seeing particular strength in HPC, where we offer leadership compute density and IO. We had multiple supercomputing wins in the quarter, including public announcements from Indiana University and Norway's National Research Network. Our supercomputing momentum was highlighted by the U. S. Department of Energy and Oak Ridge National Laboratory selecting both EPYC CPUs and Radeon Instinct GPUs to power their next generation Frontier Exascale Supercomputer built by Cray. Frontier is expected to be the world's fastest computer when it launches in 2021. We look forward to providing more details on Rome at our launch event on August 7. In summary, as we complete the first half of twenty nineteen, we have reached a significant inflection point for the company as we enter our next phase of growth with the most competitive product portfolio in our history. We have seen some uncertainties across our supply chain driven by tariffs, trade concerns and the U. S. Entities list. In the Q2, we stopped shipping to customers added to the U. S. Entities list. While we remain cautious given the fluidity of the situation, the impact to date has been limited and offset by growing momentum in other parts of our business. We are executing well to our plans and see a path to significant market share gains for our product portfolio across the PC, gaming and data center markets in the coming quarters. Now, I'd like to turn the call over to Devinder to provide some additional color on our Q2 financial performance. Thank you, Lisa, and good afternoon, everyone. We are pleased with the financial results for the first half of twenty nineteen, which provide a solid foundation for the second half of the year. 2nd quarter revenue of 1,530,000,000 percent over the Q1. Gross margin of 41% increased 4 percentage points from the prior year, driven by the ramp of our strong portfolio of high performance products. Quarterly revenue was down 13% from a year ago. Strong sales of Ryzen and EPYC Processors and our new Radeon RX 5,700 GPUs were more than offset by lower to $512,000,000 driven primarily by go to market activities and new product introductions. Operating income was $111,000,000 down from $186,000,000 a year ago, primarily due to lower revenue and higher operating expenses. Operating margin was 7%, down from 11% a year ago. Net income was $92,000,000 compared to $156,000,000 a year ago and diluted earnings per share was $0.08 per share compared to $0.14 per share a year ago. Now turning to the business segment results. Computing and Graphics segment revenue was $940,000,000 down 13% year over year as strong client process sales were more than offset by lower overall graphics sales due to negligible blockchain related revenue in the Q2 of 2019. Computing and Graphics segment operating income was $22,000,000 dollars compared to $117,000,000 a year ago, primarily due to lower revenue. In the enterprise embedded and semi custom segment, revenue was $591,000,000 down 12% from the prior year. Semi custom revenue was lower and partially offset by significant growth in data center CPU revenue. EESC segment operating income was $89,000,000 compared to $69,000,000 a year ago. The improvement was largely due to growth in data center CPU revenue. Turning to the balance sheet. Our cash, cash equivalents and marketable securities totaled $1,100,000,000 at the end of the quarter. Year over year, we have reduced gross debt by $392,000,000 And in the second quarter, we also replaced our asset backed loan facility with a $500,000,000 secured revolving line of credit. Free cash flow was negative $28,000,000 in the quarter, while cash flow from operations was $30,000,000 dollars Inventory was $1,000,000,000 up $60,000,000 sequentially, primarily due to increased inventory of our new 7 nanometer products in anticipation of accelerating product sales in the back half of the year. Adjusted EBITDA was 100 $3,000,000 compared to $228,000,000 a year ago due to lower quarterly earnings. On a trailing 12 month basis, adjusted EBITDA was $672,000,000 and gross leverage at the end of the quarter was 1.9x. Turning to the outlook for the Q3 of 2019. We expect revenue to be approximately $1,800,000,000 plus or minus $50,000,000 an increase of approximately 9% year over year and 18% sequentially. The sequential and year over year increases are expected to be driven by Ryzen, EPYC and Radeon product sales, partially offset by lower than expected semi custom sales. In addition, for Q3 2019, we expect non GAAP gross margin to be approximately 43%, non GAAP operating expenses to be approximately $525,000,000 non GAAP interest expense, taxes and other to be approximately 30,000,000 and Q3 diluted share count is expected to be approximately 1,210,000,000 shares. For the full year, we now believe revenue will increase mid single digit percent over 2018, driven by significant sales growth of our new Ryzen, EPYC and Radeon Processes, partially offset by lower than expected semi custom revenue. Revenue, excluding semi custom, is expected to increase approximately 20% year over year. Full year non GAAP gross margin is expected to be approximately 42%. In closing, we had a strong first half of twenty nineteen. We remain focused on executing to our plans for the remainder of the year and look forward to ramping our new Ryzen and Radeon products as well as the upcoming launch of Rome. With that, I'll turn it back to Laura for the question and answer session. Laura? Thank you, Devinder. Operator, we're ready for our first question, please. Thank Our first question today is coming from Mitch Steves from RBC Capital Markets. Your line is now live. Hello? Hi, Mitch. It's Laura. The team from AMD were ready for you. Yes, sorry. Yes, so my question is really just twofold. So number 1, first on the gross margin side. So you guys are talking about semi custom coming down pretty materially and that's kind of the entire reason for the, I guess, the mid single digit growth number. So why I guess aren't the gross margins expanding a little bit more if you're seeing more traction on the server side? So I think if you look at it from an overall standpoint, in Q2, we did 41%. It's the 3rd quarter in a row of 41% gross margin. And in Q3, you are right with the decline in semi custom, there is benefit to the margin and the margin guide for Q3 is at approximately 43%. I can tell you that the richer product mix, especially with the new products ramping in Q3 are going to drive the gross margin, although there is a benefit from the decline of semi custom also. The margin benefit is more weighted towards the non semi custom business, and that's where we end up with the 43% in Q3. We've also updated our guidance for 2019 and now are projecting 42% for the year 2019. Right. Yes. So I guess just to follow-up on So the assumption there is that by the end of 2019, you guys have more share in the server side. So I guess just high level, if I assume that 2020 gross margins are going to start going up as well if you keep gaining share in server, is that a fair assumption for the next year or so? I think what I would say is we are very pleased with the progress we have made on the margin in 2019. The product mix continues to get richer and we'll see as we get closer to 2020 in terms of the specifics. But you're right, the product mix does get better, server and even in the other businesses, including the client business, the product mix being richer benefits the margin. Okay, perfect. Thank you. Thank you. Our next question is coming from Vivek Arya from Bank of America. Good to see the traction in the new products. Lisa, for my first question, I was wondering if you could give us some more color around the traction you're seeing in Rome, both from if you're able to quantify it somewhat, but importantly, the traction you're seeing with customers, whether there is any pricing pressure from your main competitor? And I think in the past you had outlined targets to reach certain market share. Just now that the product is out in front of customers, how are you seeing that traction with both the cloud and the enterprise side? Yes, absolutely, Vivek. Thanks for the question. So look, we are very pleased with how Rome is coming up. We did ship initial shipments this past quarter in Q2 to both cloud and enterprise customers. The feedback that we're getting from customers is that the performance is very compelling, both from a performance standpoint as well as a total cost of ownership standpoint. We've gotten a number of wins on both the cloud and the enterprise side as well as HPC. From our standpoint, next week is a big week for us. Obviously, we're going to officially launch Rome on August 7. But from a customer pull standpoint, we see good customer pull. Your question specifically about the pricing environment, the pricing environment is always competitive. We expect it to be competitive. That being the case, in servers, price is not the first variable in terms of a buying decision. And so, we believe the value proposition that we have for Rome from an overall standpoint is very strong and we see good a good pricing environment for that. Thanks, Lisa. And as my follow-up, on the quantification side, I think in the last quarter, you had given us some color around data centers, CPU and GPU kind of around that mid teens as a percentage of sales. I was hoping you could give us some sense of what it was in Q2 and just what the outlook is for 2019 or the second half of the year? Thank you. Yes. So in the second quarter, the percentage is similar to the last few quarters in terms of percentage of our business. We were more heavily weighted towards CPU versus GPU in the Q2. So we saw data center GPU sequentially decline as expected. The CPUs grew as expected. As we go into the second half of the year, you should expect that the percentage of our revenue through the data center will increase as we ramp question is coming from Toshiya Hari from Goldman Sachs. Your line is now live. Great. Thanks so much for taking the question. Lisa, obviously, it seems like you're making a lot of progress with Rowan or at least the initial feedback continues to be very positive. That said, the overall hyperscale environment seems pretty slow based on commentary from your peers and your customers, I guess. Could that impact the ramp into the second half? Is that a concern for you going forward? And I have a follow-up. Yes. Sure. So look, we certainly have heard the same conversation, especially around the cloud environment in the first half of the year. Our plan was always very heavily second half weighted. And from our standpoint, we have seen significant customer engagement and pull for the Rome product and we see a number of new installations that will come online over the next couple of quarters. So I believe that there is some cloud digestion that's happening out there. I also believe that given where we are from the product cycle standpoint, we are well positioned to grow. Got it. And then as a follow-up, I was hoping to learn a little bit more about the partnership with Samsung, the IP win in the quarter and also Frontier on the HPC side? Just from a modeling perspective, how should we think about those 2 deals, if you will, over the next couple of years and the accretion to the P and L? Thank you. Sure. So look, we're very pleased with both. They're both very significant announcements for us. On the Samsung side, it's a multi year, multi generational deal that we have across our graphics portfolio for mobile. In terms of 2019, the revenue is approximately $100,000,000 that would be added. This was not originally in our guidance and it offsets some of the headwinds that we talked about in semi custom and China. As it's not pure IP though, so the way you should think about it is there is some specific development expenses that are being that are part of that deal. And so those will be part of the COGS portion of that. As it relates to Frontier, Frontier, again, very significant deal for us. It is NRE for the next couple of years to really get the software and infrastructure. I would say that's not material. It's a relatively smaller number. And then the actual deployment will be in 2021. So the bulk of the CPU and the GPU revenue will be in 2021 with a small portion of that perhaps in the second half of twenty twenty. Thank you. Thank you. Our next question is coming from Matt Ramsay from Cowen and Company. Your line is now live. Thank you very much. Good afternoon. Lisa, I think we'll be hearing plenty about Rome next week. I wanted to ask some questions about your PC business going into the back half of the year. The desktop momentum seems there, the notebook space, Intel is obviously going on to 10 nanometer for a portion of that portfolio and it seems the 7 nanometer refresh on your side is a little bit later. Yet the SKU coverage you've talked about, I think, is 50% higher than it was last year for back to school and holidays. So maybe you could talk a little bit about the momentum in the PC business into the back half and the differences between what you might see in desktop and notebook? Thank you. Yes, sure, Matt. So look, we're pleased with the progress of our PC business. In the Q2, we had notebook perform very well. We saw a ramp of our 2nd generation mobile product and that is due to some of the additional platforms that we mentioned. Going into the second half of the year, on the desktop side, our 3rd generation Ryzen products are very well positioned. We expect to ramp significant production here in the Q3 and we expect that to lead to share gains. And we're also feeling quite good about the mobile products into the second half of the year. We've made progress on both consumer and commercial. We had always been strong in consumer, but on the commercial side, we have a number of new platforms as well and those are ramping here into the second half of the year. So overall, of these. Got it. Thank you. And as a follow-up for me, a couple of things for Devinder. I wonder if you might talk about the margin or gross margin differential between some of the new 7 nanometer products that you're rolling out versus some of the predecessor products that were either on 12 or 14 just so we can get an understanding of magnitude. And before you take that, just congrats on cash positive for the company overall, even in some of that convertible? Okay. Yes. So on the margin side, the new products, as we have said previously in aggregate, are greater than 50% margin. And so as we launch new products, in particular, on the 7 nanometer node, those are accretive and that's why you see us updating the guidance in terms of the margin, not just for the quarter in Q3, but also for the year. And from that standpoint, as the product mix gets richer with more 7 nanometer products ramping, that should benefit the gross margin. Thank you. Thanks, Matt. Thank you. Our next question is coming from Hans Mosesmann from Rosenblatt Securities. Your line is now live. Thanks guys. Congrats on the execution with the 7 nanometer. Lisa, are you guys constrained in terms of 7 nanometer at TSM? Hans, yes. So we do have a number of products ramping at TSMC and 7 nanometer and we are not constrained per se. I will say that cycle times of 7 nanometer are longer. And so it just takes more time to ramp up, but we are not constrained. TSMC has supported us quite well. Great. And can you give us a sense, if you can, on 7 nanometer high end Navi and mobile 7 nanometer CPUs, if you can? Thanks. Hans, you asked the good product questions. I would say they are coming. You should expect that our execution on those are on track. And we have a rich 7 nanometer portfolio beyond the products that we have currently announced in the upcoming quarters. Thank you, Hans. Thank you. Thank you. Our next question is coming from Mark Lipacis from Jefferies. Your line is now live. Hi. Thanks for taking my question. Lisa, you have a lot of things working for you at you got Rome, Ryzen, the GPU portfolio. Where are you seeing the biggest upside surprise on the feedback that you were getting relative to your original expectations? Yes. So look, Mark, I think all products have really performed quite well. I think the 3rd generation Ryzen desktop, both in terms of the reviews, 3rd party reviews, as well as just the customer interest, what we see is, obviously, it's only been in market for 3 weeks. And so, we watch the data points very carefully. But across the globe, we're seeing sort of significant uptick in our share in the desktop market. I think Navios come out positioned very well. We're very pleased with our RD and A architecture. Navios is the first step and we have a couple more steps going. And then we'll talk much more about Epic next week. I think the key thing is the products have been on schedule and at or above the performance. So our goal is of course to turn that into revenue growth in the second half of the year. That's great color. Thank you. And a follow-up if I may. You mentioned the Gen 5 game console wins at Microsoft and Sony. Can you give us a sense when do these start to ramp? When they ramp, do you book the revenues as you build inventory as you did previous generation? And is there going to be a should we think about anything differently on the gross margin profile? Is it going to be similar to what you've had in the past on these things? So just some color on the Gen 5 game consoles. Thank you. Sure. So Mark, we're proud of the wins at Sony and Microsoft. Those are big wins for us. And as you know, over many years, We can't comment on specific customers and their ramp profiles. The only thing I will say is you can expect that in general consumer ramps are the gross margin profiles, with our semi custom business model, I think the margins will be under the corporate average. However, our business model is quite different. If you look forward to our business model, the growth that we see across all of our other products, Ryzen, EPYC, Radeon, is actually quite significant. And so the percentage of semi custom as a percent of the overall business will be lower than, for example, in the last few years. That's very helpful. Thank you. Thank you. Our next question is coming from Stacy Rasgon from Bernstein Research. Your line is now live. Hi, guys. Thanks for taking my questions. For my first one, I want to follow-up on that second half gross margin question again. I want to put some numbers behind it. So you're guiding 43% for Q3. Your implied guidance for Q4 is 43% and maybe a little under. It's only up about 160 bps year over year and flat sequentially, but you're guiding Q4 revenues up over 50% year over year and consoles have to be falling like 40% to 50% sequentially. So the mix must be massively switching over to the new products that in aggregate have gross margins over 50%. Why are gross margins only being guided up like 160 bps year over year in Q4 given that kind of a revenue trajectory? And why are they only flat sequentially even with revenues growing over 20% quarter over quarter into Q4? I just I don't understand. Yes, Stacy, let me start and then maybe Devinder can add to it. So look, we guide approximately to full margin points. What you should expect as we go from Q3 to Q4 is that the product mix will get better. So we will expect more new products and from the standpoint of semi custom, semi custom will be down sequentially Q3 to Q4. And so you should expect that we are not implying that the margin will be down in Q4 and we'll get to the Q4 guide as we get through the next 90 days. Okay. For my follow-up, the $100,000,000 from Samsung, does your 20% year over year growth excluding the semicustom include that $100,000,000 that wasn't in the prior guidance? And what is the impact on the gross margins of that Samsung revenue as well? Yes. So the Samsung additional revenue is included as part of the 20% year on year and it offsets some weakness that we have in China due to the entities list. As to the gross margin profile for that, you can expect that to be somewhat above corporate average. So somewhat over the low 40s? Somewhat above corporate average. Okay. And it is in the 20%. Thank you very much. I appreciate it. Thank you, Jason. Thank Our next question is coming from Aaron Rakers from Wells Fargo. Your line is now live. Yes. Thanks for taking the question. I have one question and a follow-up as well. Just building on that last kind of question, I think last the last couple of quarters, you've talked about your semi custom business being down somewhere in the 20% plus range. It looks like by my math, your assumption now is that, that business declines maybe as much as 40 plus percent. And so when you parse through that, you kind of factor in the Samsung relationship and the incremental $100,000,000 revenue. Has your estimate at all changed ex those items, meaning revenue ex the semi custom decline and then also ex the $100,000,000 Samsung? Yes. So, let me try to help you, Erin, with that math. So look, originally, when we started the year, we thought semi custom would be down, let's call it approximately 20%. In the first half of the year, it was down more than that. And based on what we see today, we would expect the full year now to be down, let's call it mid-30s year on year. If you talk about now the rest of the business, I think the rest of the business is close to where we thought it would be, close plus or minus a couple of percent. And if you think about all of the moving pieces, we do have some customers that we're not shipping to in China that is offset by the Samsung upside and the new products and how they're coming in. So I think we are pretty close plus or minus to where we thought we would be ex those factors. Okay. That's very helpful. And then just looking at your product segmentation, I'm curious of how you think about the trajectory of the data center GPU business going forward. Obviously, I can appreciate that could be lumpy, but I'm just trying to understand of how you see that. Is there a point in time where we can actually get some better visibility into that incremental growth driver or revenue stream going forward? Thank you. Yes. I think that's a fair comment. It is a little bit lumpy because of its size and it's fairly concentrated in a couple of customers. I will say that we're going to see very nice year over year growth this year and we see good customer momentum across both cloud as well as HPC. On the cloud side, it is both, let's call it cloud streaminggaming as well as machine learning. And on the HPC side, the Frontier win is the public win, but we have a number of others that we're working as well. So I think we will give more color as we go forward, but continues to be a business that we feel will be a good growth driver over the next few years. Thank you. Thank you. Our next question today is coming from David Wong from Instinet. Your line is now live. One small clarification and then a second question. The clarification, the Samsung $100,000,000 does that come in on the income statement as a revenue or is it on another line as a special item or something? It's revenue. So it's revenue and then offset by some specific development costs and also in COGS. And like Lisa said earlier, the margin when you take the revenue and the COGS offset is somewhat above corporate average. Okay, excellent. And can you give us any numbers in terms of for the June quarter, your sequential unit growth in desktop and notebook processor units and the sales growth in PC GPUs? Let's see, David. So the in the your question is about the 2nd quarter? That's correct, yes. Yes. So in the second quarter, we saw sequentially mobile units up and we saw desktop units down. And the desktop units down is somewhat due to the seasonality in the second quarter as well as the fact that we were going through a product transition as we were preparing for the 3rd generation launch, which happened at the very end of the quarter. In terms of graphics, we were up double digits sequentially and that's both units and revenue statement as it relates to and that was driven primarily by the graphics channel. Our next question today is coming from Joe Moore from Morgan Stanley. Your line is now live. Great. Thank you. So your full year guidance mid single digit, if I sort of project 5%, you need to get to a $2,200,000,000 number for the December quarter. I guess how literally should I take that? Is there anything I understand there's a lot of product momentum, but that still seems like a big number. Just anything we should understand in terms of seasonality or things that would kind of give you confidence in mid single digit for the full year still? Yes. I think, Joe, our view is that we have significant amount of product launches to happen. So as we go through the Q3 and the Q4, both on the PC side, the GPU side as well as on the server side. So yes, it is significant growth and I think we feel good about the drivers there. Okay, great. That's all I had. Thank you. Thank you. Our next question today is coming from John Pitzer from Credit Suisse. Your line is now live. Yes. Good afternoon, guys. Thanks for letting me ask question and congratulations Lisa on the solid results. I apologize if I missed this Lisa. Just going back to the Samsung revenue, is that $100,000,000 all coming into the calendar Q4 or will there be some in the September quarter as well? Yes, John. So that $100,000,000 is approximately $100,000,000 for the year. There was a little bit in Q2 and then the rest will be in Q3 and Q4. Is there a linearity you can talk about on that? Or is it should we just kind of evenly split it between Q3 and Q4? I think that's close. Okay. And then just a similar question on bridging sort of the gap between your Q3 guide and your full year guide as it pertains to OpEx. If you look at kind of the full year guide you're giving on OpEx, it could imply that OpEx dollars are actually flat to down sequentially in Q4 on pretty meaningful revenue growth, which is great leverage and understandable in the SG and A line. But I'm just kind of curious how we should be thinking or how you're thinking about the R and D spend as you start to see revenue begin to accelerate again? Look, I think you should expect that OpEx should be flattish as we go through the rest of the year. And we have increased OpEx. Obviously, the first half of the year was higher OpEx as a percentage of revenue. We are investing in the right places, and I think the product execution shows that. We will evaluate obviously in 2020 as we look through the overall revenue growth picture, what we'll do with OpEx. But I think we've made the right investments and we'll continue to do so. And John, if you're looking at additional data since you're doing the math, we expect OpEx to be approximately 30% for 2019 if you take Q3 and Q4 into consideration. Perfect. Thanks guys. Thank you. Our next question is coming from Ross Seymore from Deutsche Bank. Your line is now live. Hey, guys. Thanks for letting me ask a question. Lisa, maybe this is something you'll address next week on the Rome launch. But in aggregate, now that we're this much closer to the launch in the second half ramp, which you sound very confident on, a year ago, you talked about the market share goals. I think it was double digit market share 4 to 6 quarters after you hit the 5% market share. Any sort of update on the timing and or comfort around hitting that target? Yes. So I think for us, we feel good about that being the right target. I'm not ready to update that yet. I think we want to get through there's a lot of platforms to launch here in the Q3 and in the Q4. We'd like to get through some of that. But we feel that the target is the right target. The product is certainly performing well. And now it's about helping our customers get their platforms to market as soon as possible. Got it. Thanks for that. A quick follow-up. It was part of a prior question that I don't think I heard the answer to. But is the accounting for the semi custom ramp, whenever it may occur next year, the same in customer tends to ramp in consumer in the second half of the year, you guys obviously have to build and get the inventory stage, etcetera, much earlier than that, and therefore, that would be revenue? Or does something change accounting wise that that's no longer true? Yes. That was asked earlier and I don't think I responded to it. The accounting is the same. So I don't think the accounting changes. The only difference though is we would not ramp a product prior to qualification. So there are some when you're doing a brand new product, there is a more involved qualification cycle. And so I think there would be it would be more commensurate with the actual product shipments. So the 2 things would happen more simultaneously is what you're saying? Correct. Great. Thank you. Thank you. Our next question today is coming from Ambrish Srivastava from BMO Capital Markets. Your line is now live. Hi, thank you. I also had a clarification, Lisa. I'm not sure I quite understood. In the delta for revenues, you talked about semi custom and then you also said that China is having an impact. What specific product areas are those? And is that ATIC is also part of that? And then I had a follow-up for the vendor. Yes. So, we did have a small impact due to China. We have several customers that are now on the U. S. Entities list and we stopped shipping to those customers in the Q2. And so it's a small impact, but there is impact that is offset by some of the positives in the rest of the business. So I'm assuming that's CPUs, desktop and or server both, right? There is some PC business and there's some server business. Okay. Okay. Thank you for that. And Devinder, my follow-up is on free cash flow. The gap between free cash flow per share, earnings per share is massive. If I look at the 1st two quarters, roughly $300,000,000 negative free cash flow, But you're guiding for positive for the full year, can you put some numbers around that? Is that tens of millions? Or what's the right way to think about that? Thank you. I think so. If you ask me Q3, we expect to be free cash flow positive and free cash flow positive for the year. It won't be tens of millions from a year standpoint. I think it's triple digit, but I'm not going to give you a specific number. Okay, that's helpful. Thank you. Thank you. Operator, two more questions, please. Certainly. Our next question is coming from Blayne Curtis from Barclays. Your line is now live. Hey, good afternoon. Thanks for taking my question. Just curious on the notebook market Intel talked about some pull ins, but also shorting the market, you're ramping products. So wondering if you could parse those items out because notebook was pretty strong for you in June. And just curious if that impacts any seasonality into the end of the year? Sure Blayne. From our standpoint, our notebook ramps were due to platform breadth. We ramped a number of 2nd generation platforms as well as some new Chrome platforms. I can't say that I can point to any particular pull ins per se. I think we're still expecting that we see a seasonal uplift in the second half of the year. Thanks. And then maybe just a follow on to that. In your September guidance, if you look between the Compute and Graphics segment, I'm wondering between the three segments, if you can just highlight, which one do you expect to be the strongest? So, let's see. I think what I would say is that, amongst the product lines and where they are in their ramp cycle, you would expect perhaps PCs to be the strongest and then graphics and server next. Thank you. Thank you. Our final question today is coming from Timothy Arcuri from UBS. Your line is now live. Thanks a lot. Lisa, so for my first question, I just wanted to ask how you think about semi custom sort of over the longer term and talk maybe about cloud gaming and sort of how you think about its long term effect on you. Because on one hand, you've done quite well with some of these big launches coming up, but you're also exposed to some potential cannibalization on the semi custom side. So I'm wondering how you think about those two factors. Yes. So look, I think we like sort of gaming overall. So if you think about gaming overall, there's PC gaming, there is cloud gaming and then there is console gaming. We believe a rich ecosystem is important. We want to have our Radeon graphics architecture across all those three segments. I've been asked about the cannibalization question. I think it's too early to talk about that, maybe in a few years. I mean, we think cloud gaming is going to be important, but it's too early to say whether it's really a cannibalization thing or is it an additive getting access to more users overall. So our goal is to make sure that our architecture the service the service share target. So it's not that you're not reiterating that target here, it's more you're going to update us on a target when you launch Realm. Is the right way to think about it? No, let me say it this way. I think we do stand by the target. So the target being double digit sort of 4 to 6 quarters after the initial 5%. I think we feel good about that target. I'm not being more specific than that until we get through more of the ramp. Perfect. Awesome. Thank you so much. Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments. No, we're good. That was a good call. Thank you everyone for joining us for AMD's Q2 call today. We look forward to speaking to you from San Francisco on August 7, and we appreciate your support of our company. Thank you. Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.