Earnings Call: Q3 2015

Oct 15, 2015

Good day, ladies and gentlemen, and thank you for your patience. You've joined AMD's Q3 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference may be recorded. I would now like to turn the call over to your host, the Corporate Vice President of Corporate Communications and Investor Relations, Ms. Ruth Cotter. Ma'am, you may begin. Thank you, and welcome to AMD's Q3 conference call. By now, you should have had the opportunity to review a copy of our earnings release and the CFO commentary and slides. If you have not reviewed these documents, they can be found on AMD's website at ire.amd.com. Participants on today's conference call are Lisa Su, our President and Chief Executive Officer and Devinder Kumar, our Senior Vice President and Chief Financial Officer and Treasurer. This is a live call and will be replayed via webcast on amd.com. I would like to highlight a few dates for you. Lisa Su will present at the Wells Fargo Tech Media Telecom Conference on November 10 in New York and the Credit Suisse Annual Technology Conference on December 2 in Arizona. Devinder Kumar will present at the Raymond James Technology and Communications Investor Conference on December 8 in New York. And our Q4 quiet time will begin at the close of business on Friday, December 11, 2015. Before we begin, let me remind everyone that 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. Additionally, please note that non GAAP financial measures referenced during this call are reconciled to their most directly comparable GAAP financial measures in the press release and CFO commentary, which are posted on our website at quarterlyearnings.amd.com. Please refer to the cautionary in our filings with the SEC and in particular AMD's quarterly report on Form 10 Q for the quarter ended June 27, 2015. Now with that, I'll hand the call over to Lisa. Lisa? Thank you, Ruth, and good afternoon to all those listening in today. We successfully executed many of our near term tactical priorities in the Q3, while also taking several key steps as a part of our longer term strategy to focus AMD on delivering great products, driving deeper customer relationships and simplifying our business. Highlights include delivering strong double digit sequential revenue growth in each of our business segments, expanding our product portfolio with the introduction of several new APUs and GPUs that improve our competitive positioning in key markets. Forming the Radeon Technologies Group to bring a vertical focus to our graphics business and help strengthen our performance in traditional graphics markets, while simultaneously establishing leadership initiatives in emerging immersive computing markets like virtual and augmented reality. And in the Q3, we also taped out multiple products in FinFET Technologies across both of our boundary partners that are on track to enter production next year. We also took targeted actions in the quarter to streamline portions of our business as a part of aligning our cost structure with our revenue profile, and we took an inventory write down primarily on some of our previous generation APUs, largely related to weaker than expected PC demand. While not ideal, we believe the write down helps ensure we have the appropriate balance of inventory in place given market conditions. Looking at our financial performance, 3rd quarter sales were 1,060,000,000 dollars The sequential increase of 13% included revenue growth across both our Computing and Graphics segment as well as our Enterprise Embedded and Semi Custom segment. In our Computing and Graphics segment, we delivered our 1st sequential revenue increase in 2 years. CG revenue increased 12% sequentially, primarily due to improved GPU and desktop APU sales. Channel sales also improved sequentially for the 2nd straight quarter as we saw the benefit from the work we completed earlier in the year to reduce channel inventories. We continue to have success with HP in the commercial market as they are seeing accelerating demand for their AMD based systems, including increased adoption with key Fortune 500 accounts. As a result, I am pleased to share that for the first time, AMD was the exclusive launch processor partner for HP's newest EliteBook commercial client systems based on our latest Carrizo Pro APUs, which launched at the end of September. Overall, PC demand, particularly in the consumer market continues to be somewhat muted as there remains a high volume of Windows 8 based systems still on shelves. As a result, OEMs have been slower to ramp their Windows 10 platforms than we anticipated. We did see multiple customers introduce new Carrizo based Windows 10 platforms in the Q3, and we expect additional platforms will come to market in the 4th quarter. Shifting now to Graphics. GPU revenue increased sequentially as we grew both OEM and channel software technology transitions like HBM and DirectX 12 is gaining traction. We expanded our Fury family of HBM enabled GPUs in the quarter to include the Fury Nano, the world's smallest and most power efficient enthusiast desktop graphics card. We delivered strong double digit percentage sequential revenue growth in the high end enthusiast and performance portions of the GPU market based on the success of our flagship Fiori line of energy efficient products. On the software side, our GCN GPU architecture is delivering up to a 30% performance increase on applications written for the next generation of low level programming APIs like Microsoft's DirectX 12 that are being quickly adopted by developers. Turning to our Enterprise Embedded and Semi Custom segment. Revenue increased 13% sequentially, driven by strong semi custom sales to support holiday game console demand. We are on track to set an annual record for semi custom unit shipments in 2015. Demand from Sony and Microsoft indicates that the record setting sales pace of this generation of game consoles will remain strong. We also remain on track to begin revenue shipments of our additional semi custom design wins starting in the second half of twenty sixteen. As a part of further diversifying into the medical, communications and non console gaming markets, we plan to expand our embedded product offerings this quarter with the introduction of our newest R Series SoC, which will deliver significant performance per watt improvements compared to our previous generation and offer industry leading graphics capabilities for embedded designs. Today, we also announced that we have signed a definitive agreement with Nantong Fujitsu Microelectronics to form a joint venture combining AMD's high volume assembly and test facilities and experienced workforce with NFME's established OSAT expertise. Today's announcement is another example of how we are executing the strategy we outlined at our Financial Analyst Day in May to focus the company on improving our long term financial performance by building great products and simplifying our business model. Forming a back end manufacturing joint venture is a significant step towards achieving these goals as we align our operating model with other fabless companies and strengthen our balance sheet. Looking to the Q4 and beyond, our priorities are clear. First, we must make more progress returning our Computing and Graphics business to a healthy trajectory by ramping Carrizo unit shipments, further penetrating the commercial client market, regaining profitable GPU share and maintaining healthy OEM and channel inventory levels. While we are not anticipating Windows 10 will drive a dramatic near term PC refresh cycle, The continued adoption of Windows 10, which has already been installed on more than 110,000,000 PCs to date, provides a great opportunity for AMD over the coming year based on a steady consumer and commercial refresh cycle environment. 2nd, we must continue delivering strong new products. This includes successfully executing key design milestones for our breakout Zen CPU core. Zen remains on track for availability in 2016 and we believe will return AMD to the mainstream server and high end client markets in a significant way in 2017 and beyond. We are also focused on delivering our next generation GPUs in 2016 designed to improve performance per watt by 2x compared to our current offerings based on design architectural enhancements as well as advanced FinFET process technology. 3rd, we must further strengthen our balance sheet through continued improvements in our financial performance and strategic actions like our joint venture with Nantong Fujitsu. One of our most valuable assets is our patent portfolio. We own foundational patents in processing, graphics, semiconductor fabrication and other technologies. This portfolio is not broadly licensed and could provide a significant source of revenue for years to come. We believe we have the right long term strategy to return AMD to profitability and the correct set of priorities that will help us navigate the near term. Now I'd like to turn the call over to Devinder to provide some additional color on our Q3 financial performance. Devinder? Thank you, Lisa, and good afternoon, everyone. In my remarks today, I'll be referencing non GAAP figures except for revenue, which is on a GAAP basis. I'm pleased with the progress we made in the 3rd quarter with 12% sequential revenue growth in our Computing and Graphics segment and seasonally strong sales in our Enterprise, Embedded and Semi Custom segment. Additionally, we continue to simplify our business model and sharpen our financial focus as evidenced by the manufacturing joint venture announcement for our ATMP facilities, which will also bolster our balance sheet and the restructuring actions, which will help reduce costs. 1st, let me review the 3rd quarter numbers. 3rd quarter revenue was $1,060,000,000 up 13% sequentially, driven primarily by seasonally stronger sales of our semi custom SoCs and improved desktop processor and GPU sales. The year over year decline of 26% was driven largely by decreased sales across our computing and graphics products. Gross margin was 23%, down 5 percentage points sequentially. Gross margin was impacted in the quarter by a $65,000,000 inventory write down, comprising primarily older generation APUs. The impact of the inventory write down was 6 percentage points. Before I cover the rest of the financial performance of the quarter, let me briefly recap the restructuring plan we announced at the beginning of October. It is the latest step to simplify our business and better align our resources around our priorities and business outlook. As a result of these actions, we expect to reduce global headcount by approximately 5% by the end of Q1 2016. Total restructuring and other special charges in Q3 2015 were $48,000,000 comprised of $41,000,000 related to the recent restructuring plan and $7,000,000 of facilities related charges from our 2014 restructuring plan. Operating expenses in the 3rd quarter were 336,000,000 dollars down $17,000,000 from the prior quarter, including $2,000,000 of savings related to our 2015 restructuring plan. In our fiscal Q3, the operating loss was $97,000,000 and net loss was 136,000,000 dollars or $0.17 per share loss calculated using 785,000,000 shares. The impact of the inventory write down to the loss per share was $0.08 Net interest, other expense and taxes were $39,000,000 in the quarter, down from $44,000,000 in the prior quarter due primarily to a decline in other expenses. Adjusted EBITDA was negative $55,000,000 compared to negative $42,000,000 in the prior quarter. Now turning to the business segments. Computing and Graphics segment revenue was $424,000,000 up 12% sequentially, primarily due to higher sales of GPUs and desktop processors. Computing and Graphics segment operating loss was $181,000,000 compared to $147,000,000 the prior quarter, primarily driven by an inventory write down of older generation products, partially offset by higher revenue. Enterprise embedded and semi custom revenue was $637,000,000 up 13% from the prior quarter, driven by seasonally higher sales of our semi custom SoCs. Operating income of this segment was $84,000,000 up from $27,000,000 in the prior quarter, primarily due to the absence of the 33,000,000 dollars technology node transition charge in Q2 2015 and higher sales. Let me now cover today's joint venture announcement. We signed a definitive agreement with Nantong Fujitsu Microelectronics to form an industry leading assembly test mark and pack or ATMP joint venture to which we will contribute our ATMP facilities in Malaysia and China. The value of the deal is approximately $436,000,000 and upon the close of the transaction, AMD will retain a 15% ownership in the joint venture. We expect to receive $371,000,000 in cash from our partner with net proceeds of approximately $320,000,000 after taxes and other expenses at closing, which is expected in the first half of twenty sixteen after all regulatory and other approvals. We expect the transaction to be cost neutral to the P and L, which significantly reduced capital expenditures for the company. In addition, as a result of the plans for our ATMP facilities, the balance sheet reflects held for sale accounting of the ATMP assets and liabilities with associated inventory, property, plant and equipment and accounts payable balances being reclassified to other current assets and other current liabilities with an impact of $119,000,000 $81,000,000 respectively. As our business model continues to evolve and based on recent questions from some investors, I want to take a moment to cover our cash and working capital management needs. As you know, we target managing cash within the range of $600,000,000,000 to $1,000,000,000 and cash may on occasion trend to the lower end of that range with the expectation that it returns to the mid range or better thereafter. We are comfortable with this because of the lower quarterly revenue run rate, lower OpEx, focus on reducing inventory and continuing efforts to improve sales linearity. In addition, there is a disproportionate impact on cash of approximately $70,000,000 during the 1st and third quarters of each year based on our current debt profile that is also a factor on cash balances. Additionally, the JV transaction should result in cash generation of approximately $320,000,000 in the first half of twenty sixteen with a significant CapEx reduction to an approximate $60,000,000 annual run rate. We also believe we have the ability to generate significant revenue by licensing or other monetizing otherwise monetizing our IP portfolio. Lastly, if needed, we have other options available to bolster cash, namely tapping our asset backed loan of which $230,000,000 is drawn as of the end of the quarter or accessing the capital markets. Over the longer term, we look forward to de risk our debt maturity profile, reduce interest expense and allocate excess cash over $1,000,000,000 to reducing debt. Turning to the balance sheet. Our cash and cash equivalents balances totaled $755,000,000 at the end of the quarter, down $74,000,000 from the prior quarter, primarily due to a $69,000,000 debt interest payment in the 3rd quarter. Inventory was 761,000,000 dollars down from $799,000,000 the prior quarter due to the $65,000,000 inventory write down. Debt as of the end of the quarter was $2,260,000,000 essentially flat from the prior quarter. As of the end of the quarter, total borrowing against our secured revolving line of credit was $230,000,000 unchanged from the prior quarter. Free cash flow in the quarter was negative $84,000,000 compared to a negative $75,000,000 in the prior quarter. Lastly, as mentioned on our last quarter's earnings conference call, we are actively working with GlobalFoundries to re profile our 2015 wafer commitments in line with product demand in the Q4 of 2015 and into 2016. As of the end of the Q3 of 2015, we had purchases amounting to 631,000,000 dollars under the 5th Amendment of the WSA. We anticipate concluding our wafer purchase reprofiling discussions with GlobalFoundries before the end of the year. Now turning to the outlook for the Q4 2015. AMD expects revenue to decrease 10% sequentially, plus or minus 3%, due to a seasonal decline in semi custom sales. We expect Computing and Graphics segment revenue to increase sequentially. Non GAAP gross margin is expected to be approximately 30%. Non GAAP operating expenses are expected to be approximately $320,000,000 including savings of approximately $7,000,000 from our 2015 restructuring plan. Interest expense, taxes and other to be approximately $45,000,000 Inventory is expected to be down from Q3. Cash is expected to be approximately flat at $750,000,000 including cash payments of approximately 19,000,000 dollars related to the 2015 restructuring actions. In closing, we continue to take steps to further simplify our business model, manage expenses and make the right investments to deliver on our longer term strategy and improving financial performance. With that, I'll turn the call back over to Ruth. Ruth? Thank you, Devinder. Operator, we'd like you to now poll the audience please for questions. Our first question comes from the line of Chris Rolland of FBR and Company. Your line is open. Hey, guys. Thanks for the question. I'm trying to put the pieces together on the guidance, particularly for the semi custom business. The sequential drop is maybe a little bit more than I had thought. And I was just wondering if maybe you could talk us through the moving parts here. Is it all units or is there perhaps a step function decrease in pricing? Was there some sort of inventory that was built? How do I think about the step down in Q4? Chris, this is Lisa. Let me try to give you some color around that. So if you look at the semi custom business as a whole, it actually was a very strong Q3 and a strong overall year. So we saw units go up. We expect units to be up on a full year basis year over year and revenue to be modestly up year over year as well. When we talk about the Q3 to Q4 guidance, we actually ended up Q3 a bit stronger than our original guidance and that was because our customers were ramping semi custom units prior to the holiday ramp. And so September was a very strong month for us. October November will be strong months as well. Q4 is down seasonally from Q3, just given the shape of the holiday ramp. So in terms of the magnitude of the overall units from a Q3 plus Q4 standpoint, it was pretty much as we would expect, and it's really just the timing between Q3 and Q4. As we said in, Devinder has mentioned in the prepared remarks, we do expect the Computing Graphics business to be up quarter over quarter. And again, that's due to some of the progress that we're making in that business. Okay, great. Thanks, Lisa. The next one is for Devinder. So congrats on the assembly test deal. I guess my question is, was there a prearranged assembly test supply agreement that you guys worked out as part of the deal? And if so, how should we think about minimum volumes or pricing or length of the arrangement? Yes, I think that's a lot of detail, Chris. But let me tell you overall from a viewpoint of the deal, we are very happy to be able to combine our ATMP facilities with the expertise with our partner NFME. They are one of the top 4 sets in China. And as far as the supply arrangement is concerned, we have a lot of flexibility overall from my standpoint and the product that we have in our factories today, a significant portion of that will become part of the JV product. But at the same time, we have a lot of flexibility to use on the OSAT as the case might be. Okay. Was that sorry, was that you do have some capacity that's tied up, but you have flexibility for the rest. Is that did I understand that correctly? Well, I think about it. It's a 5 year agreement. We have products that are running in the factories today, but we also have a lot of product that's run-in the OSATs that we do business with around the world. And as the agreement is implemented, we will have some products in the JV facilities and at the same time a lot of flexibility to make products outside of the JV entities. Okay, great. Thanks a lot and congrats again on that deal. Thank you. Our next question comes from the line of David Wong of Wells Fargo. Your question please. Following up on the earlier question just now, when you sell your assembly and test facilities or the stake in them, does that result in any increase in packaging costs when the deal closes? And do you have an estimate of the impact on gross margin if there is an increase? Yes, David, as I said in my prepared remarks, we expect this to be cost neutral. So there should be no impact from packaging or overall cost. We've got a Now, If you look at the OpEx side of the house, you can expect some decline in the OpEx, but on the COGS side of the house, essentially cost neutral. Okay, great. And then in addition to licensing your IP, are there any pieces of IP you have that you think you could sell? And if so, do you have any estimate of the realizable value of IP that you might be able to sell outright? I think if you look at our overall portfolio of IP, D. Lisa will probably give some details in terms of the various areas. But what I would say about the about our portfolio, especially the IP portfolio, is we are able to generate revenue and we plan to monetize that for revenue. And in some sense, if you look at our 10,000 patents of which half are U. S. Based, based on present transactions, you can imagine the value of the IP portfolio is pretty strong and pretty significant, I guess. So Lisa, you want to comment on the IP portfolio itself? Yes. David, maybe just to expand on that a little bit. Look, in terms of our IP portfolio, we are very proud of sort of the overall foundational patents that we have across processors, graphics as well as other semiconductor technologies. Our previous previously, we've been more opportunistic in how we've approached licensing, and we believe that there's an opportunity now to be more strategic and deliberate about what we do. So in terms of your specific question, I think we're open to there are several different avenues, including licensing technology, forging partnerships, perhaps sales of certain pieces of the portfolio. So we are considering all of those options. Okay, great. And my last one, the 12% sequential growth you saw for Computing and Graphics, was that driven roughly equally by GPUs and the processor chips? And similarly, when you expect that segment to grow sequentially in December, do you expect both parts of it to grow? Yes. So David, in terms of the overall computer and graphics business, up 12%. I would say it was a little bit more heavily weighted on graphics versus computing. We do see some strength in both businesses as our product portfolio becomes stronger, and we continue to launch more platforms in the market. So we do expect overall growth in computing and graphics in Q4. Great. Thanks very much. Thank you. Our next question comes from the line of Hans Mosesman of Raymond James. Your line is open. Yes, thanks. Lisa, can you give us a sense of what's going on with Zenner? Actually, I should ask, with the departure of Jim Kaller that kind of shakes things up quite a bit. What is the succession there? And I suppose that Zen is already architecturally very well defined, but what happens after that in terms of roadmap and Keller's departure? Thanks. Yes, Hans. So let me talk overall about Zen and our roadmap and then then specifically to your question. So as I said in the prepared remarks, Zen is on schedule for availability in 2016 and a 1st full year of revenue ramp in 2017. As you know, these microprocessor projects are multiyear projects. So the architecture, the execution team very much in place. I think we're pleased with the progress, and we will continue to work hard to meet our objectives in that area. In terms of the long term road map, we are extremely committed to high performance X86 CPUs, and there should be no confusion on that point. Mark Papermaster is currently directly engaging with the team on that execution, and we'll have more details to come. But overall, pleased with the execution and it continues to be our number one priority for the company. Okay. And if I could, just as a follow on, relatedly, on the ARM side of the equation, we just heard earlier this week Qualcomm jumping into the fray, Xilinx talked about some of the accelerator type aspects of what may be happening in next generation hyperscale data centers. What's AMD's position on all this? There's lots of activity and what are you guys doing? Because it seems that Seattle or at least your first incarnation of ARM and servers didn't really pan out that much. Yes. So Hans, I think relative to ARM, I continue to believe ARM has a place in the data center, both as you think about sort of the convergence between networking, storage and servers. I think it's fair to say for all of us that it's been slower to adopt in the server market just due to some of the software and the infrastructure. Relative to Seattle, we will be starting our first modest production shipments in the Q4 in this coming quarter this year. And I view it as a longer term bet. So no question that the server market is attractive, data center is attractive. We're very focused on it from an X86 standpoint, and we'll continue our ARM efforts in a complementary way. Thank you. Thanks Hans. Thank you. Our next question comes from Harlan Sur of JPMorgan. Your question please. Hi, great. Thanks for taking my question. So, Lisa, you gave us sort of a relatively brief update on Zen. If you could just give us an update on Zen from a performance perspective, it's a new core architecture, new process technology. I think you ticked out a couple of chips last quarter. Any feedback on the performance or the yield metrics that gives the team confidence on the broad rollout of the different product families starting next year? Yes. So Harlan, let me catch it this way. So as we stated in the Financial Analyst Day, we had a target of 40% IPC performance of Zen over our previous generation. We believe we're on track for that. Relative to process technology, we've taped out multiple products to multiple fabs in FinFETs, and we believe that they are also on track in terms of overall ramp. So we continue to focus on both of those aspects, both the architecture and the process technology, but so far so good. Great. And then does the joint venture agreement also include transferring over your HBM technology to the JV? And does the JV have the right to offer this capability to some of its customers? HBM seems to be a fairly differentiated performance feature for AMD, wouldn't want to see that being offered to other potential competitors. Any comments would be appreciated there. Yes. So the high bandwidth memory technology that we introduced on our Fury line of products is actually done jointly with several OSATs. So we have definitely put a lot of R and D into the technology and those are ramping today. They are not part of the JV per se. Okay, great. Thank you. Thank you. Thank you. Our next question comes from the line of Ian Ng of MKM Partners. Your question please. Yes, thanks. Devinder, thank you for laying out all sources and uses of cash. So you're guiding to $750,000,000 cash. You're going to get some proceeds from the assembly and test sale, I guess, sometime mid year. So between now and then, what are the true contractual obligations you have? Is it really things like interest and restructuring payments? I know you've got obligations to GlobalFoundries, but then again, there's no penalties there. So just the true obligations in your minds? I think if you look at it from a viewpoint of the specific items that you mentioned, you're right about the restructuring actions. But the cash payments, if I summarize the restructuring plan that we announced earlier this month, dollars 26,000,000 of cash payments, dollars 7 actually occurred in Q3, dollars 19,000,000 to be paid out in Q4. And then as we get into 2016, there's another $15,000,000 $15,000,000 to be paid out for the restructuring plan and then we are done. And at that point, obviously, we get the benefits from the restructuring plan. I mentioned in the remarks that I had that if you look at 20 relative to the actions that we took. As far as the relative to the actions that we took. As far as the obligation to the paper supply agreement, as you're right, do not expect the charges that you talked about. And obviously, you're working with our GlobalFoundries, with GlobalFoundries, our partner to go ahead and re profile the timing and the mix of the wafers as we look at the demand profile for Q4 2015 and into 2016. CapEx, I mentioned that with the transaction, not just bolting the balance sheet cash sometime in Q1 2016, but the CapEx comes down by about $40,000,000 from the current annual run rate of $100,000,000 to $40,000,000 So net net, I think when I look at all the factors at play, all else being equal, I feel good about the range that we have laid out. And I went through a little bit more detail in this particular earnings call in terms of all the various areas and how we look at cash management as well as working capital management. Great. Thanks. And then follow-up, enterprise embedded semi custom, I'm just trying to see how it can grow next year. I mean you have game consoles obviously, regular ASP declines year over year. I mean what should we think of the main drivers of new revenue that could perhaps get you over this year's type of revenue run rate? Is it the other semi custom wins or is it some other areas? Yes. So the way I would think about the enterprise embedded and semi custom segment in terms of longer term revenue growth, in 2016, as we said, we will have additional semi custom revenue ramping in the second half of twenty sixteen. So I think that would be one driver. And then as we go into the medium term with Zen, that would be more of a 2017 revenue driver. Okay. And then if I could fit in one more, I mean, your computing graphics revenues up nicely in the September quarter. Looks like your operating loss though grew sequentially. Just trying to figure is that sort of some transient marketing costs or is that some other things going on there in terms of the operating loss growing? Yeah, a couple of things. When you look at the numbers from a segment reporting standpoint, you are right that the operating loss did go up. But within the operating loss in Q3 of 2015, the inventory write down that I talked about to the tune of 65,000,000 dollars the larger portion of that is within the Computing and Topic segment. So it skews the results from an overall operational standpoint. So if you adjust for that, the improvement, even though it was a loss, was there from Q2 to Q3 on the higher revenue. Yes. Okay. Thanks a lot. Welcome. Thank you. Our next question comes from Stephen Chen of UBS. Your question please. Hi, thanks for taking my questions. Lisa, if I could ask you on the graphic side of the business. Just looking at your AID business for the graphics boards, Can you talk about how those products in particular performed relative to the overall graphics business in terms of sequential growth? How the sell in, sell out may be and kind of what your view is on, say, the inventories exiting the quarter and kind of what the expectations are for Q4? Yes. So sure. So if I look at the overall graphics business, we did see growth across both the desktop as well as the notebook portion of the business. Relative to AIB, the Q3 was really the start of the ramp of the Fury series as well as the R9 series. I think it was a transition quarter in terms of transitioning from the older products into the newer products. Relative to inventories, actually, I think we're in good shape on inventories. China is a little bit sluggish, and we see that across both graphics as well as computing. All other regions are in good shape. And as a follow-up, just in terms of the ASP the blended ASPs, you guys noted that it was flat sequentially, but up year over year. Can you just talk about just from a mix standpoint, how you expect that to progress in the current quarter? Are you expecting the mix continue skewing towards a richer theory and new product portion of the portfolio? Or do you expect a good amount of lower end GPUs to be sold in the coming quarter? Yes. It's hard to say. I think we'd have to look at all the dynamics. AIB ASPs are trending upwards because we have now a solid offering in the enthusiast and performance segments where we did not before. Relative to overall ASPs, I think we'll have to comment on that next quarter. Okay, great. Thank you. Thank you. Our next question comes from the line of Vivek Arya of Bank of America. Your line is open. Thank you. This is Shankar on behalf of Vivek. Just want to touch upon the console side of things again. So you mentioned the unit growth was strong in Q3. But can you give us a sense on how the ASPs have trended this year and then how should we model ASP trends next year? Yes. So let's see what's the best way to say that. I think what I said was overall units were up year on year 2015 to 2014 as we project into the Q4. Revenue is up modestly, so the ASP decline is modeled in there. As we go into 2016, again, I expect that units will be up given our current visibility. The ASPs are known. So the main thing will be just looking at and you can easily vary a couple of 1000000 units this early in the cycle. So I won't say exactly where I expect revenue to be, but those are the relative trends. I expect units to be up, ASPs on the same order, and we have to see where that actually ends up. Got it. And then my follow-up is on the graphic side of business. Obviously, you're shipping new products into the market and but can you talk about what your overall gaming TAM is and how you how fast you think that market will grow and how fast you can you think you can grow in that market? So I think we're very bullish on the graphics market as a whole. When you think virtual reality and stuff. What the conventional wisdom that ASPs are going down is probably modified by the fact that there is with 4 ks, with DX12, with some of these other drivers, virtual reality, that there's more use for graphics horsepower. Going forward, I think we have a lot that we can do in terms of the product portfolio. So we're very focused on launching sort of our 2016 products that will be significant architectural and process technology enhancements, and we continue to believe that graphics is a growth business for us. Okay. Thank you. Thank you. Our next question comes from the line of Matt Ramsay of Canaccord. Your line is open. Yes. Thank you very much. Lisa, I just wanted to ask another question on the overall graphics market and follow-up to the last question. I think conventional wisdom among investors is that maybe AMD is focused mostly on the console business and your primary competitor is focused on the PC gaming business. And as trends like I guess, first of all, do you agree with that and just give a commentary on how you're focusing your investments? And second, as things like the esports phenomenon take off, how do you feel the company is positioned to benefit from that? Thanks. Yes. Okay. So good question. I think it's fair to say we are focused on overall gaming. It turns out that we have a very strong position in game consoles. So certainly, that's a great business for us. I think PC gaming with our focus on both hardware and software optimization, particularly as we move from DX11 to DX12, as you talk about some of the online gaming initiatives, I think we're actually very well positioned both with our APUs as well as our discrete GPUs. So in terms of investments, I think you will see us continue to invest and invest heavily in the graphics area. And as I said earlier, I think it's a growth area for us. The fact that we are strong in game consoles, I think is a benefit and we'll continue to leverage how we can bring the game console and the PC gaming architectures closer together over time. Great. Thank you for that. And Daminder, I just wanted to follow-up on some questions that were asked earlier in the call about the JV and the impacts of that. It looks like there's a significant number of employees that will be going into the JV from AMD outright. Could you potentially quantify the impact on operating expense that you see maybe pre the deal and then post that deal closing and how we should think about the OpEx trajectory going forward? Thanks. A little bit too early for that. We signed an agreement today and announced the deal today. We have work to do to get the regulatory approvals to go ahead and get the deal closed and at the same time go ahead and get the deal done. And then you're right about the significant number of employees moving over. It's to the tune of 1700 employees. And relative to our base of about 9,500, that's close to 20% when you look at it from that standpoint. So I think as we work through the details of how the JV is going to work, move on to the employees, I'll be able to give more color. But I'm pleased from a viewpoint of what we have negotiated from a costing standpoint, as I said earlier, it's a cost neutral from our standpoint and then OpEx, as I said, there should be benefit, but too early to go ahead and quantify that. I think I'll be able to get through that when we close the transaction. All right, great. Fair enough. Thanks a lot. Thank you. Our next question comes from the line of Joe Moore of Morgan Stanley. Your question please. Great. Thank you. First, I have just a housekeeping question. I think before when you've taken these inventory reserves, they haven't been included in non GAAP, if I'm remembering that correctly. And now you are leaving the inventory reserve in non GAAP. Can you talk about is there something different about this reserve than what you've seen before that there's a different treatment of it? I don't recall. I think if I have to go back to, I think, the 2012 timeframe and the PC market shifted pretty significantly and everybody felt the effects of that in the 2012 timeframe. We had that impact. So we had the non GAAP treatment for the inventory write down at that point. And we are consistent with the way we do it. If you look at it from a viewpoint of how we talk about our numbers, putting in a non GAAP and then comparing it and then we call it out from an inventory write down standpoint where we have in the even in my script, given the adjusted numbers in terms of what the impact is to EPS as well as the gross margin of the write down inventory. But I think we are fairly consistent. There might have been something that you recall, we took an LCM adjustment that might have been included in the not included non GAAP numbers. But when you do an inventory write down from an AMD standpoint, as far as I recall, we've always left that in the non GAAP numbers. Okay, that's helpful. Thank you. And then my second question is back to your graphics business. If you've had a nice sequential quarter, but I still have your GPU business down quite a lot year over year. Now that you have products that are more competitive in the enthusiast segment, Can you give us like an upper bound of what you might be able to achieve there? Is there supply constraints that are keeping this small? And are you going to be able to kind of regain the levels that you were at a year ago in GPU? Yes. So Joe, I think 1 quarter is good progress. Now you'll have to watch us over a number of quarters regain that graphics momentum. And when I think about it, relative to the FURY launch, we did have some supply constraints in the Q3. They were they're largely solved in the Q4, so I don't think there will be any supply constraints. I think it's also fair to say that the graphics portfolio is quite broad. And so you will see us updating the entire portfolio over the coming quarters and both on the OEM side and on the AIB side. So again, it's a strategic effort. It's not a 1 or 2 quarter effort to regain our graphics share. Great. Thank you very much. Thank you. Our next question comes from the line of Sanjay Chwesia of Nomura. Your line is open. Hi, Lisa. I have a question on your patent portfolio. So it's a 2 part question. First question is, is that the option of licensing it, is that something have you decided that you would do or this is something you could do in future? And part 2 is where the demand for such licensing could come from? Does it necessarily imply that it would allow companies to build competing products in graphics and servers? Yes. So in terms of our licensing our patents or our technology, we have done it from time to time, as I said, on a more opportunistic basis. And that's been both licensing technology as well as overall partnerships. As we go forward, we do believe that there's an opportunity to be more strategic in how we approach that. And that includes partnerships in certain markets that we're not directly building products, for example, as well as working together with other companies that are interested in access to some of the markets that we are competing in. So I think both are possible, and it's a strategic effort that we will take on over the next couple of years. And as a follow-up, I have a question on your graphics reorganization. Could you elaborate a little bit more how does this reorganization, a vertical reorganization, helps you to recapture graphics share? Yes, it really is. If you listen to some of our themes over the past couple of quarters, it is about simplifying and providing focus in our business. So graphics is an area that is extremely competitive and having all of the graphics resources in a single vertical organization allows us to focus those resources and make good trade offs in terms of what are the key market opportunities. So it is, again, our belief that it's a very important segment for us as well as the Computing segment. And aligning the resources under Raja Kuduri gives us a very strong strategic slant on where we're going with that business over the next couple of years. Thank you so much. Thank you. Thank you. Our next question comes from Mark Lipacis of Jefferies. Your question please. Thanks for taking my questions. Lisa, when you talk about being more strategic on the IP licensing, is that does that suggest that this is you think about the opportunities here in licensing to your customers more or is that licensing to other semiconductor companies? And on that topic, is the vision can you help us with the vision from the standpoint of how big this could be? Is this something that's a single digit revenue line item or low double digits or well into the double digits? How should we think about that? Look, so when I think about licensing, again, I view it as licensing to partners who are, let's call it, in complementary market segments as well as to those in OEM businesses. So I mentioned 3 different areas. That was licensing technology, joint development partnerships as well as just a pure patent sale. Relative to how to benchmark it, Devinder said it earlier, it's 10,000 patents. We think it's a very strong portfolio, one of the strongest in the semiconductor industry. Our goal would be to monetize it across those various aspects over the next couple of years. So I don't have an exact number, but it is something that we view as very valuable and complementary to our product development efforts. Fair enough. And then a follow-up, if I may. On the you mentioned virtual reality and Mark Papermaster has talked about that as an exciting market opportunity. Recently, NVIDIA had announced like partnerships to make VR ready notebooks to come out I think later this month. Do you have a similar effort to you have something to do something similar on that front to have a VR kind of branded ready notebooks with your customers? That's all I have. Thank you. Yes. We are working very actively in the VR space. I think both Mark and Raja probably talked about it over the last couple of months. We've been working with a bunch of software developers as well as OEMs and headset manufacturers to put together overall solutions. So you'll be hearing more from us in those areas. Great. Thank you very much. Operator, we'll take 2 more questions, please. Yes, ma'am. Our next question comes from the line of John Pitzer of Credit Suisse. Your line is open. Good afternoon, guys. Thanks for sneaking me in. Just a quick question on operating profit by segment. I guess, the company has done a good job over the last 12 months taking overall OpEx down by about $75,000,000 And if I look at the Enterprise Embedded and Semi custom business, revenue is kind of down I'm sorry, revenue is about flat year over year in the September quarter. But if you look, the op profit is down by about $20,000,000 plus I'm just kind of curious, Devinder, did some of the inventory write down hit that segment? Or just help me understand specifically what's going on with operating profit within the semi custom business? I think a couple of things. If you do the year on year comparison, and this is a little bit complicated with the last quarter, if you remember, we had the technology node transition charge and this quarter we have a small portion of the inventory write down that hit that segment. When I look at the numbers from that standpoint, it is down, but it is down only slightly from a viewpoint of comparing from a year ago quarter to where it is today. And one of the things that's happening with that business, as you've heard us say, is we've had a situation where we launched a couple of products 2 years ago. You ramp the product, we are pursuing other businesses and we're investing in that business and obviously that generates some expenses that go into that particular segment. Yes. And maybe, John, just to give you a little bit more color on that. So there was a smaller portion of the inventory write down that was in the EESC segment. But if you're comparing year on year, you also have to remember that in EESC is also server and embedded and those tend to be the highest margin parts of our portfolio and those are down year over year. So although semi custom game consoles are up, those are down and that's had a little bit of effect on the margin mix in that business. That's helpful. Then maybe as my follow on, turning to computing graphics, even if I exclude the inventory write down in the September quarter, you're still kind of running at greater than $100,000,000 per quarter operating loss there. Lisa, how do you think about and hopefully this was the Q1 as you pointed out in 2 years you saw sequential growth, so you turned the corner. But importantly, as you think about kind of bringing that business to breakeven, what are the most important levers in your mind over the next kind of 4 to 8 quarters? Yes. So, John, good question. So look, we called the trough in the 2nd quarter. It was important for us to turn the corner on the business. But as you said, it's a multi quarter effort to bring the business back to breakeven. We are taking a number of actions in terms of what we're doing there. There is there are OpEx actions as part of the restructuring efforts that we're talking about. There are gross margin actions, particularly as we see a ramp of our new Carrizo and our new commercial products, you should see some mix improvement in that business as well. And we need to get the revenue up. There's no question that we need to drive top line margin expansion as well as operating expenses. I do believe that we will make significant progress in 2016, and we see lots of good signs. They just don't show up yet in the financials that you see. So we need to continue to make progress in those areas. Thank you, guys. Thank you. And our final question comes from Vijay Rakesh of Mizuho. Your line is open. Hi, guys. Just a question if it hasn't been asked before. As you look at 2016, the industry, how do you see what do you see on PC units? And then I have a follow-up. Thanks. Yes. So I think if you look at the PC market, IDC has recently come out with some numbers on the Q3 and into 2015. Look, we expect the market to be down in 2016 modestly over 2015. We will also expect that we'll continue to have some choppiness in certain regions, particularly in the emerging markets relative to the mature markets, and we'll have to see how the next few quarters play out from a market standpoint. Got it. And when you look at your business for also with also with this foundry agreement, does it get you any lower taxes with Malaysia or Finanx? Thanks. That's it. I can address the tax question and then Lisa will address the 2016 question. On our taxes, if you look at our tax line, it's very minimal. The way our financials are and the way we have settled the tax structures in the locations, especially in China and Malaysia, we've not been paying any amount of significant taxes in those areas. They're pretty minimal. So since we pay minimal, once the JV is formed at the time of closure, it will be a JV thing to go ahead and take care of the taxes. But the thing that I can also throw in since you're looking at the accounting and the taxes is we will account for this particular JV once formed on an equity accounting method, so it won't affect all the lines of the P and L. We'll just share in the bottom line of the JV on an equity basis in which we have 15% ownership on the JV. Lisa? Yes. So on your question about sort of rough revenue mix in 2016, without being too exact, I think you should expect it to be roughly fifty-fifty or so, that's what we've said. We expect sort of a steady state model to be roughly half CG and half PE SC going forward. Great. Thanks. Thank you, operator. That concludes our call for today, and we'd like to thank everyone for participating and look forward to seeing many of you at the conferences who will be attending for the rest of the quarter. Thank you. Thank you, ma'am. And thank you, ladies and gentlemen, for your participation. That does conclude AMD's Q3 earnings conference call. You may disconnect your lines at this time. Have a wonderful day.