Hello, and welcome to the AMD third quarter 2021 earnings call and webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Laura Graves, Corporate Vice President, Investor Relations. Please go ahead, Laura.
Thank you, and welcome to AMD's third quarter 2021 financial results conference call. By now you should have had the opportunity to review a copy of our earnings press release and accompanying slideware. If you have not reviewed these documents yet, they can be found on the investor relations page of amd.com. Participants on today's conference call are Dr. Lisa Su, our President and Chief Executive Officer, and Devinder Kumar, our Executive 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 note that we will host our accelerated data center premiere virtually on November 8 with feature presentations by Dr. Lisa Su and data center executives Forrest Norrod and Dan McNamara. This event will also be available on amd.com.
Dr. Su will also attend Credit Suisse's 25th Annual Technology Conference on Tuesday, November 30. Ruth Cotter, Senior Vice President, Worldwide Marketing, Human Resources, and Investor Relations, will attend the Barclays Global Technology, Media, and Telecom Conference on Tuesday, December 7. Our fourth quarter 2021 quiet time is expected to begin at the close of business on Friday, December 10. Today's discussion contains forward-looking statements based on current beliefs, assumptions, and expectations that speak only as of today, and as such involve risks and uncertainties that could cause actual results to differ materially from our current expectations. Please refer to the cautionary statement in our press release for more information on factors that could cause actual results to differ. We will refer primarily to non-GAAP financial measures during this call.
The full non-GAAP to GAAP reconciliations are available in today's press release and in the slides posted on our website. Now, with that, I'll turn the call over to Lisa. Lisa?
Thank you, Laura, and good afternoon to all those listening in today. Our business performed extremely well in the third quarter as our leadership product portfolio and strong execution drove record quarterly revenue, operating income, net income, and earnings per share. We delivered our fifth straight quarter of greater than 50% year-over-year revenue growth, with each of our businesses growing significantly year-over-year, and Data Center sales more than doubling. Third quarter revenue grew 54% to $4.3 billion. Gross margin expanded by more than 4 percentage points, and operating income doubled year-over-year. Turning to our Computing and Graphics segment, third quarter revenue increased 44% year-over-year to $2.4 billion, driven by our latest generation Ryzen, Radeon, and AMD Instinct processors. In client computing, sales grew by a strong double-digit percentage year-over-year and declined slightly sequentially.
Ryzen 5000 processor shipments increased by a double-digit percentage sequentially, resulting in a richer product mix as we believe we gained revenue share for the sixth straight quarter. In desktops, we launched our Ryzen 5000 processors with integrated Radeon graphics for the channel due to strong demand as third-party reviews highlighted the leadership computing and graphics capabilities and energy efficiency of these processors. In notebooks, Acer, ASUS, HP, and Lenovo all expanded their mobile offerings powered by Ryzen 5000 mobile processors as we continue gaining momentum in the premium consumer, gaming, and commercial markets. Commercial client growth year-over-year was based on new deployments across public sector and Fortune 1000 technology, energy, and automotive customers as the number of AMD-based commercial notebook designs available from the largest OEMs increased significantly year-over-year. We're also seeing strong growth in the workstation market.
According to IDC, Threadripper PRO processors now power the best-selling workstations in their category in both North America and EMEA as we continue winning high-volume deployments across key verticals, including media and entertainment, engineering, architecture, and automotive. In graphics, revenue more than doubled year-over-year and grew by a strong double-digit percentage sequentially, driven by shipments of our next generation AMD CDNA 2 data center GPUs and demand for Radeon 6000 GPUs in the channel. AMD RDNA 2 GPU sales grew significantly in the quarter as we ramped production and expanded our top-to-bottom portfolio with the launch of the mid-range Radeon RX 6600 XT cards that deliver leadership 1080p gaming performance at their price point.
Data center graphics revenue more than doubled year-over-year and quarter-over-quarter, led by shipments of our new AMD CDNA 2 GPUs for the Frontier exascale supercomputer at Oak Ridge National Laboratory. Frontier was architected specifically to deliver breakthrough HPC and AI compute performance and provide a blueprint for how supercomputing, enterprise, and cloud customers can enable exascale-level performance over the coming years by combining AMD CPUs, GPUs, and software. We are very pleased with the performance of our AMD CDNA 2 GPUs and look forward to providing more details on their leadership performance next month. Turning to our enterprise embedded and semi-custom segment, revenue increased 69% year-over-year to $1.9 billion, driven by strong growth in EPYC processor and semi-custom sales. Semi-custom revenue grew sequentially and year-over-year as demand for the latest Microsoft and Sony consoles remains very strong.
We expect semi-custom revenue to increase sequentially in the fourth quarter as we further ramp supply to address the ongoing game console demand. Turning to server, we delivered our sixth straight quarter of record server processor revenue, as sales more than doubled year-over-year and grew by a significant double-digit percentage sequentially. Third-gen EPYC processors continue ramping faster than the prior generation and contributed the majority of our server CPU revenue in the quarter. In cloud, multiple hyperscalers expanded their third-gen EPYC processor deployments to power their internal workloads, and both Microsoft Azure and Google announced multiple new AMD-powered instances. Cloudflare, Vimeo, and Netflix also all recently announced new deployments powered by EPYC processors, with Netflix highlighting how they doubled their streaming throughput per server while also reducing their TCO.
Enterprise growth was particularly strong in the quarter as the more than 100 third-generation EPYC processor platforms from Dell, HPE, Lenovo, Supermicro, Cisco and others ramp into broader end customer deployments. We expanded our wins in the quarter with Fortune 1000 financial services, automotive and aerospace companies and we see significant ongoing growth opportunities as our enterprise server pipeline has more than doubled year-over-year. In supercomputing, we won multiple installations in the quarter, highlighted by Argonne National Laboratory selecting third-generation EPYC processors to power the new Polaris supercomputer that will be used to test and optimize software in preparation for future exascale-class systems. Overall, we are very pleased with the momentum we have built in our data center business as server CPU and GPU revenue grew to a mid-20% of overall revenue in the quarter.
Turning to our Xilinx acquisition, we are making good progress towards securing the required regulatory approvals and remain on track to close by the end of the year. The Xilinx acquisition provides significant benefits to AMD, including expanding our product portfolio with leadership, adaptive computing and AI solutions, and further diversifying our customer base into complementary markets, including wired and wireless communications, industrial and automotive. In closing, our record third quarter results and the significant acceleration of our business in 2021 demonstrate that we have the right products and strategies to drive best in class growth and significant shareholder returns. We continue growing faster than the market, driven by our consistent execution and the investments we have made to build leadership products. Our supply chain team has executed extremely well in a challenging environment, delivering incremental supply throughout the year, supporting our strong revenue growth.
We are also investing significantly to secure additional capacity to support our long term growth. Our product portfolio and road maps have never been stronger, and I look forward to sharing more details about our next generation server CPUs and GPUs at our accelerated data center premiere on November eighth. Now I'd like to turn the call over to Devinder to provide some additional color on our third quarter financial performance. Devinder.
Thank you, Lisa, and good afternoon, everyone. AMD had another excellent quarter. Our leadership products and growing data center momentum are driving record revenue, record profitability and significant cash flow generation. Third quarter revenue was $4.3 billion, up 54% from a year ago, driven by strong revenue increases across all businesses and up 12% from the prior quarter. Gross margin was 48%, up 440 basis points from a year ago, driven by strong revenue mix and competitive products. Operating expenses were $1.04 billion, compared to $706 million a year ago, as we continue to invest in our long term product road maps and scaling our business. Operating income more than doubled to $1.06 billion, up $530 million from a year ago, driven primarily by revenue growth.
Operating margin was 24%, up from 19% a year ago. Net income grew to $893 million, up $392 million from a year ago. Diluted earnings per share was $0.73 compared to $0.41 per share a year ago. This includes a 15% effective tax rate compared to 3% a year ago. Now turning to the business segment results. Computing and Graphics segment revenue was $2.4 billion, up 44% year-over-year, driven by significantly higher client and graphics processor revenue. Computing and Graphics segment operating income was $513 million, or 21% of revenue, compared to $384 million or 23% a year ago. The increase in operating income was primarily driven by higher revenue, which more than offset higher operating expenses.
Operating margin was slightly lower year-over-year, primarily due to investments in R&D and go-to-market. Enterprise Embedded and Semi-Custom segment revenue was $1.9 billion, up 69% from $1.1 billion the prior year. The strong revenue increase was primarily driven by significantly higher EPYC processor and semi-custom sales. EESC operating income was up significantly at $542 million, or 28% of revenue, compared to $141 million, or 12% a year ago. Operating income growth was primarily driven by higher revenue and richer product mix, partially offset by higher R&D and go-to-market expenses. Turning to the balance sheet. Cash, cash equivalents, and short-term investments were $3.6 billion. We utilized $750 million to repurchase more than seven million shares of common stock in the third quarter of 2021 as part of our ongoing stock repurchase program.
Free cash flow was $764 million compared to $265 million in the same quarter last year and $888 million in the prior quarter. On a quarter-over-quarter basis, free cash flow was lower as we made strategic investments in long-term supply chain capacity to support future revenue growth. Inventory was $1.9 billion, up $137 million from the prior quarter in support of continued revenue growth. Let me now turn to the fourth quarter outlook. Today's outlook is based on current expectations and contemplates the current global supply environment and customer demand signals. We expect revenue to be approximately $4.5 billion ± $100 million, an increase of approximately 39% year-over-year and approximately 4% sequentially. The year-over-year increase is expected to be driven by growth across all businesses.
The quarter-over-quarter increase is expected to be driven by higher server and semi-custom sales. In addition, for Q4 2021, we expect non-GAAP gross margin to be approximately 49.5%, non-GAAP operating expenses to be approximately $1.15 billion, non-GAAP interest expense, taxes, and other to be approximately $170 million, and the diluted share count to be approximately 1.22 billion shares. For the full year 2021, we now expect revenue to increase approximately 65% over 2020, driven by growth across all businesses, up from the prior guidance of 60%. In addition, we continue to expect gross margin to be approximately 48% for the full year. In closing, we delivered another outstanding quarter with very strong year-over-year revenue growth, significant financial momentum, and record profitability.
Our leadership products position us well to drive future growth, significant cash generation, and strong shareholder returns. 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.
Thank you. We'll now be conducting a question and answer session. If you'd like to be placed into the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. One moment, please, while we poll for questions. Our first question today is coming from Blayne Curtis from Barclays. Your line is now live.
Hey, good afternoon and great results. Thanks for taking my questions. Just kinda curious, the overall outlook for Q4, so computing graphics being down. I'm just curious if that was more a supply. You're still growing sequentially and obviously, I would assume you prioritize servers. Just kinda curious, what you're seeing in the computing graphics market, and is it anything related to supply constraints for you that would be down sequentially or maybe downstream constraints? Then maybe for Devinder, just curious, you're still growing gross margin. I'm assuming how the semi-custom and servers kinda offset each other. Just kinda walk us through the nice increase in gross margin for Q4.
Yeah, sure, Blayne. Thanks for the question. You know, as it relates to the fourth quarter and where we are, look, we're overall very pleased with our performance in terms of the second half of the year. It's playing out you know about what we expect it to be in the PC market. As you were asking about computing and graphics, we had you know seen that you know the PC market end user demand is strong overall, but there are some you know mismatch constraints in the PC market, and so for that reason, we've called the PC market you know really flattish. I would not have said down. I would've you know called it you know flattish as we look into the fourth quarter.
However, as we, you know, look overall at the business, I think, you know, the data center business has performed very well and, you know, we see a strong demand there, and we're continuing to see that. As well, the console business, you know, overall gaming is also quite strong.
We see, you know, growth in servers and semi-custom as we go into the fourth quarter. On the margin dynamics, Devinder, you wanna cover that?
For Q4?
Mm-hmm.
Yeah. Q4, you know, it is up slightly better than our guidance, one point, from Q3. You know, that's really product mix, higher margin from server, you know, offset by semi-custom revenue also been higher, going from Q3 to Q4. We're very pleased with the progress in the gross margin. As you look at the Q3 results, you know, up 440 basis points from last year, up 8 basis points last quarter, and the progression into Q4, obviously driven by the server, our revenue growing. I'm very pleased with that also. Thanks.
Thanks, Blayne.
Thank you. Next question today is coming from Vivek Arya from Bank of America. Your line is now live.
Thanks for taking my question, and, congratulations on the strong results and the consistent execution. Lisa, how are you feeling about the spending environment in the data center, as we look over the next several quarters, and especially your server roadmap, versus the competition, because they are planning to launch several new and important products, early next year. I was just wondering how you're thinking about the competitive landscape and the spending landscape over the next year.
Sure. Thanks, Vivek, for the question. I think overall, you know, we're feeling very, very good about the server business or the data center, you know, market. I think from a market standpoint, you know, we've seen a strong market here in 2021 in both cloud and enterprise, and we see that continuing into 2022. I think from a competitive position standpoint, I think, you know, Milan is extremely well positioned, so we were very pleased with sort of the adoption rate of Milan. You know, we said that we expected it to grow, you know, faster than Rome, and it has. The crossover with Milan and Rome in the third quarter is an important metric for that.
Going into the fourth quarter, we continue to see, you know, a strong environment. As the competitive environment goes into 2022, we always expect the competition to be strong. Our focus has been consistent execution of our roadmap, and we feel very good about Zen 4 and Genoa in 2022. I think, you know, we feel very good about the competitive positioning there. We continue to believe that, you know, data center is the most strategic part of our business, and we're making good progress with our, you know, customers and partners.
Got it. For my follow-up, Lisa, AMD has done very well in terms of gaining share at the hyperscalers. Where are you in that journey? Is there still a lot of share gains to be had at hyperscalers? Importantly, can you repeat that in the enterprise, or do you think your competitors' incumbency limits the share gain opportunity in the enterprise? Thank you.
Yeah. Vivek, what I would say there is, you know, our business has been more cloud-weighted with the hyperscalers than enterprise, you know, that continued here in the third quarter. I do believe that there is significant additional opportunity for us in the cloud. You know, as we work with these partners, it is about, you know, sort of expansion of workloads. Really, there's more tailoring of workloads as well as we go forward. Then, you know, there's also just, you know, more customers and broader penetration in both tier one and tier two, you know, cloud guys. I think that's a good market for us.
On the enterprise side, I would say we saw a very strong enterprise quarter here in the third quarter. I think the strength of Milan with our OEMs in terms of the breadth of the platforms is very good, and we're seeing good traction with you know, sort of Fortune 1000 companies. I would say overall, I think we see a growth trajectory for both our cloud and enterprise business. I think in the enterprise, the key thing has been you know, to get more familiarity with EPYC, and we've made you know, very good progress there. You know, I feel you know, very good about where that's going.
Okay. Thank you, Lisa.
Thanks.
Thank you. Next question is coming from Matt Ramsay from Cowen. Your line is now live.
Thank you very much. Good afternoon, everyone. Obviously, Lisa, some really strong progress with data center crossing, I guess, a quarter of the business here with the results. I did wanna ask a question specifically on your server business in China. Your competitor called out China and some of the turmoil that's gone over there as a reason why some of their cloud business had some headwinds in the third quarter. Maybe you could comment on how you see spending over the last quarter and then in the next couple of quarters, specifically in that end market in China. I have follow-up. Thanks.
Sure, Matt. You know, again, what I would say is our data center business performed very well in the third quarter. That was across both cloud and enterprise, and in cloud, that was across geographies. You know, we haven't seen anything particular as it relates to China or you know, there. What I would say is, you know, we continue to work with a breadth of customers and you know, we're in the process of really rolling out, you know, sort of broader adoption you know, across the customer set. You know, I think we saw a pretty normal environment for demand.
Yeah. No, thanks for clearing that up. As my follow-up, kind of unrelated, you guys mentioned in the comments still plans to get the Xilinx deal closed by the end of the year, and I think that's important as-
There's a lot of things that you can talk about more maybe more openly about the heterogeneous compute strategy for the business over the long term. Lisa, maybe you could walk us through to the extent that you can talk about it. Obviously, there's some things that you can't talk about. But the extent you can, what milestones you've achieved behind the scenes that make you feel confident and what hurdles are still there to have the confidence? I mean, I guess we got six weeks till we get into the month of December and things kind of slow down a little bit regulatory-wise. I just wonder what gives the confidence that we can get there and what we should expect. Thank you.
Sure, Matt. Look, you know, we've been working diligently on the closure of the Xilinx acquisition. I would say we're through the vast majority of what we need to do in the regulatory front. You know, we're finishing up here and, you know, there's very good progress on the integration side. We've done a lot on the integration. I think you know, we're excited with the plans that we have. On the regulatory front, again, as I said in the prepared remarks, you know, we've made good progress, and we believe we're on track to close at the end of the year.
Thank you. Our next question.
Thank you, Matt. Operator. Go ahead.
Certainly. Our next question is coming from Toshiya Hari from Goldman Sachs. Your line is now live.
Hi, good afternoon. Thank you so much for taking the question and congrats on the strong results. Lisa, I had two questions as well. First on your outlook for 2022. I realize it's early, and I certainly don't expect you guys to provide a point estimate. But I think, you know, people are kind of concerned that you've been sort of overgrowing, if you will, relative to your long-term growth rate. You grew 45% last year. You're on track to grow 65% this year. Given your long-term through cycle growth target of 20%, again, there is concern that you could decelerate going into next year given PC dynamics and competitive dynamics and so on and so forth.
Again, I don't expect you to give any, you know, quantification of next year, but if you could describe the year qualitatively, what are the potential pluses and minuses at this point, that would be super helpful. And then I've got a quick follow-up.
Sure. Look, as you said, it's a little bit early to talk about, you know, 2022 quantitatively. You know, I'll say qualitatively, what we see is, look, we see a positive demand environment and, you know, that's a market statement, but that's also an AMD statement, right? I think the strength of our product portfolio has, you know, multiple growth vectors. You know, data center continues to be a very important one for us. I think we continue to make progress in the, you know, graphics market and, you know, we think graphics is a good growth vector.
You know, our console business we would expect would be up in the fourth quarter. I mentioned earlier that it'd be up in the fourth quarter, and we would expect it to be up in 2022 just given the strength of the demand environment there. You know, on the PC side, the comments I'll make on the PC side are the end user demand you know appears to be strong. There's a good amount of refresh going on, whether you're talking about consumer you know high-end consumer or commercial or gaming. You know, there are some supply constraints around matched sets that we believe will continue into the first half of the year.
That being the case, you know, what we're using from a planning assumption standpoint is that the PC market may be flattish, as we go from 2021 into 2022. Even within that environment, you know, we think there are opportunities for us to continue to grow. You know, overall, I think, you know, we're very focused on execution, very focused on working with our customers, to make sure that we're aligned, with what they need and, you know, overall feel very, very good about our product portfolio going into 2022.
Got it. That's super helpful. Thank you. As my quick follow-up, you know, similar question on gross margins. Not sure if this is for Lisa or Devinder. You know, you're guiding Q4 to 49.5%, you know, which is obviously significant progress from a year ago. Given some of the dynamics you've talked about, whether it be, you know, the growth potential in server CPU, the mix within server CPU, and I'm sure the mix dynamics on the client side, I think most of us do expect a pretty nice, you know, positive trajectory into 2022, you know, potentially with a five handle in terms of, again, gross margins. Any risks or any headwinds that we should be aware of? I think your foundry partner is raising pricing.
There's cost inflation generally across the board, but any risk items that we should think about at this point? Thank you.
I wouldn't say risk item, but I think it's about managing the situation. As Lisa said, you know, with the growth vectors that we have, we expect to continue making progress from where we are currently, and especially predicated on the competitive leadership products we have. We're very pleased with the progress we've made over the last few years. Without getting into specifics, I think, you know, you can assume that we continue to make progress with the mix of revenue, mix of products, and the competitive products that we're introducing also into 2022.
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. My first one, I wanted to ask about data center GPU. I know you said it more than doubled, but can you give us an approximate feeling for how big that is? Are we still talking like tens of millions of dollars, or is it larger than that? And what are your expectations for how that's gonna ramp as Frontier and some of the other supercomputers that a lot of that stuff is going into are ramping over the next, like, couple of years?
Sure. You know, Stacy, on the data center GPU side, you know, the third quarter was a larger quarter for the data center GPU. This is where we shipped the Frontier shipments that are now in the build cycle. It is still a relatively small business, you know, compared to the CPU side. Our expectation is that going into the fourth quarter. You know, it's a lumpy business for us. You know, Q3 was a strong quarter given the shipments for Frontier. We would expect, as we go into the fourth quarter, that you know, it'll be down sequentially, you know, quarter-over-quarter.
It's a strong growth year overall, for a business that we think is a significant strategic growth driver for us over the next few years.
Got it. Thank you. For my follow-up, I just wanted to ask you about Q4. Obviously, you know, you had sort of given implied guidance for Q4 last quarter. The guidance now is obviously decently higher. Can you just talk a little about what is driving that upside relative to where your expectations were last quarter?
Yeah. Devinder, you wanna talk about that or?
On the revenue, I think. Go ahead, please.
I'm sorry. Were you asking about revenue or margin, Stacy?
Well, both. If you're willing to answer both.
Okay. All right. Let me start. I wanna make sure we're answering your question. How's that? Look, on the revenue side, when we look at the sequential growth, you know. Look, the supply chain. This is about, you know, really supply chain optimization. You know, we have, you know, been able to secure some additional supply given some of the work that we've been doing. We see strong demand across the board. Sequentially, what we're guiding to is, you know, stronger server demand as well as gaming. Gaming, you know, includes, you know, the semi-custom game consoles, as well as our graphics business is doing quite well, as well.
In terms of you know, the sequential margin, it's you know, similar. I mean, we're having you know, server, some improved mix in graphics driving upside, and that's partially offset by you know, the consoles, which are you know, below corporate average. Net-net, I think it's you know, positive sequential both on revenue and margin.
I guess what I'm asking is, for example, are your expectations for servers into Q4 now higher than they were three months ago when you gave implied guidance for Q4?
Yes. Yes, it is.
Got it. Okay. Thank you very much.
Sure.
Thank you. Our next question today is coming from Joe Moore from Morgan Stanley. Your line is now live.
Thank you. I'm wondering if you could talk about graphics a little bit. It seems like that's the business that's probably struggled the most to get silicon, and yet you've shown some pretty nice growth there. You know, what's the prognosis for that business going forward? In the past, you've said you're comfortable that there's relatively low cryptocurrency exposure there. Is that still the case?
Yeah. Sure, Joe. Look, the graphics business did have a strong third quarter. You know, I think that's true for graphics gaming as well as data center GPU. I think the portfolio that we have there with RDNA 2, it has turned out really well. We're pleased with how it's positioned competitively in the marketplace. Overall, you know, gaming has been a secular trend that has, you know, continued with very strong demand. In terms of crypto, you know, our view is that it's really negligible revenue for us in the third quarter. It's not in a segment that we have, you know, been servicing. We've tried very much to keep our gaming graphics focused on gamers.
You know, we were able to increase some of the supply for graphics, and that's one of the reasons that we saw the sequential growth that we saw. Going into the fourth quarter next year, again, I think we see gaming overall as a strong segment for us and, you know, the product set is very good. We feel good about it.
Great. Thank you very much.
Thanks.
Thank you. Our next question is coming from Aaron Rakers from Wells Fargo. Your line is now live.
Yeah. Thanks for taking the question. I have two quick questions if I can as well. You know, just kinda sticking on, you know, the expectations in the next year, appreciating that you're not going to give a full guide. You know, I'm just curious how we should think about the semi-custom business, given how sizable that's been to the overall growth, in 2021. You know, any framing of how you expect 2022 to shape up at this point?
Sure, Aaron. You know, again, if you look at the overall, you know, growth that we had in 2021, I would say it was actually, you know, quite balanced across all of our businesses. You know, the semi-custom business was in the second year of ramp and, you know, demand has exceeded supply. We've been able to to ramp that as we've gone through the year. As we look into 2022, you know, the historical view of game consoles has been year four is the peak. At least that's what it was in the last generation. You know, what we expect in this generation is, you know, again, very strong demand going into 2022.
We would expect it to grow into 2022, which would be, you know, the third year of the cycle, and then we'll see what happens after that. You know, overall, I think, you know, our view is, we have a very balanced business with multiple growth drivers across, you know, data center, PCs, you know, graphics, as well as consoles.
Yeah, that's very helpful. The follow-up question is on your own supply chain side. I know in the prepared comments you said, you know, working on securing, you know, adequate supply given your growth trajectory. You know, are you currently able to meet all of the demand that you currently see? And could you give any color of what-
You know how we should think about, you know, the supply situation on your end.
Yeah. I mean, we've been working on ramping the supply chain really for, you know, more than a year if you think about sort of dynamics here. You know, what I'd like to say is, overall, the demand has been very, very high. You know, the fact that we can grow revenue this year 65% year-over-year, I think is a testament to the supply chain work. I think you know, if we had more supply, we could certainly ship more. That being the case, I think we're prioritizing in the most strategic segments. We have invested significantly in capacity for additional capabilities. You know, we'll see some of that come online as we go through 2022.
You know, we're gonna continue to be aggressive to secure you know, additional capacity because, you know, we believe our product portfolio will enable that growth.
Thank you.
Thanks.
Back to our next question today is coming from John Pitzer from Credit Suisse. Your line is now live.
Yeah, good afternoon, guys. Congratulations, Lisa. Lisa, my first question is back on the supply side of things. I'm just wondering if you could help me better understand, was it more of an issue in your PC business, or your server business? I guess especially as we look into next year, as supply begins to loosen up, you know, this year, given how tight the overall ecosystem was, competing on price didn't make a lot of sense. As supply begins to accelerate across the ecosystem, how are you thinking about pricing, especially in lieu of your large competitor kind of resetting their gross margins for next year? In your view, does that give them more wiggle room, or do you think that they're being, you know, pretty benign on the pricing side of things on that gross margin reset?
There's a lot of various aspects to that, John. Let me try to take it in pieces. You know, as it relates to current supply, you know, I want to make sure that we're clear. I mean, we have brought on a tremendous amount of additional supply, and that's part of the reason that we overachieved the Q3 results, and then we guided higher in Q4. You know, I do think that we have done a lot of work on our supply chain. In the PC market, in particular, I think the market is not necessarily constrained on CPUs, but more constrained on match sets. We're trying to ensure that we're not building inventory in the channel.
That's part of the optimization that we do, you know, to ensure that as we ship, you know, sell in processors that we, you know, we see match sets to sell through. You know, from that standpoint, we think inventory is very healthy at the OEMs, and that's an important factor as we go into 2022. You know, as it relates to what happens with the pricing environment, as supply, you know, eases up, I think, you know, right now what we see is, you know, again, it's an environment where, you know, most people are prioritizing supply. As we go into 2022, though, you know, I think this is all about the product.
You know, what we view is, you know, our focus in sort of our product line has been, you know, moving up the stack, ensuring that we're providing, you know, significant value to our customers in terms of total cost of ownership on the server side and, you know, innovative features and capabilities on the PC side and the graphic side. We're gonna continue to do that. I mean, we're excited about our product portfolio into 2022. You know, we're gonna continue to be very aggressive on the overall roadmap.
With that, I think our game plan is exactly, you know, what it always has been, which is, you know, lean into the product cycle and the deep customer relationships and, you know, continue to build that out over time.
That's helpful. Then as my follow-up, Devinder, you did a good job kind of explaining the year-over-year changes in operating margins in the compute and graphics business. I'm wondering if you could talk a little bit about sequentially what happened. Revenue was up and op margins were down a little bit. Is that just the influence of the very strong growth in GPUs going into the data center? Because it sounds like in the core compute business, mix probably got better sequentially for you. I'm just trying to make sure I understand all the dynamics at play.
Yeah. If you're talking about the CG segment, it's investments, right? Some investments in R&D and go-to-market. Also, you know, we have a lot of new products coming into 2022, and there's expenditure involved ahead of the curve before you introduce the products in the next year, and that's really what happened in the transition quarter-over-quarter.
Perfect. Thank you.
Thank you. Our next question today is coming from Chris Caso from Raymond James. Your line is now live.
Yes, thank you. Good evening. First question is about the supply constraints and how that affects seasonality as we go into the beginning of next year. Obviously, you're making efforts to bring on more supply. You spoke about in PC these constraints with regard to match sets. You know, I'm sure at this point you don't wanna provide guidance for Q1, but how should we be thinking about seasonality for Q1 as we contemplate these supply constraints?
Yeah. Chris, I think it's a little bit early to talk about Q1. I mean, I think. Let's see, what would we say about seasonality? I don't have a lot to say other than, you know, typically Q1 is down from Q4. That's typically what the pattern is, you know, given the consumer related businesses. It might be, you know, a little bit sub-seasonal as we go into this first quarter, just given the demand environment. We'll have to see how things, you know, play out over the next couple of months.
All right. Thank you. A little bit of a bigger picture question for my second question. You know, we've heard and seen from some of the hyperscalers a trend of, in some cases, doing some custom designs, doing it on their own, often with Arm-based designs. Do you consider that an opportunity or a threat for AMD? And to what extent are you engaged with some of those hyperscalers on some of these custom designs because you do have a IP portfolio yourself?
Yeah, Chris, on that, we definitely view it as an opportunity, right? I think what's happening in the data center market is that, you know, as the need for compute gets larger, you know, sort of this tailoring of compute for the various workloads is, you know, an important trend. I think our IP portfolio today is very strong. I think it will even be stronger given some of the things that we have planned to allow more tailoring.
We are working very closely with a number of hyperscalers on, you know, sort of the vision of compute over the next few years and how we might put together some, you know, different solutions between our CPU, GPU, interconnect capability, and then with the addition of Xilinx as well coming into our portfolio. Lots of opportunity there for customization. I think, you know, that's a key trend that, you know, we're certainly gonna lean into.
Thank you.
Thank you, Chris. Operator, two more questions, please.
Certainly. Our next question is coming from Ross Seymore from Deutsche Bank. Your line is now live.
Thanks for letting me ask a question, echoing the congrats of other people on the strong results. Lisa, I just wanted to ask about the comparison on your C&G side between the C and the G, and specifically on the client graphics side of things. Clearly, this year's been a really strong year for AMD. Can you just talk about the go forward on the client side in that? I think we're all pretty well aware of what's gonna happen on the data center GPU side. How do we reconcile your commentary on where you think the PC market would be in the flattish area versus the strength you've had in GPUs this year in a strong GPU market? Do you think that continues next year? How much of it is AMD specific?
If the PC market is weaker, is that something that's a little bit of a headwind for AMD?
You know, again, what I would say is, you know, our market share is still, I would say, underrepresented, whether you're talking about, you know, the client, you know, sort of CPU or APU side or the GPU side. I think what we have seen here in, you know, the third quarter and then, you know, into the second half of the year is, you know, our graphics business has performed, you know, quite well. It is, you know, channel-driven in the sense that, you know, there's still strong demand amongst gamers for GPUs. As we go into 2022, though, I don't view, you know, sort of the PC market as a headwind for the company.
You know, I think, you know, as we look at all of these markets, you know, of course, we do a bunch of scenario planning of, you know, if the market is up or if it's down. I think there are, you know, many who think that the market may be up. There are some who think the market may be down. That's why, you know, we're choosing to model sort of the base case as flattish.
Even within that market, whether you're talking about client CPUs or, you know, client GPUs, you know, we think we have opportunities to gain share and grow in that business, just given the strength of our product portfolio and the fact that we are, you know, sort of underrepresented to what we think, you know, sort of what we can expect, given those products.
Thanks for that. I guess as my follow-up, just one for Devinder on the OpEx side, and I'll give the same disclaimer that I know you're not gonna give any specifics about next year. You guys have done a great job of lowering your OpEx intensity throughout this year. I think you're gonna be closer to 24% versus your 26%-27% entering the year and 25% as of last quarter. Great expansion there in margins and better leverage. As we look forward, though, I think the third quarter was the first time where you guys spent enough that it actually impacted a segment where the operating margin fell a little bit. I think we all understand why you're doing that and it feeds great growth, so it's not a negative.
As I look into 2022, do you think next year can be another year where your operating leverage is positive, or do you expect to be able to spend closer to your former targets in kind of the 25%-27% of sales range?
You know, I think fundamentally, and what you observe is right, you know, very disciplined from an OpEx standpoint, investing in the growth is important. You know, many of the things that Lisa talked about earlier is all about growth in many different vectors. Obviously, you know, that requires funding from an OpEx standpoint, whether it's R&D, go to market, hiring, you know, which we are doing, from a viewpoint of the growth in the company. I think from a modeling standpoint, a guidance standpoint, you can assume that the growth in OpEx will be lower in revenue. Margin continues to expand, you know, OpEx, you know, flat-ish or even down. I mean, you can model it, but very disciplined from that standpoint.
Making sure that we are investing for the growth is a top priority for us.
Thank you.
Thank you. Our final question today is coming from Timothy Arcuri from UBS. Your line is now live.
Thank you for fitting me in. I had two. I guess first, Lisa, no one's asked about software yet. I was wondering if you can update us on your software efforts and maybe as you get close to closing Xilinx, how much that sort of changes things for you on the software side and maybe how your search for software talent's been. I had a follow-up.
Sure, Tim. Yes, you know, we continue to invest heavily in software, particularly on the data center GPU side. You know, we, you know, with our next generation GPU architecture, you know, MI200, you know, which, you know, we'll be, you know, talking a little bit about, in, you know, in the next few weeks. We have made significant investments and progress. Our focus has been on, you know, using sort of the Frontier beachhead, with a high-performance computing and expanding that into AI and working with our partners on that software development. Overall, we continue to make good progress there.
I think the Xilinx acquisition and bringing in, you know, sort of that software talent also provides opportunities to optimize across the overall portfolio in terms of just the software infrastructure that people want in an overall ecosystem. You know, very strategic area that we're making good progress in.
Thanks a lot. I guess just last question from me. Server share, if I look at your guidance for Q4, it looks like you're gonna be in the 12.5%-13% share if I use the entire TAM, and that's up like 500 basis points, you know, versus last year's Q4. I guess the question is, like, is that a reasonable trajectory into next year as you know, if we're sitting here 12 months from now, you know, would you be surprised if you gain another 500 basis points next year? Sort of, you know, where do you think about where that share can go? Thanks.
Yeah. You know, I think overall, our server trajectory has been very strong. I mean, I think we're, you know, we're very pleased with the trajectory here in 2021. I think having a number of quarters where we're doubling the revenue year-over-year kind of speaks to the progress there. As we go into 2022, you know, we still believe we are a share gainer in that environment, just given the strength of our portfolio and, let's call it platforms that are, you know, still yet to launch, you know, across our customer set. You know, we're continuing to play out the strategy of, you know, a data center being a place where our technology is very differentiated.
You know, we think that's true in the third generation with EPYC, and we certainly are very focused on ensuring that you know, the next generation with Zen 4 and Genoa are similarly well positioned in the marketplace.
Thanks a lot.
Thank you.
Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further closing comments.
No, we're good. Thank you very much, operator. Thank you to everyone for joining us today. We appreciate your time and participation and your support of AMD. Have a good afternoon.
Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.