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AMD CEO on chip shortage: 'It will get better in second half of 2022'

AMD CEO Dr. Lisa SU joins Yahoo Finance Live to discuss AMD's acquisition of Xilinx and how it will benefit their customers in the strong demand for PCs, as well as the supply challenges in the chip market.

Video Transcript

BRIAN SOZZI: A milestone day for AMD. The company has closed on its $35 billion deal for Xilinx. The acquisition is seen boosting AMD's efforts in computer processors used in data centers and wireless networks. Joining us now is AMD CEO Dr. Lisa Su. Lisa, always nice to see you. Congrats on closing this deal. It's been a long time coming. You originally announced it in October 2020 for investors not familiar with the company. What does this allow you to do?

LISA SU: Yeah, Brian, thank you so much for having us this morning. It's a very, very exciting day for us. I'm actually talking to you from the Xilinx campus. We're just about getting ready to welcome our new 5,000 wonderful employees. So look, you know, AMD has always been about high performance computing. And our vision of the world is that you need all types of computing to really serve customers and really think about what's next in the industry.

So adding Xilinx, Xilinx is an incredible company. They've done extraordinarily well as a standalone company. Actually, both companies have done extremely well. But putting our two companies together is really a complementary set of markets, customers, and products. And so we're extremely excited about doing it. And as you said, it's been about 16 months, but we've been planning, and we're absolutely ready to have a fast start on day one.

BRIAN SOZZI: Lisa, what's going to be your message to those 5,000 Xilinx employees?

LISA SU: Well, I think our message is, you know, again, two wonderful teams, two of the best teams in the industry coming together. 1 plus 1 is going to be much greater than 3. And it really is across-- we're all about products, as you know, Brian. So building great products, ensuring that we continue to deepen our customer relationships across the board, and really building-- continue to build upon the great growth franchise that we have already built with AMD and Xilinx separately.

BRIAN SOZZI: And to your point, you've had a lot of time, a lot of opportunity to plan out this integration. So now that the day is here, what are your first three top priorities here?

LISA SU: Well, there's a lot of excitement across our customer set, as well as across the industry. And when we think about the benefits of bringing the two companies together, you know, again, for customers, it's about a much broader product portfolio, right? We now have CPUs, GPUs, FPGAs, adaptive SOCs, basic capability that can go across the most important markets in the world.

So the data center market, the strategic assets that we have for the data center market, the communications market where Xilinx is extremely strong and AMD has assets that can work in those areas, industrial, automotive, all of these markets need this collection of capabilities that we have. And we're going to be able to offer that entire portfolio to our customers, as well as build some really amazing and innovative products.

BRIAN SOZZI: When you have been able to talk to customers over the past six months and just going through this integration process-- or not the integration process, just the planning process, what are you hearing from your customers? And do you sense a big pickup in business after-- now that you've closed this deal?

LISA SU: You know, we do sense, Brian, a lot of excitement for what we can do as a combined company. And when you think about some of our largest customers, the cloud customers, you know, what they're looking at is really what do you need for the next five plus years? We've had tremendous success across these large customers with our CPU portfolio and our GPU portfolio.

I think adding Xilinx adds some strategic assets, things like networking technology, which is very important for the data center business, adaptive SOCs, AI. We're really excited about enhancing our AI capabilities as a joint company. Those are some of the things that we talked to customers about. And I think, really, the sky's the limit in what we can do together when you have such a talented team. I mean, we'll have over 15,000 of the best engineers in the semiconductor industry. So it's just an incredible team that we're bringing together.

BRIAN SOZZI: I think it was-- maybe it was 24 months ago, Lisa, where you outlined-- maybe it was-- perhaps it was an investor day-- outlined 20% compound annual growth rate for AMD. Now that was before Xilinx. How fast is your company growing now that the deal's done?

LISA SU: Well, we're looking forward to updating our financial model, you know, Brian, in the coming months. But what I'll tell you is this acquisition is accretive in the first year for gross margins, for earnings per share, for free cash flow. So it's a very good deal overall.

And when we look at growth rates, what we said at the time of acquisition is that we felt we could grow significantly ahead of the industry, you know, 20% plus CAGR for the next few years. And we still believe that that's the case. And we are going to update our financial model shortly. But overall, you know, both from a financial standpoint, a technology standpoint, and a customer standpoint, we think there are a lot of positives for us as we come together.

BRIAN SOZZI: What is the state of the market right now? And you're playing so many different industries. Let's start on the PC market. The PC market had a tremendous period last year during the pandemic. What is your outlook for it this year?

LISA SU: Well, I think the PC market, as you said, had a tremendous year. I mean, last year, in 2021, as an industry, we shipped approximately 350 million units, which was amazing. We still see very strong demand coming in here in 2022, especially when you look at commercial and high end consumer. We do expect that some of the lower end or education type products may be a little bit softer, just given the strength in 2021. But overall, we see it as a strong year for PCs. And within that, we believe that AMD will perform very, very well, just given the strength of our product portfolio.

BRIAN SOZZI: In the gaming console, you guys are a key player in all things gaming, of course, looking right at that Sony PS5. When does that console cycle peak?

LISA SU: Well, when you look-- again, if you look at the overall industry for consoles, first of all, this console cycle has been an amazing console cycle, very high demand, extremely strong products. What we see is that typically, when you look at a console cycle, you would see the peak being sort of the year 4, or which would be next year. We expect consoles to grow this year. We expect to continue to increase supply because there's very strong demand out there in the market.

And, you know, the overall environment for our products continues to be very favorable. So whether you're talking about AMD's core markets of PCs, gaming, or data center or Xilinx's core markets, I think both companies have grown extremely well. And we look forward to 2020 to being a very strong growth year for us.

BRIAN SOZZI: And of course, Lisa, a lot of these gaming companies are playing right in the middle of the Metaverse, whatever that might mean to certain people. Or is the Metaverse something that you are excited about? And how is AMD playing in it?

LISA SU: Yeah, you know, I think, Brian, the Metaverse is an opportunity. And you know, when I think about opportunities, I think about which markets need high performance computing and adaptive computing. And the Metaverse is one of those. I see it as sort of an extension of much of what we've been doing in the gaming world and really trying to bring more real-time capability. Again, you need CPUs, you need GPUs, you need adaptive SOCs in that market. We have a phenomenal IP portfolio, and we're working with some of the best customers or some of the most influential customers in the industry. So yes, I see it as a growth opportunity for us.

BRIAN SOZZI: Well, speaking of growth, too, since the last time we spoke, there has been a lot of inflation. Everywhere you look, inflation, inflation, inflation. How concerned are you about just inflation in the global economy right now?

LISA SU: Yeah, I mean, Brian, I think we all watched those macroeconomic signals. And we want to ensure that we understand and are very agile in what comes out. I will say in the semiconductor industry, though, what we're seeing is just very strong demand. And I mean, you've seen that across semiconductor peers. I think what we're seeing is more than just market demand, but we're also seeing sort of a strong preference for AMD products. And so we appreciate that.

Much of what we've been doing over the last year and into the first half of this year is ensuring that we're ramping up supply so that we can continue to service all of that customer demand. And so that's part of the growth that we see. And there are some investments that are necessary so that we can support that. So we're very focused on ensuring that we're watching all of the global signals. But from what we see, it's a strong year for the semiconductor industry and a very, very strong year for the combination of AMD and Xilinx.

BRIAN SOZZI: And the chip shortage, Lisa, is that likely to end at some point this year? Give us a target.

LISA SU: Well, I've always said, Brian, that there's tremendous investment that's happening across the semiconductor industry, whether you're talking about on the wafer side or on some of the substrates or the backend assets. So we are making progress. I do believe that the first half of this year will continue to be quite tight.

But the second half of this year, I think things will get a little bit better. I think we're very focused on ensuring that we work with our customers, so we're now planning multi-quarter, multi-year with our customers, which just makes for a much more efficient supply chain. And frankly, one of the benefits of being a larger company for the combined AMD plus Xilinx is we also hope to use that scale to ensure that we get more than our fair share of capacity and support in the industry.

BRIAN SOZZI: Lisa, I remember when you were first appointed CEO of AMD several years ago. Now it feels like yesterday, but it's not. What is it like to pull the trigger on a deal that is the largest in this company's history? Have you had any time to reflect on it?

LISA SU: Well, I will say, Brian, it's a phenomenal feeling to be able to bring together such amazing teams. And as the largest deal in AMD's history, it's actually the largest deal in semiconductor-- in the semiconductor industry. I think there are lots of expectations. We hope to meet and exceed those expectations.

But I will say that, you know, we have had a chance to spend a lot of time together. I've had a chance to spend a lot of time with Victor Peng. The CEO of Xilinx will now become president of our adaptive and embedded computing group. There's a phenomenal team that is coming over with the acquisition. The teams have great chemistry and culture. And together, we're focused on innovations and product strength and serving our customers and making sure that we make the industry a better place. So yeah, it feels wonderful.

BRIAN SOZZI: All right, well, good luck in front of your presentation or your presentation to those 5,000 Xilinx employees. I know the road was long to get this deal closed. AMD CEO, Dr. Lisa Su, good to see you. We'll talk to you soon.

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