Advanced Micro Devices (AMD) Q4 2019 Earnings Call Transcript

Advanced Micro Devices (AMD -5.78%)
Q4 2019 Earnings Call
Jan 28, 2020, 5:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the AMD fourth-quarter and fiscal-year 2019 conference call. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Laura Graves, corporate vice president, investor relations for AMD. Please go ahead, Laura.

Laura Graves -- Corporate Vice President, Investor Relations

Thank you, and welcome to AMD's fourth-quarter and year-end 2019 financial results conference call. By now, you should have had the opportunity to review a copy of our earnings release and slides. If you have not reviewed these documents, they can be found on the investor relations page of AMD's website, amd.com. Participants on today's conference call are Dr.

Lisa Su, our president and chief executive officer. And Devinder Kumar, our senior vice president, chief financial officer, and treasurer. This is a live call and will be replayed via webcast on our website. I would like to highlight some important dates for you.

On the afternoon of Thursday, March 5th, we will hold our financial analyst day at our headquarters in Santa Clara, California. And our first-quarter 2020 quiet time is expected to begin at the close of business on Friday, March 13th. 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 expectations.

We will refer primarily to non-GAAP financial measures during this call except for revenue and segment operational results which are on a GAAP basis. The non-GAAP financial measures referenced herein are reconciled to their most directly comparable GAAP financial measure in today's press release posted on our website. Please refer to the cautionary statement in our press release for more information on risks related to any forward-looking statements that we may make. You will also find detailed discussions about our risk factors in our filings with the SEC, and in particular, AMD's quarterly report on Form 10-Q for the quarter ended September 28, 2019.

With that, I will hand the call over to Lisa. Lisa?

Lisa Su -- President and Chief Executive Officer

Thank you, Laura. And good afternoon to all those listening in today. 2019 marked another major milestone in our multiyear journey. We delivered record annual revenue of 6.73 billion and significantly increased both gross margin and net income as we successfully introduced and ramped the strongest product portfolio in our 50-year history.

We grew clients and server processor annual revenue by $1.5 billion in 2019, driven largely by the strong demand for our seven-nanometer Ryzen and EPYC processors, powered by our Zen 2 processor core. Looking at the fourth quarter, we ended the year very strong, with quarterly revenue increasing 50% year over year to a record 2.13 billion, while also significantly increasing net income. Turning to our computing and graphics segment, fourth-quarter revenue increased 69% year over year to 1.66 billion. Ryzen processor adoption accelerated sharply in 2019, helping to drive significant double-digit percentage increases in client processor annual unit shipments, ASPs and revenue.

We ended 2019 with our highest quarterly client processor unit shipments in more than six years, based on strong demand for Ryzen desktop and mobile processors. In desktop, we had a very strong holiday season, as our second and third-generation Ryzen processors consistently held top sales spots at the largest global e-tailers and retailers. We launched our Horizon 3950X processor, and the 24 and 32-core versions of our third-generation Ryzen Threadripper processors in November. Our 16-core Ryzen 3950X processor is the world's fastest mainstream desktop processor, while our latest Threadripper CPUs offer unmatched performance for the high-end desktop market.

In January, we expanded our leadership position in the ATDT market with the launch of our flagship 64-core rising Threadripper processor, which is the world's highest performance desktop processor. In mobile, we had our eighth straight quarter of strong double-digit percentage year-over-year revenue growth as we expanded the number of AMD-powered laptops available for major OEMs. We began shipping our Ryzen 4000 mobile processors, powered by our Zen 2 core at the end of the fourth quarter. These new processors double the performance per watt of our prior generation and deliver leadership single-threaded, multi-threaded, and graphics performance for thin and light notebooks.

While enabling the industry's first ultra-thin laptops with eight cores. Initial systems featuring the Ryzen 4000 processors are expected to launch later this quarter, and more than 100 AMD-based consumer and commercial laptops are planned for 2020 from Acer, ASUS, Dell, HP, Lenovo, and other major OEMs. In graphics, fourth-quarter unit shipments grew by a strong double-digit percentage year over year, driven by sales of our Radeon RX 5000 series GPUs, featuring our new RDNA architecture. We further expanded our portfolio of RDNA GPUs with the introductions of the 5500XT and 5600XT desktop graphics cards.

Highlighted by strong third-party reviews that clearly established 5600XT as the most powerful gaming GPU available for under $300. We launched our Radeon 5000M mobile GPUs in the quarter as well, and we are seeing solid design win momentum based on their strong performance and power efficiency. The first laptops powered by the new GPUs are available now, including the recently updated Apple Macbook Pro, and we expect many more notebooks featuring our Radeon 5000M GPUs to launch throughout 2020. Data center GPU revenue increased sequentially, driven by cloud, VDI, and game-streaming deployments.

We announced a major update to our open source GPU computing software stack in the fourth quarter, featuring performance optimizations, expanded development tools, and support for the most popular machine learning frameworks. We continue making strategic software investments to make it easier for developers to tap into the full capabilities of our Radeon instinct accelerators for HPC and AI applications. For the year, data center GPU revenue grew by a strong double-digit percentage, as we continue to make progress growing our presence in this important part of the market. Turning to our enterprise, embedded, and semi-custom segment, revenue of 465 million increased 7% year over year, as EPYC processor revenue growth offset declines in semi-custom revenue.

Semi-custom sales continued to soften in the quarter in advance of the next-generation console launches from Sony and Microsoft planned this year. For 2020, we expect first-quarter semi-custom revenue to be negligible, and the ramp of next-generation semi-custom products to start in the second quarter, with revenue to be heavily weighted toward the second half of the year. In server, revenue grew by a strong double-digit percentage as unit shipments and ASPs increased sequentially, driven by demand for our second-gen EPYC processors. Our second-gen EPYC processors are ramping significantly faster than the first generation, as we see particular strengths for our higher core count models where our performance and TCO advantages are the most significant.

Cloud adoption with the largest providers continues to accelerate, driven by the expanding use of EPYC processors to power their critical internal workloads, as well as a significant increase in the number of AMD-powered instances publicly available. Shipments to cloud providers increased sequentially by a significant double-digit percentage to support expanding build-outs at Amazon, Google, Microsoft, Oracle and Tencent. Microsoft announced the availability of four new virtual machines, and AWS announced two new EC2 instances powered by second-gen EPYC processors. In the enterprise, Dell began shipping their full portfolio of servers powered by our latest epic processors.

We have doubled the number of EPYC processor platforms in market to more than 100 offerings in the quarter. These new platforms are driving increased enterprise customer engagements, broadening our sales pipeline considerably. In HPC, we secured multiple large wins in the quarter based on our unmatched performance and scalability, highlighted by French, German and U.K. national supercomputing center deployments, as well as the San Diego supercomputing center.

We are pleased with the significant traction and momentum in our server business and remain on track to achieve our goal of double-digit percentage unit share by midyear based on the growing demand for our second-gen EPYC processors. I am very proud of our 2019 accomplishments, as the successful ramps of our latest Ryzen, Radeon, and EPYC processors resulted in record annual revenue and substantial increases in gross margin and net income. I want to take a moment to recognize the more than 11,000 AMD-ers around the world, whose focus and determination enabled us to achieve these results. We entered 2020 well-positioned to continue gaining share across the PC, gaming and server markets, based on having an unmatched portfolio of leadership products, spanning from desktops to laptops, data centers and game consoles.

With more than 27 nanometer designs in production or development, we are very excited about our next wave of products that can accelerate our growth in 2020 and beyond. We are still in the early stages of our journey and remain focused on meeting our commitments as we establish AMD as the high-performance computing and graphics leader. Now, I'd like to turn the call over to Devinder, to provide some additional color on our fourth-quarter and full-year financial performance.

Devinder Kumar -- Senior Vice President, Chief Financial Officer, and Treasurer

Thank you, Lisa, and good afternoon, everyone. 2019 was an outstanding year for AMD. Our competitive product portfolio and market share gains drove the highest annual and highest quarterly revenue in AMD's history. We achieved our highest annual gross margin percentage and annual free cash flow since 2011.

And we improved non-GAAP earnings per share by 39% year over year. In short, we are very pleased with our financial performance. Fourth-quarter revenue was 2.13 billion, up 50% from a year ago and up 18% from the prior quarter, driven by strong sales of Ryzen and EPYC processors and Radeon GPUs, partially offset by softer semi-custom sales. Gross margin was 45%, up 360 basis points from a year ago, driven primarily by sales of our leadership seven-nanometer products.

Operating expenses were 545 million, with increased investments in go to market activities and R&D, compared to 474 million a year ago. Operating income was 405 million, up 296 million from a year ago, driven by revenue growth and higher gross margin. Operating margin was 19% as compared to 8% a year ago. Net income was 383 million, up 296 million from a year ago, and diluted earnings per share was $0.32 per share compared to $0.08 per share a year ago.

Now, turning to the business segment results. Computing and graphics segment revenue was 1.66 billion, up 69% year over year, driven by Ryzen processor and Radeon gaming GPU sales growth. Computing and graphics segment operating income was 360 million, or 22% of revenue, compared to 115 million a year ago, driven by higher revenue. Enterprise, embedded, and semi-custom segment revenue was 465 million, up 7% from 433 million in the prior year.

The continued growth of EPYC process sales was partially offset by softer semi-custom revenue. EPYC processor revenue grew by a strong double-digit percentage sequentially, driven by robust shipments of our second-generation EPYC processors. EESC segment operating income was 45 million or 10% of revenue, driven by EPYC processor sales, compared to an operating loss of 6 million a year ago. During the quarter, we reduced gross debt by 524 million, which resulted in a GAAP loss of 128 million.

These debt reductions result in an annualized interest expense saving of approximately 16 million. Free cash flow was positive 400 million in the fourth quarter, and cash flow from operations was 442 million. Inventory was 1 billion, down 6% from the prior quarter. Fourth-quarter adjusted EBITDA was 469 million, compared to 152 million a year ago, driven by higher quarterly earnings.

Now, let me cover the full-year results. 2019 revenue was 6.73 billion, up 4% year on year, driven by strong growth in computing and graphics segment and sales of second-generation EPYC process, partially offset by a decline in semi-custom sales. Excluding semi-custom, revenue was up more than 20% year over year. Gross margin of 43% was up 420 basis points from the prior year, driven by our current generation of Ryzen and EPYC products.

Operating expenses were 31% of revenue as we increase go to market activities and investments in R&D. 2019 operating income was up 33% from a year ago, to 840 million or 12% of revenue. Net income was 756 million, up 46 -- 47% from the prior year. Turning to the balance sheet.

I am extremely pleased with our progress on the strengthening balance sheet. Cash, cash equivalents and marketable securities totaled 1.5 billion at year end, while gross debt was 563 million. This represents our highest net cash position since the third quarter of 2006. Full-year free cash flow was 276 million.

We reduced principal debt by almost 1 billion in 2019, and ended the year with less than $600 million of gross debt. On a trailing 12-month basis, adjusted EBITDA was 1.1 billion, resulting in gross leverage of 0.5 times down from 1.9 times at the end of 2018. Now, turning to the outlook for the first quarter of 2020. We expect revenue to be approximately 1.8 billion, plus or minus 50 million, an increase of approximately 42% year over year, and a decrease of approximately 15% sequentially.

The year-over-year increase is expected to be driven by strong growth in Ryzen, EPYC, and Radeon product sales. The sequential decrease is driven primarily by negligible semi-custom revenue, which continues to soften in advance of the ramp of next-generation products in addition to seasonality. In addition, for Q1 2020, we expect non-GAAP gross margin to be approximately 46%, non-GAAP operating expenses to be approximately 580 million, non-GAAP interest expense, taxes and other to be approximately 18 million, and the first-quarter diluted share count is expected to be approximately 1.22 billion shares. For the full-year 2020, we expect revenue growth of approximately 28 to 30%, driven by strength across all businesses.

We expect non-GAAP gross margin to be approximately 45%, non-GAAP operating expenses to be approximately 28% of revenue, and a non-GAAP tax rate of approximately 3% of pre-tax income. In closing, we had an excellent fourth quarter and an excellent 2019. Our full-year financial results highlight the strength of our business model. I look forward to what we have installed for 2020 as we expect to further expand and ramp our leadership portfolio of high-performance products to drive revenue growth, gross margin expansion, market share gains, and financial momentum.

With that, I'll turn it back to Laura for the question and answer session. Laura?

Laura Graves -- Corporate Vice President, Investor Relations

Thank you very much, Devinder. Operator, we're ready to begin polling for questions.

Questions & Answers:

Operator

Certainly. [Operator instructions] One moment, please, while we poll for questions. Our first question today is coming from Vivek Arya from Bank of America Securities. Your line is now live.

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Thanks for taking my question, and congratulations on the strong growth and execution. Lisa, for my first one, you mentioned the goal to get to kind of this double-digit market share in servers by the middle of the year. I'm just wondering how the visibility is around in achieving this target? What's driving it? Is it just more instances at existing cloud customers? And as part of that, do you also have a share target for exiting this year?

Lisa Su -- President and Chief Executive Officer

Yeah, Vivek, thank you for the questions. So, look, we are very pleased with how Rome is ramping. We've been in market now four to five months, and the visibility that we have is, with the cloud guys, we have visibility to the public-facing instances, as well as what they're doing in terms of internal workloads. And what we see is just the breadth of the overall workloads that they're using Rome with is expanding.

And then, on the enterprise side, you know, with the full portfolio of our partners, HPE, Dell, Lenovo, and the ODM partners, you know, we see just a significant increase in the overall enterprise pipeline that we have for Rome. So, we're very focused on continuing to grow share in the data center market, and we feel good about our mid-year market share targets. In terms of our market share targets, Vivek, I think we'll talk a little bit more at our financial analyst day about some of the longer-term targets. But certainly, for 2020, we're very focused on growing our overall data center share.

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Thanks. And for my follow-up, Lisa, how should we interpret the impact of capacity shortages at your main competitor? Have you seen any benefit from that? If not, why not? And then, kind of Part B is, Intel did say that they plan to expand capacity later this year, and they'll focus it more on the PC client side and try to reclaim market share. What effect will that have on the pricing in the market? And does your full-year outlook kind of bake any potential impact of that competition?

Lisa Su -- President and Chief Executive Officer

Yeah. So, when we look at the PC market, we finished 2019 very strong in the overall PC market, both mobile and desktop. I think that's primarily on the strength of the product portfolio and the expanding customer platforms that we have. There are some discussions about, let's call it, pockets of shortages.

But, you know, as I said before, I don't believe -- we've been on this steady increase in market share now for the last eight quarters, and we believe we've gained share in Q4 as well, so, I think what we see is just the portfolio getting a lot stronger. As we go into 2020, I think we are again enthusiastic about our products. In addition to the Zen 2-based desktop products, we've added Zen 2 now in the notebook portfolio, and we'll have that for the full year of 2020. So, I think our outlook expect growth in all businesses, including the PC business.

And we remain very focused on expanding our market presence in both consumers, as well as commercial PCs.

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Thank you, Miss.

Lisa Su -- President and Chief Executive Officer

Thanks.

Operator

Thank you. Our next question is coming from Toshiya Hari from Goldman Sachs. Your line is now live.

Toshiya Hari -- Goldman Sachs -- Analyst

Hi. Congrats on the strong results, and thanks for taking the question. Lisa, this may overlap a little bit with the next question, but I was hoping to better understand some of the key assumptions behind your full-year guidance. For both your PC business, as well as the server business, can you talk to some of the TAM assumptions that you're making in the market share assumptions for the full year? And then I've got a quick follow-up.

Thank you.

Lisa Su -- President and Chief Executive Officer

Sure. Sure. So, let me talk first about the market, and then talk a little bit about how we're seeing the full year. So, if you look at the PC market, I think, the, you know, discussion so far has been, let's call it, 2020, flat to maybe down slightly.

There have been some concerns raised about the second half of '20 perhaps be a weaker than normal seasonality just due to some of the enterprise refresh cycles that are strong in the first half. We're viewing it as flat, flattish, maybe down very slightly. That being the case, back to the comment I made with Vivek, I think we feel very good about our product portfolio, and especially when we look at sort of our notebook share and our relative opportunity to gain market share. The strength of our Ryzen 4000 series products is significantly stronger than previous generations, and the platforms are also significantly broader, so we feel good about that.

In the data center market, again, I would say that the growth of computing continues. You know, from our standpoint, we see it as a good market environment for data center in both clouds, as well as enterprise. When we look at our full-year revenue guide of approximately 28 to 30% for the year, the highest growth, you know, from a percentage standpoint will, obviously, be server, just given the expectations in that market. But we expect all of our businesses to grow nicely in 2020, and that's just, you know, again, based on where we are in the product cycle and the visibility that we have with customer design wins, as well as just overall competitiveness.

Toshiya Hari -- Goldman Sachs -- Analyst

Great. And then I had a quick follow-up on gross margins. One probably for Devinder. You guys are guiding Q1 gross margins to 46%, and then 45% for the full year.

I appreciate your semi-custom business is at a low point in Q1, and a ramp in Q2, and more so in the second half, it's probably dilutive to corporate margins. But if you can kind of walk through some of the puts and takes from a gross margin perspective for the year, that would be helpful. And then related to that, if you can compare and contrast the gross margin profile of your semi-custom business going into the next cycle versus the past cycle, product cycle, that would be helpful. Thank you.

Devinder Kumar -- Senior Vice President, Chief Financial Officer, and Treasurer

Yeah, let me start, and then Lisa can chime in. Overall, from a margin standpoint, you got it right. We are guiding to the 46% in the Q1 quarter. And then the semi-custom business, as we've said, typically, is lower than corporate average.

So, as that product ramps in the second half, obviously, will have an impact on gross margin. The guide for the year is at 45%, so we feel good about that having ended 2019 at the 43% level. And from a puts and takes standpoint, it's certainly product mix. And then Lisa talked about the business is ramping and growing in 2020 with the 28 to 30% growth in revenue.

Data center, as we've said before, is above corporate average. The client gross margin is around corporate average, and some graphics. And then the semi-custom business has below corporate average gross margins. And that mix of revenue, as it ramps throughout the year, will obviously have an impact on a quarterly basis.

From an annual standpoint, we feel pretty good with the guide at 45%, in particular, with the seven-nanometer products ramping as we get to the year. And that, obviously, benefits the gross margin. Semi-custom business, Lisa, you want to chime in on the difference between generation to generation?

Lisa Su -- President and Chief Executive Officer

Yeah. No, I think as you said, Devinder, the semi-custom margins tend to be below corporate average on a gross margin basis. Although, on an operating margin basis, given the contribution from our customers for the R&D, is actually quite good. As it relates to generation to generation, the way to think about it is, in the first year of a console ramp, you would expect the margins to be on the lower side, and that's, you know, that's true no matter what, just because you're just starting the product ramp, and you should expect that the margins will get better as that ramp continues over time.

Toshiya Hari -- Goldman Sachs -- Analyst

Thank you for the color.

Operator

Thank you. Our next question is coming from Matt Ramsay from Cowen. Your line is now live.

Matt Ramsay -- Cowen and Company -- Analyst

Thank you very much. Good afternoon. Lisa, I wanted to just start with a question about the, I guess, comparing and contrasting it a little bit, maybe a little weaker than we had -- some of us had modeled. And, I guess, due to the console stuff for Q1 in the guidance versus a really strong, so 28 to 30% growth for the year.

Maybe you could just sort of lay out the year a little bit at a high level? And just how you guys are sort of thinking about it coming together from the point of Q1? Thanks.

Lisa Su -- President and Chief Executive Officer

Sure. So with that, we're pretty excited about 2020. It's a strong year for us, certainly, with, you know, the expectations of being around 28 to 30% revenue growth. We do expect all of our businesses to grow.

I think, relative to the Q1 guide, if you look at Q1 as an absolute number, it is up over 40% year on year, even with semi-custom revenues, you know, very low in Q1. And so, that should give you an idea of the strength of the rest of the business. From a sequential basis, Q4 to Q1, it's what we said on the call. There is some bit of normal seasonality, just as we are consumer-focused in our PC portfolio.

So, you expect that that would go down from Q4 to Q1. And then we do have the factor that the semi-custom profile, when we're doing a product transition, has the revenue very low in Q1. You know, it starts ramp in Q2, but it's very heavily weighted in the second half of the year. So, you should think about semi-custom for this year, again, it's a ramp year, so it's a little bit different, that over 80% of the revenue for semi-custom will be in the second half of the year, compared to the first half of the year.

So overall, we think a very strong year. A little bit of reprofiling of revenue, particularly as it relates to semi-custom. And you know, we look forward to executing it.

Matt Ramsay -- Cowen and Company -- Analyst

No, thanks for that. As a follow-up, I guess, for both of you, but maybe for Devinder, just a couple of little pieces. For me, it looks like, on the operating expense side, you're going to be up in the neighborhood of mid-20s for the full year in the annual guidance that you outlined. Maybe you could talk a little bit about the focus of that? Is it branding and marketing in the PC and server spaces as you grow, or is it in other areas in R&D? And then, secondly, I think you guys had disclosed the data center revenue mix.

So, GPU plus server in prior quarters? And if you have that number handy, that would be really helpful. Thank you.

Devinder Kumar -- Senior Vice President, Chief Financial Officer, and Treasurer

Yeah, let me take the second one first. You know, data center, it's as, you know, we said in the past, mid-teens of revenue. And this quarter, it is around the same, mid-teens of the total revenue. And I'll point out that it is record revenue in the quarter, so that's pretty good.

And we feel pretty good about that, having mid-teens revenue in the data center, combined server, and data center GPU on revenue of $2.1 billion. As far as opex is concerned, you know, our guide for the year is about 28% of the revenue guide that we provided. And you are right, fundamentally, the investments are, you know, R&D and go to market, and obviously, the business is growing. So obviously, there's investments needed to go ahead and grow the business from an absolute standpoint, but we feel we can manage it to about 28% of our revenue overall for the year.

Lisa Su -- President and Chief Executive Officer

Matt, the only thing I'll add to that is for the data center revenue, particularly in Q4, it was very heavily weighted toward server CPU, just given some of the lumpiness of the data center GPU revenue.

Matt Ramsay -- Cowen and Company -- Analyst

Thank you both. Congrats.

Operator

Thank you. Our next question is coming from Mark Lipacis from Jefferies. Your line is now live.

Mark Lipacis -- Jefferies -- Analyst

Great. Thanks for taking my question. I had one for Devinder, and one for Lisa. For Devinder, the -- I think it's impressive that the cash that you generated 10 years ago, you were at $4 billion in net debt.

Now, you're net cash-positive. I didn't think back then we'd expect you to be here. But how should we think about capital structure going forward? And the -- and for the $400 million -- 440 million in cash flow from operations, I had a challenge reconciling it. Can you share the biggest two or three sources of cash? And then for Lisa, the last time AMD had a product cycle in servers, I think you were gaining -- once you hit 5% share, you started to gain share at two or three or 4% 400-basis-point clip per quarter.

How should, you know, what is the right kind of cadence or pace of share gains in servers this cycle? And maybe you could just talk about, structurally, what gates your ability to -- or the pace of your ability to gain share. Is it capacity from your suppliers, is it your own engineering support infrastructure, or is it your customers testing and importing workloads? If you could give us a framework to think about that, I think that would be helpful. Thank you.

Devinder Kumar -- Senior Vice President, Chief Financial Officer, and Treasurer

Yeah, let me get started, Mark. You do have a long memory, and so do I. I do remember the days when we had the challenge on the balance sheet. And one thing we feel good as we end 2019 is the strength of the balance sheet, and in particular, the net cash position.

We haven't been in many, many years, as we pointed out in the prepared remarks. You know, From a capital structure standpoint, the priority is investing in the business. The revenue is growing significantly in 2020 is what we're projecting at 28 to 30% over 2019. And also, we want to invest in the roadmap, the go to market and everything that's needed when the revenue ramps as significantly as it is going from year over year, so that's really the allocation priorities.

From a viewpoint of where the 440 million comes from, you know, higher revenue, especially when you look at the revenue in Q3 and Q4 of 2019 compared to the first half of the year. We did go ahead and buy the inventory to go ahead and support the higher revenue. And as you know, when you sell that revenue, in particular, when it ramps up, you know, as it did on better margins, it generates the cash, and that's why you have the 440 million-plus operating cash flow from an overall standpoint. Lisa, would you?

Lisa Su -- President and Chief Executive Officer

Yeah. So, Mark, as it relates to, you know, just server rate and pace. I think the most important thing for us is when we look at, you know, from time of announcement or time of shipment to, you know, how customers actually deploy and trying to shorten that cycle. So, when I look at the difference between, let's call it, Rome and Naples, we've seen that time to deploy actually significantly shortened with Rome.

And so, in terms of rate and pace of server share gain, it is primarily for cloud customers. It is having them deployed, not just, you know, sort of a set of instances, but ensuring that they get fully built out across all regions in the world, and also adding additional workloads. So, it's just, you know, time, is what I would say. And then, as it relates to enterprise customers, I think the platform coverage that we have with Rome is significantly broader than it was with Naples.

And so, I'm quite encouraged actually by the strength of the pipeline that we see, the number of customers that are engaged, and then just, you know, how they're deploying. So, I think we're going at a good pace, and we'll continue to accelerate that as we go through, you know, 2020.

Mark Lipacis -- Jefferies -- Analyst

Thank you.

Operator

Thank you. Our next question is coming from Stacy Rasgon from Bernstein Research. Your line is now live.

Stacy Rasgon -- Bernstein Research -- Analyst

Hi, guys. Thanks for taking my question. I had, first, a question on gross margin, especially in Q1. You said consoles are negligible.

Gross margins are 46%, so that suggests that that 46% is basically indicative of the business as it stands without consoles. So, does that represent kind of the peak of the business on the current mix? I'm a little surprised it's not higher, given all the new products in aggregate, we're supposed to have gross margins in excess of 50%, and most of the mix today should be new products? So, I guess, how do we think about the Q1 gross margins in the context of that? And what are the drivers that take it higher from here? Is it basically just server mix, or is there something else that can help with that? Thank you.

Devinder Kumar -- Senior Vice President, Chief Financial Officer, and Treasurer

Let me get started, and Lisa can add. But, you know, Stacy, as we talked about product transitions, the 46% guide in Q1, we recently introduced the next-generation notebook products. And as product transitions go, you still have legacy product that you sell before you get, you know, converted over to the new technology and the new generation products. The desktop products were ahead of that from that standpoint, and that did benefit our margin in the 2019-timeframe.

And you are right, the console being negligible revenue in Q1 of 2020, it does benefit, and then the margin is 46%. And from an overall standpoint for the year, it is 45%, and that's because the semi-custom business, which is lower than corporate average, does come back. And as Lisa said earlier, we're expecting 80% of that in the back-half of the year. But by that time, also, the new-generation products and the other businesses, including data center and client reramping all on seven nanometer, and that should help the gross margin to offset some of the impact that we have on the semi-custom business.

Stacy Rasgon -- Bernstein Research -- Analyst

Thank you. Oh, go ahead.

Lisa Su -- President and Chief Executive Officer

No, that's OK, Stacy. I was just going to add to what Devinder said. So, we don't expect the client notebook mix to fully cut over to the new seven-nanometer products until later in the year. And in terms of, you know, opportunities to improve margins, it is definitely product mix.

So higher mix of server, as well as higher mix of, let's call it, Ryzen 7s and Ryzen 5s versus some of the legacy products.

Stacy Rasgon -- Bernstein Research -- Analyst

Got it. Thank you. For my follow-up, if I sort of squint at the second half, it seems to me you're probably guiding it implicitly, call it, 800 million to $1 billion over the second half of 2019. How much of that do you think is consoles versus non-consoles, because it's not hard to get a console number, especially in the beginning of a ramp that's not that far off that number, which doesn't leave all that much room to ramp the rest of the business.

So, is this just conservatism, or what else are you expecting here? How much of that second half do you think is consoles versus non-consoles?

Lisa Su -- President and Chief Executive Officer

Well, I think, as I perhaps answered to one of the earlier questions, when I look at the full year at 28 to 30%, you know, sort of revenue growth, expect server to be significantly above that, and then, the rest of the businesses are all going to grow nicely. And so, you would expect significant double-digit growth in the client business, as well as, you know, in the semi-custom business, and overall, we see the aggregate of it to be a very strong year. So, it is not all console-weighted, if that's what you're asking.

Stacy Rasgon -- Bernstein Research -- Analyst

OK. Wouldn't you get that just from the nature of the ramp that we saw in 2019, we'll be doing the compare already? I guess that's why I'm trying to sort of normalize second half to second half? I think we get strong double digits in second half versus second half growth across all the businesses?

Lisa Su -- President and Chief Executive Officer

I would say, in aggregate, you will see. So let me help you this way. So, what we said in 2019 is, 2019, overall, we grew 4%. On an annual basis, but, excluding semi-custom, we grew over 20% through all the rest of the businesses.

If I do that same type of calculation, excluding semi-custom for 2020, we would still say the rest of the businesses would grow greater than 20%.

Stacy Rasgon -- Bernstein Research -- Analyst

OK. Thank you very much.

Operator

Thank you. Our next question is coming from David Wong from Instinet. Your line is now live.

David Wong -- Nomura Instinet -- Analyst

Thanks very much. Devinder, you said the sequential decrease in the March 2020 quarter is driven primarily by the drop-in game console chips. Does that mean that you expect your microprocessor and graphics revenues will be flattish sequentially? Or if not, roughly, what does your guidance assume in terms of percentage sequential drop for, say, PC processors and GPUs? Do you get server processors sales rising sequentially?

Devinder Kumar -- Senior Vice President, Chief Financial Officer, and Treasurer

No, I don't think I said specifically that Q4 to Q1 is all due to semi-custom. That obviously helped the margin, but there is a product mix underneath that helps, especially with the notebook products, that we talked about, that are moving to seven nanometers. And then, I think your second question's about sequential from Q1 outwards, is that right, David?

David Wong -- Nomura Instinet -- Analyst

No, no. I was talking about revenues from December into Q1, the sequential drop. Can you give us some idea of -- I mean, there's a big chunk that's game consoles, right? But what about the non-gam console part of it?

Devinder Kumar -- Senior Vice President, Chief Financial Officer, and Treasurer

It is seasonality. Seasonality in the business. We have the consumer weight from a revenue standpoint in our CG segment. And we go from Q4 to Q1, you do have the seasonality coming into play, and typical seasonality is what driving the other portion of the decline in revenue from Q4 to Q1.

Lisa Su -- President and Chief Executive Officer

Yeah, David. I think what you're asking is, you know, we would expect that the computing and graphics segment would be down sequentially due to seasonality, and we would expect that server CPUs should be up, because, you know, we're continuing to ramp those processors sequentially.

David Wong -- Nomura Instinet -- Analyst

OK, great. And can you give us some idea of what new GPUs you're expecting to launch through the rest of 2020 for PCs and for data center?

Lisa Su -- President and Chief Executive Officer

Yeah. So in 2019, we launched our new architecture in GPUs. It's the RDNA architecture, and that was the navy-based products. You should expect that those will be refreshed in 2020, and we'll have a next-generation RDNA architecture that will be part of our 2020 line up.

So, we're, you know, pretty excited about that, and we'll talk more about that at our financial analyst day. And on the data center GPU side, you should also expect that we'll have some new products in the second half of this year.

David Wong -- Nomura Instinet -- Analyst

Great. Thanks so much.

Operator

Thank you. Next question is coming from Joe Moore from Morgan Stanley. Your line is now live.

Joe Moore -- Morgan Stanley -- Analyst

Great. Thank you. Devinder, you had talked about consumer graphics as being below corporate gross margin. I guess, I was thinking that -- I know you've historically had a high cost structure because of high bandwidth memory, but as the product portfolio increasingly doesn't use high bandwidth memory, is there the prospect to improve that for consumer GPU to be closer to where your competitor's gross margins are?

Devinder Kumar -- Senior Vice President, Chief Financial Officer, and Treasurer

I don't think I specifically said that. I said some of our graphics products are below corporate average from a gross margin standpoint in addition to the semi-custom being below average.

Lisa Su -- President and Chief Executive Officer

And I think, Joe, maybe just to answer your question in terms of what we expect in consumer graphics. I think -- look, we're investing in consumer graphics. We think gaming is a very important segment, whether we're talking about consoles or discrete graphics. And the work that we're doing around the RDNA architecture and the future generations of our DNA architecture, we believe, will continue to improve our offerings for both consumer graphics, as well as data center graphics.

Joe Moore -- Morgan Stanley -- Analyst

OK, great. Thank you. And then with the new console builds, you mentioned that that starts in Q2, but it's mostly in the back half of the year. I guess, as you think about that opportunity from a unit standpoint, is it the right way to look at it, you know, sort of a similar number of units to what we had in the first year of the current console cycle? Or is there, you know, does the compatibility that you bring when you have an 886 CPU still, and there's probably a little bit more similarity between the consoles, could that point us to a sort of a better console unit market in 2020 than we saw six years ago? Like, how are you thinking about it, just the size of opportunity?

Lisa Su -- President and Chief Executive Officer

Yeah. So, we do think there's some pent-up demand for the next-generation of consoles, you know, without forecasting what our customers are planning, I would say they're both-- we're planning for a strong first year, and we'll have to see how things develop as we go through the ramp. But the overall sentiment is that, you know, there has been, let's call it, a lull in console sales in the second half of 2019 going into in 2020, sort of, you know, for some of this anticipation of the next generation.

Joe Moore -- Morgan Stanley -- Analyst

Great. Thank you.

Operator

Thank you. Our next question today is coming from Blayne Curtis from Barclays. Your line is now live.

Blayne Curtis -- Barclays -- Analyst

Thanks for taking my question. Maybe just following up on Joe. I just want to make sure I heard you right. I thought you said the semi-custom as well, we grow double digit, I just want to confirm that? And then just following on, I don't know if the units are going to be, but is there a content or ASP story to layer on top of that equation as well?

Lisa Su -- President and Chief Executive Officer

Yeah. So I did say that semi-custom should grow double-digit as well. And again, it's a strong year for us. And then as it relates to content, again, it's fair to say that there is additional content in this generation versus previous generation.

Blayne Curtis -- Barclays -- Analyst

Gotcha.. And then maybe just on the gross margin equation. Is there a way to talk about the mix of seven nanometer, that's a big tailwind still seems early days, at least across a couple of your products. Is there a way to kind of think about the whole company and what the mix of seven is?

Lisa Su -- President and Chief Executive Officer

Yeah. So, we just completed the fourth quarter, and it was a very strong quarter for us, record revenue for the company. And I would say about half of that revenue was seven nanometer-based, and the other half, not yet. And so, there is still a significant ramp as we go into 2020, but we're pleased with how quickly we ramped, you know, in 2019.

Blayne Curtis -- Barclays -- Analyst

Thank you.

Operator

Thank you. Our next question is coming from John Pitzer from Credit Suisse.

John Pitzer -- Credit Suisse -- Analyst

Yeah. Good afternoon, guys. Congratulations on the solid results. I just want to go back to the gross margin bridge from Q1 to the full year.

I just want to make sure I understand. The drop from Q1 to the full year, is that 100% being driven just by gaming coming back more aggressively in the back half of the year, or have you baked in anything for either pricing competition from the No. 1 guy out there or some share shifts? How do I think about that? Is it all about gaming?

Lisa Su -- President and Chief Executive Officer

I think if you -- maybe Devinder, you --

Devinder Kumar -- Senior Vice President, Chief Financial Officer, and Treasurer

No, go ahead.

Lisa Su -- President and Chief Executive Officer

All right. So, I think if you look at it, the predominant factor, if you're talking about, you know, Q1 guide of 46, versus full year at 45, it's just as we wrap those consoles, there's, you know, there's some impact of that. As it relates to the pricing environment and what we're expecting, you know, we're expecting a competitive pricing environment, and that's the way we built our model. So, we've always expected that the competition will be very aggressive on both the CPU, as well as the GPU side, and you know, that is, you know, part of the inherent model for the company.

John Pitzer -- Credit Suisse -- Analyst

That's helpful, Lisa. And then you guys have a ton of goodness on your immediate plate on the server side and the data center side, just with the workloads you're going after. But I'm kind of curious, you answered an earlier question saying you expect more GPUs for the data center. And I don't want you to pre-announce product, but then how should I think about your positioning for AIs and workload and acceleration? And just given some of the heavy lifting that NVIDIA had to do around CUDA, how do I think about the investment there? Is this an area that you think you have some unique IP you can bring to, or how do I think about that over the next couple of years?

Lisa Su -- President and Chief Executive Officer

Yeah. So, I think that's actually a good way of talking about the opportunity, John. I think the CPU opportunity is very immediate and in front of us as we look at the opportunities with Rome and the expanding opportunities. I think the data center, you know, GPU market continues to be an important growth sector for us, and now, I call that over the several year horizon.

So, when you look at the opportunities that we have, when we combine our CPU and GPU IP together, they're very, very strong. I mean, for example, this is the reason that we won the Oak Ridge National Lab Supercomputer with Frontier, which are actually both the CPU and GPU win, and some of the optimization that we've done with that overall system. We think that there are additional opportunities like that, as well as machine learning and AI opportunities. Our focus there has been to work with large cloud providers, to optimize the machine learning frameworks.

And we had some key milestones that we completed in the fourth quarter that will continue to be a focus for us in 2020 and beyond.

John Pitzer -- Credit Suisse -- Analyst

Is it fair to say some of the GPU data center announcements this year go beyond just the cloud gaming market?

Lisa Su -- President and Chief Executive Officer

Yeah. I think you should expect that we will have, you know, additional, you know, sort of customer announcements outside of cloud gaming.

John Pitzer -- Credit Suisse -- Analyst

Thanks, guys.

Operator

Thank you. Our next question is coming from Timothy Arcuri from UBS. Your line is now live.

Timothy Arcuri -- UBS -- Analyst

Thanks a lot. I guess I had another question, just [Audio gap] gross margin [Audio gap] of the year's revenue in semi-custom would be in the back half. But how does that break out between September and December? I guess, I asked that because I'm just, you know, trying to see what the gross margin will be exiting this year if you strip out semi-custom. Could it be 50% exiting the year? Thanks.

Devinder Kumar -- Senior Vice President, Chief Financial Officer, and Treasurer

I think, you know, it's hard to break it down that way. We are in the initial stages of planning for the ramp, and you're asking about Q3, Q4. We are projecting about 80% of the semi-custom revenue, growing double digits year over year in Q3 and Q4. And typically, when we have this new game launches, our peak quarter from a revenue standpoint in semi-custom will be Q3.

But Q4, when you talk about the ramp of the product, especially in the first year of the ramp, it's hard to project how much it will be and then what the impact would be exiting 2020 from a gross margin, excluding semi-custom. Maybe as we get closer to that and talking about three to six months, we can probably give you a better idea of that.

Timothy Arcuri -- UBS -- Analyst

I got it. OK, thank you. And then, can you just talk about what your share targets are for the year in PC, I think you're 17, 18 in notebook, and you're maybe 14 in desktop. Can you just talk about how much share you think that you can gain this year given all the moving parts with the shortages and what not?

Lisa Su -- President and Chief Executive Officer

Yeah. So, I'm not sure I'm going to forecast a share target for 2020. I will say, though, if you take a look back at the last eight quarters, we've been on a fairly steady share gain in PCs, somewhere between, you know, depending on the quarter, let's call it, 50 to 100 basis points per quarter, and that changes between desktop and notebook. I think we grew somewhere on the order of four points a share.

So, we believe that we still have additional opportunities, and particularly, our focus is going to be both notebook, as well as commercial. And those are good opportunities for us and play well to our new Ryzen, you know, 4000 mobile processors.

Timothy Arcuri -- UBS -- Analyst

OK, Lisa. Thank you so much.

Lisa Su -- President and Chief Executive Officer

Thanks, Tim.

Operator

Thank you. Our next question is coming from Mitch Steves from RBC Capital Markets. Your line is now live.

Mitch Steves -- RBC Capital Markets -- Analyst

Hey, guys. Most of my questions been answered, and it kind of lines up with the model we got here, but I just want to make sure I got a couple of quick questions. And so, basically, for Q4, it looks like semi-customer is probably down 50% sequentially, or somewhere around that range. Is that -- am I leasing the ballpark? And then, secondly, from a server perspective, I'm not expecting you to give numbers on this, but maybe qualitatively, how much of your revenue is going to be cloud versus enterprise? And I think that's one of the bigger debates, and I don't expect specifics, but anything you could to help us understand what should be the mix between cloud and enterprise for calendar '20?

Lisa Su -- President and Chief Executive Officer

Yeah, sure, Mitch. So, look, I think you're right. When you look at the semi-custom business in the fourth quarter, it was a bit softer than originally anticipated. So, we had originally said last quarter that we thought the second half of the year would be down high-30s, and we were actually down, you know, more than that for the second half of the year and for Q4.

And as it relates to mix of cloud versus enterprise for 2020. You know, I mean, it will move around from quarter to quarter, but I think the best guess at this point is, let's call it, roughly even between the two.

Mitch Steves -- RBC Capital Markets -- Analyst

Perfect. Thank you.

Laura Graves -- Corporate Vice President, Investor Relations

Operator, we have time for one more question, please.

Operator

Certainly. Our final question today is coming from Srini Pajjuri from SMBC. Your line is now live.

Srini Pajjuri -- SMBC Nikko Securities America, Inc. -- Analyst

Thank you for squeezing me in. Lisa, maybe on the supply side, you know, you're guiding for a pretty strong growth here. I'm just curious, have you already logged in the supply for seven-nanometer? And as we go into second half of the year, especially as you ramp the game consoles, I believe that those die sizes tend to be very large. I'm just curious if you were to get upside, how are you feeling about your supply situation? Thank you.

Lisa Su -- President and Chief Executive Officer

Yeah. So, TSMC has supported us very well through the first couple of quarters of our seven-nanometer ramp here in 2019. I think, as we go into 2020, there will certainly be a significant growth for us in seven nanometer. You know, our current visibility supports the revenue guide that we gave you.

It is fair to say that wafer supply is tight, and so, you know, it's really, you know, important for us to be planning well with our customers, and that's what we're working on.

Srini Pajjuri -- SMBC Nikko Securities America, Inc. -- Analyst

Thank you and good luck.

Lisa Su -- President and Chief Executive Officer

Thank you. Thank you.

Operator

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Lisa Su -- President and Chief Executive Officer

Thank you very much, everyone, for joining us today. We do look forward to having you join us on Thursday, the 5th of March, for our financial analyst day, which will also be broadcast from our website. Thank you very much. Have a great day, and we'll talk with you again soon.

Operator

[Operator signoff]

Duration: 60 minutes

Call participants:

Laura Graves -- Corporate Vice President, Investor Relations

Lisa Su -- President and Chief Executive Officer

Devinder Kumar -- Senior Vice President, Chief Financial Officer, and Treasurer

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Toshiya Hari -- Goldman Sachs -- Analyst

Matt Ramsay -- Cowen and Company -- Analyst

Mark Lipacis -- Jefferies -- Analyst

Stacy Rasgon -- Bernstein Research -- Analyst

David Wong -- Nomura Instinet -- Analyst

Joe Moore -- Morgan Stanley -- Analyst

Blayne Curtis -- Barclays -- Analyst

John Pitzer -- Credit Suisse -- Analyst

Timothy Arcuri -- UBS -- Analyst

Mitch Steves -- RBC Capital Markets -- Analyst

Srini Pajjuri -- SMBC Nikko Securities America, Inc. -- Analyst

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