center server processor.

It's actually 13 chips on one package.

At the heart of all the most advanced computers,

data centers and gaming consoles there are two

kinds of processors.

You know, we're in a world today where chips are

everywhere. They're powering everything.

And only one company in the world designs them

both at scale: Advanced Micro Devices or AMD.

It's known for computing, but now it's branching

out. Its chips are inside Teslas, the Mars land

rover, 5G cell towers and the world's fastest

supercomputer.

They used to be sort of under the covers.

People didn't realize that chips were so

important. And I think what the pandemic has done

is it's just reminded people.

And it really highlighted why chips are so enabling

to everything that we do.

AMD only has major competition from two other

companies when it comes to designing the most

advanced microprocessors: Intel in CPUs, central

processing units, and NVIDIA in GPUs, graphics

processing units.

While AMD controls far less market share than

Intel in CPUs and NVIDIA in GPUs, AMD made history

this year when it surpassed Intel's massive

market cap for the first time ever.

I think AMD is beating Intel on all the metrics

that matter. And unless Intel can fix its

manufacturing, they will continue to do that.

But a decade ago, analysts had a very different

outlook on AMD.

It was almost a joke.

For decades they had these incredible

performance problems. They just could not

execute. Every product was late or

underperforming. And that's changed.

This is the story of AMD, its remarkable comeback,

pioneering female CEO and huge bets on new types of

chips in the face of a PC slump, shifting trends and

mounting concerns around China and Taiwan, where

all AMD's advanced chips are made.

AMD is woven into the origin story of

microchips. It was founded in 1969 by eight

men, chief among them Jerry Sanders.

The famously colorful marketing exec had

recently left Fairchild Semiconductor, which

shares credit for the invention of the

integrated circuit.

Jerry Sanders was this big, larger-than-life guy.

He was a salesman at his heart, but he was one of

the best salesmen that Silicon Valley had ever

seen. Stories of lavish parties that they would

throw. And like there's one story about him and

his wife coming down the stairs of the turret at

the party in matching fur coats.

Jerry Sanders, at the time, a lot of his

philosophy was kind of new, novel.

Things like bonuses and profit sharing.

Those were not just for the executives.

AMD released its first product in 1970, went

public in 1972 and was pumping out computer chips

by the mid seventies.

It was a second source supplier for Intel by the

eighties, when Harry Levinson began his 20 plus

years with AMD.

When I first got there, most people didn't know

about semiconductor devices.

In the mid eighties, AMD and Intel parted ways.

And by the late eighties and early nineties, AMD

reverse engineered Intel's chips to make its

own products that were compatible with Intel's

groundbreaking x86 software, making PC

pricing more competitive for end consumers.

When we really got going in the x86, there was a

revolution.

AMD and Intel entered a long legal battle over the

intellectual rights to the x86 processor.

It culminated in a settlement in 1995 after

the California Supreme Court ruled in favor of

AMD's right to design x86 chips.

From there, AMD became a major player in semis,

racing Intel to become first to produce a 1-GHz

processor and making the first 1-teraflop GPU,

meaning it can handle a trillion calculations

every second.

For almost all its 53 years, AMD has been

designing chips for computers, data centers

and gaming consoles like the PS5 and latest Xbox.

But under CEO Lisa Su, it's branched out into

whole new sectors.

We're in the Tesla models S and X.

We're also in many industrial applications,

aerospace and defense applications, health care

applications.

Until just over a decade ago, AMD wasn't just

designing these chips, it was making them too.

Jerry Sanders was very famous for saying "real

men have fabs," which obviously is a comment

that is problematic on a number of levels and I

think has largely been disproven by history.

That's because as the technology advances,

making chips has gotten prohibitively expensive.

It now takes billions of dollars and several years

to build a chip fab.

And eventually it proved too much.

And when the financial crisis hit like '08, '09

AMD almost went bankrupt.

In 2006, AMD bought major fabless chip company ATI

for $5.4 billion.

Then in 2009, AMD broke off its manufacturing arm

altogether, forming GlobalFoundries.

That's when their execution really started

to take off because they no longer had to worry

about the foundry side of things.

GlobalFoundries went public in 2021 and remains

a top maker of the less advanced chips found in

simpler components like a car's anti-lock brakes or

heads-up display. But it stopped making leading

edge chips in 2018.

Unfortunately, the execution was not

sufficient at GlobalFoundries for that

relationship to be sustained.

Instead, AMD turned to Taiwan Semiconductor

Manufacturing Company, TSMC, the first chip

company to focus entirely on manufacturing.

Today, TSMC manufactures at least 90% of the

world's most advanced chips and all of AMD's.

When you think about what do you need to do to be

world class in design, it's a certain set of

skills. And then what do you need to do to be world

class in manufacturing, it's a different set of

skills. And the business model is different.

The capital model is different.

By breaking away from manufacturing, AMD

suddenly had far less capital expenditure.

Making chips has gotten so expensive because of

how precise the process is.

Now that the smallest transistors are 10,000

times thinner than a human hair.

To make leading-edge chips, 7-nanometer and

better, requires an advanced form of

lithography called EUV.

Think of it like extreme precision etching done

with a beam of extreme ultraviolet light by a

machine that costs $200 million made by ASML in

the Netherlands.

We are the only provider on the planet of this

critical technology.

TSMC was the first to deliver high volume chips

made with ASML's EUV machines, and that's kept

it at the front of the pack. But now Intel has

doubled down on manufacturing, producing

its first chips with EUV this year and committing

$20 billion for new fabs in Arizona and up to $100

billion in Ohio for what it says will be the

world's largest chip making complex.

But the projects are still years away from

coming online.

Intel is just not moving forward fast enough.

They've said they expect to continue to lose share

next year, and I think we'll see that on the

client side. And that's helped out AMD

tremendously on the data center side.

Many point to AMD's Zen line of CPUs, first

released in 2017 as the moment AMD started to

catch Intel.

This is a little hard, I'm sure, to choose among your

babies, but do you have a favorite product?

That's very hard. But if I had to choose a product or

something that was really transformational for the

company, I would say our first Zen processor.

I mean, they were literally probably six

months away from the edge and somehow they pulled

out of it. I mean, they have this Hail Mary on

this new product design.

They're still selling like later generations of

today. They call it Zen.

And it worked.

It had a massively improved performance.

It enabled them to stem the share losses and

ultimately turn them around.

Among the Zen products, AMD's epic family of CPUs

have made monumental leaps on the data center

side. Its latest, Genoa, was released earlier this

month. AMD's data center customers include Amazon

AWS, Google Cloud, Oracle, IBM and Microsoft

Azure.

And what it does is it's a very, very high

performance capability that goes into, you know,

think about it in cloud servers or in your

enterprise back end.

AMD's success at catching up to Intel's

technological advances is something many attribute

to Lisa Su, who took over as CEO in 2014.

When I started as CEO, we were probably about 8000

people and this year we're about 25,000.

So we have a few more people than we used to.

Su is the first female CEO of a major semiconductor

company. She was Fortune's number two

businessperson of the year in 2020 and the

recipient of three of the semi industry's top

honors. Su also serves on President Biden's council

of advisors on science and technology, which

pushed hard for the recent passage of the

CHIPS Act. It sets aside $52 billion for U.S.

companies to manufacture chips domestically instead

of overseas.

I was honored enough to actually be at the signing

ceremony. And when you think about sort of the

Chips and Science Act overall, I think it's a

recognition of just how important semiconductors

are to both sort of the economic prosperity as

well as national security in the United States.

With all of the world's most advanced

semiconductors currently made in Asia, the chip

shortage highlighted the problems of overseas

dependency.

And then there's the continued tension between

China and Taiwan.

I think we are all vulnerable to

semiconductor supply chain's reliance on TSMC.

If we get to the point where TSMC is cut off, if

we are cut off from TSMC, we all have bigger

problems to worry about than getting the latest

graphics cards.

So now TSMC is building a $12 billion five nanometer

chip fab outside Phoenix.

We're pleased with the expansion in Arizona.

We think that's a great thing and we'd like to see

it expand even more.

And earlier this month, the Biden administration

enacted big new bans on semiconductor exports to

China.

China has become more aggressive in what they

call their military civil fusion strategy, which is

essentially fancy talk for buying our

sophisticated chips, which are supposedly for

commercial purposes, and putting them into military

equipment to advance their military.

AMD has about 3000 employees in China, and

25% of its sales were to China last year.

When we look at the most recent regulations,

they're not significantly impacting our business.

It does affect some of our highest end chips that

are used in sort of AI applications.

And we were not selling those into China.

So overall, I would say the revenue impact has

been very small.

Something that is impacting AMD's revenue,

at least for now, is the PC slump.

During the pandemic, we pulled demand forward.

People just were at home and so we all upgraded our

computers and our gear and now nobody's doing