Is This AMD's Best Move Yet?

Advanced Micro Devices (NYSE: AMD  ) sure seems capable of adapting to the ever-changing PC market dynamics. In a recent strategic move, which many view as an attempt to challenge bigger rival Intel's (Nasdaq: INTC  ) market dominance, AMD has agreed to purchase microserver seller SeaMicro in a $334 million deal.

At a time when cost-efficiency and space-saving are the real game changers in the world of servers, what does SeaMicro really have that can boost AMD's prospects in the long run? Let's find out.

Why SeaMicro?
With an impressive customer list, including Skype and Mozilla (all of which will now go into AMD's kitty), SeaMicro specializes in microservers that consume significantly less power while providing around 12 times more bandwidth than conventional servers. Apart from the obvious fact that less power translates to lower costs, the company's microservers occupy much less space as well. No wonder then that SeaMicro has topped AMD's priority acquisition list. And I still haven't told you the best part yet -- where cloud computing plays a major role.

A walk in the clouds
AMD's biggest future advantage from the deal seems to lie in the realm of cloud computing. Servers that require less space and offer greater bandwidths at lower costs are the ones that will perfectly match the requirements of cloud computing. With cloud data centers slated to be the fastest movers in the server space at least up to 2015 according to the International Data Corp., everyone from search engine behemoths to social networking giants that are banking heavily on cloud computing are aware of their importance. The combination of AMD's very own Opteron technology with that of SeaMicro's should attract existing customers such as Hewlett-Packard and Dell. And this will help ward off competition as well.

The formidable "others"
Market competitor Intel is certainly expanding its portfolio even further as it plans to tie up with Motorola Mobility and Lenovo, among others. While Intel also has to contend with formidable rival ARM Holdings (Nasdaq: ARMH  ) , as the latter plans to add more muscle to its offerings with the high-capacity ARMv8 processor, AMD has smartly decided to avoid the ARM chip-dominated smartphone segment and concentrate on data centers instead.

Some Foolish last words
The way I see it, the SeaMicro acquisition might be AMD's best move to date, the results of which will be evident toward the end of this year. Apart from being one up on longtime rival Intel, the company has strategically placed itself to grab a larger share of the cloud computing pie. Time to keep an eye on this stock.

To stay updated on the latest developments about Advanced Micro Devices, just add it to your watchlist. It's free.

Fool contributor Subhadeep Ghose does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Intel. Motley Fool newsletter services have recommended buying shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 01, 2012, at 12:42 PM, TreyAnas wrote:

    Seamicro seems like a logical purchase for AMD, but temper you enthusiasm. Past acquisitions (e.g., ATI) were also sensible but, at best, preserved AMD's competitive position. Intel also has a very strong presence in low-pwer servers.

    Though it's moved up and down, AMD's stock price is essentially unchanged in the last 40 years. It's market share has been 20% or less for decades as well. It's efforts have been heroic, but this company has not been creating wealth for investors and this latest move is extremely unlikely to change that.

  • Report this Comment On March 01, 2012, at 8:02 PM, TEBuddy wrote:

    Not creating wealth? That depends when you invested I suppose, since I invested at 2.00, and recently again at 4.60, its been doing alright for me. I'm sure there are many more that have done better than I.

    Past performance is no guarantee of future returns, and likewise no guarantee of poor performance. If you actually study AMD's current business they are leagues ahead of where they were a few years ago. They have never been in a better position. And they were brought down through illegal practices of Intel, then got off very easy.

  • Report this Comment On March 01, 2012, at 9:36 PM, jdwelch62 wrote:

    @TreyAnas: Actually, Intel's share of the server market, which this article targets, is over 90%, and AMD does not hold all of what's left. Otherwise, I agree with you, and that's why I made a 3-year red thumbs-down CAPS call on AMD earlier this week (and so far, I'm winning, but it's only been a few days...) :-)

    @TEBuddy: Again with the "illegal practices of Intel"? If you know any lawyers, talk to them about whether or not Intel was actually found guilty of any "illegal practices". (Hint: The answer is "No", they settled, and their settlements specifically stated that Intel was not found to have done anything illegal. This is normal business practice for large corporations that have deep pockets and yappy little competitors who have to resort to baseless finger-pointing when they lose market share. It happens in a capitalist economy; when you have a better product, the market will pick the winner.) Also, "if you actually study AMD's current business", they're behind where they were just 5 years ago. In 2006-2007, AMD had made some noticable headway against Intel's market share, but then Intel bounced back and has since jumped further ahead of AMD. Check the statistics from 5 years ago and compare them with today...

    Intel has a very deep moat in the data center space, and while microservers may help AMD gain some share, they're also going to have to compete with the Windows-on-ARM camp that's winding up to also try to take some of the low-end, low-cost, low-consumption space on data center floors around the world. Intel, on the other hand, has learned not to become complacent, and are continuing to deliver more powerful, less energy-consuming server products with every new generation. Up next: 22nm Tri-Gate transistors. What node is AMD currently on, and how's that yield doing?...

    Fool on!... :-)

  • Report this Comment On March 06, 2012, at 3:33 AM, winklerf wrote:

    Intel undoubtedly had an opportunity to bid higher for SeaMicro, but decided not to. My guess is that they have many other companies that they are developing low power servers with. They most certainly wouldn't throw away what they have said will soon be 10% of the market over a lousy $334 million. This more likely is a futile effort on AMD's part to be viable in an arena they have been incredibly slow to enter.

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