During AMD's APU13 developer conference, Advanced Micro Devices (NASDAQ:AMD) offered another reason for investors to be happy with the unveiling of the Kaveri, their latest 28nm APU based on the Steamroller architecture. Compared to a conventional CPU, an APU -- or Accelerated Processing Unit, is heterogeneous system architecture that is designed to act as both a CPU and a GPU.

The flagship model, dubbed the A10-7850K, will feature four cores clocked at 3.7GHZ and a GPU that features an amazing 512 GPU cores clocked at 720mhz, pushing an impressive 852 GFLOPs. Set for a January 2014 release, expect the Kaveri to be priced considerably cheaper than an equivalent performing CPU and GPU combo, with that equivalent being mighty impressive given its first showing.

After a few hard years, AMD's APUs are beginning to live up to their initial promise
To demonstrate the power of the Kaveri APU to developers, AMD pitted the A10-7850k against a computer paired with an Intel i7-4770k CPU and a GeForce GT 630 GPU. With both systems running Battlefield 4's single-player campaign (1920x1080, Medium Details), the Kaveri system pushed a consistent 28-40fps. In comparison, the Intel system with a dedicated GPU was only able to pull about half the average frame rates, performing at an unplayable level of 12-14 FPS.

While this demonstration might seem unfair given that the i7 is part of Intel's enthusiast line of CPUs and the chances of one being paired with a budget line GeForce GT 630 are close to nil, it does illustrate how far AMD has come with their continued investment in APUs. Their previous flagship APU, the A10-5800k, can only manage to pull 30fps on the lowest possible presets in Battlefield 4. You can expect even further improvements to Kaveri's performance as the drivers become more mature as well as the upcoming December patch for Battlefield 4 which will add support for AMD's Mantle, their new low-level graphics API.

How Mantle will benefit AMD
Moving forward, Mantle will be a key component in AMD's strategy in winning back both enthusiasts as well as creating a lower entry point for gamers who aren't willing to spend $1000-$1500 on a computer capable of playing the latest games. Mantle will enable higher graphics performance and lower CPU overhead through new rendering techniques and a light weight driver that allows direct access to the GPUs hardware. In short, it will offer a minimal level of hardware abstraction unseen in other APIs, offering performance boosts between 20%-50%.

With such a high boost in performance, AMD is in a position to take the crown in all levels of performance, from the low to the high end. AMD has already gained the support of key developers, such as Activision-Blizzard and Electronic Arts, with the latter fully integrating Mantle into their Frostbite 3 engine, the same engine that power Battlefield 4 and all future Electronic Arts titles. This ensures all 15 titles in development at Electronic Arts will run best on AMD and ATI equipped systems. Dice, the developers of EA's Frostbite 3 engine, have even said that both Mantle and the PlayStation 4 will drive future designs and optimizations brought to the engine.

The perfect storm
There are many reasons for investors to cheer for AMD. After four straight quarters of poor earnings, AMD has recently beaten earning targets, resulting in a return to profitability during the third quarter of 2013. AMD posted revenues of $1.46 billion, a 15% percent increase year-over-year, and net income of $48 million. A large part of this is due to the success AMD has had with product diversification.

This diversification was largely driven by the income generated by their Graphics and Visual Solutions (GVS) division, which is responsible for developing GPUs and the semi-custom chips found in all three of the next generation consoles. With the revenue from the PlayStation 4 and Xbox One starting to kick in, GVS's revenue increased by 110% sequentially and 96% year-over-year.

AMD's shift from designing high performance bleeding edge products with an emphasis on cores to focusing on power-performance optimized cores is beginning to pay off. In fact, AMD's roadmap for 2014 lists that the already released Piledriver line of CPUs will remain AMD's top-end desktop chip throughout the next year. With AMD shifting away from the enthusiasts, the most exciting prospect is the inevitable convergence of their APU line of chipsets, Mantle and the eventual release of Valve's Steam Machine.

With OEMs being responsible in building the console, a perfect storm is brewing for AMD. Once the Steam Machine is initially marketed and sold to early adapters, they will be in a prime position to lead the low to mid-range market since no other company currently approaches them when it comes to cost performance ratio.

 

Fool contributor Rodmon Dehghi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.