Advanced Micro Devices (NASDAQ: AMD ) is a stock that often elicits a wide range of emotions from investors. On one hand, you've got the bulls who believe that the company will rise out of its funk on a number of drivers (consoles, ARM servers, etc.) and blast its way to obscene profitability. On the other, you have the bears who think that AMD is on the fast track to bankruptcy and that all of its efforts will prove futile. While the purpose here isn't to make a grand prognostication either way, it is worth exploring how AMD's Chief Sales Officer thinks the company can compete going forward.
How does AMD deal with Intel?
AMD has made it clear that it wants to continue competing in the PC business but that long-term it wants to diversify its revenue base so that about half of its revenues come from non-PC endeavors such as dense servers, semi-custom, embedded, and so on. This is certainly the right thing for AMD to pursue, particularly as the PC market isn't really growing (and AMD's competitive position within the PC market is not great), but obviously these products still comprise the bulk of AMD's revenue base.
At Intel's (NASDAQ: INTC ) investor meeting, it admitted that it had pretty much exited the value portion of the PC market (where AMD has dominant share) but that it would be working feverishly to win back share there with its low-cost, low-power Atom based processors. When the BMO analyst asked about how AMD would deal with this, Mr. Byrne made the following arguments:
- AMD's Kabini and Temash (low-power, low-cost chips) were first to the market and have better graphics performance than Intel's low-power Bay Trail chips (based on the low-power Atom core)
- AMD is going to try to gain back share in the higher end of the PC market with its upcoming Kaveri chip which
- AMD's next generation low power chips – Beema and Mullins – for low-cost PCs and fanless Windows 8.1 tablets, respectively, should also help to hold back the assault from Intel's own low-power chips
These are interesting points, but these points can be pretty easily countered by the following bearish arguments,
- AMD may have been first to market, but the market is flooded with Intel-powered Windows 8.1 tablets at all screen sizes – AMD's only real tablet wins with its tablet-oriented Temash have been some pretty bulky, low-quality convertible PCs. Intel has also cited 140 design wins in low cost PCs – and those designs probably came at the expense of AMD.
- AMD's higher-end PC chips have been entirely uncompetitive and none of the data that AMD gave about this next-generation chip will remedy the deficiencies of its predecessors (it will have better graphics performance than the Intel chips it's going up against, but likely worse power and substantially worse CPU performance).
- The last point is interesting, but Intel is aggressively winning designs today and by the time AMD comes in with its 2014 parts (which will probably go up against Intel's next generation 14 nanometer parts), there is no evidence to suggest that AMD's chips will be competitive on performance per watt or, given Intel's aggressive pricing, performance per watt per dollar.
Foolish bottom line
AMD has always been good about making promises. Its current generation Kabini and Temash were promised to take the world by storm, only to see a moderate uptick in sales in Q2 before the company resumed its market share decline in Q3. The big fear at this point is that AMD's PC chip business will become collateral damage in Intel's battle with the top ARM vendors since Intel is focusing on the low cost/low power space more feverishly than ever before. It's not going to be easy, that's for sure.
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