Can AMD Win the High-End?

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Advanced Micro Devices (NASDAQ: AMD  ) scored a major win when Apple (NASDAQ: AAPL  ) tapped it for the graphics processors in its new line of Mac Pros. DigiTimes estimates the move could increase AMD's share of the professional GPU market to 30%, taking away share from NVIDIA (NASDAQ: NVDA  ) .

With the low-end PC market marginalized by tablets, AMD is facing headwinds to its computing solutions segment, which produces CPUs and APUs and thrives on the low-end. Management has iterated its intentions of diversifying the company away from the segment, with a focus on its semi-custom business and graphics solutions. Although AMD has lagged NVIDIA for a long time, a leap forward in technology and the support of Apple may be enough to make up for lost revenue from the low-end market.

The high-end is where it's at
In a market of declining PC sales, NVIDIA has been able to maintain its GPU segment revenue while improving gross margin. In the company's most recent 10-Q, it points to increased sales of high-end products and decreased sales of mainstream products for each of its GPU lines.AMD, meanwhile, has experienced a decrease in both unit shipments and average selling price of its GPUs.

The market is shrinking, so gaining market share isn't necessarily enough for AMD. It needs big wins in the high-end market. The deal with Apple puts AMD's high-end FirePro cards to work. The Mac Pro could increase AMD's share of the professional graphics card market by ten percentage points. These are the high-price, high-margin products that have helped NVIDIA's business maintain revenue and profits in 2013.

Demand for the new Mac Pro is outpacing supply by a wide margin. A spokesperson has stated, "Demand for the all new Mac Pro is great and it will take time before supply catches up with demand." Whether the higher-than-expected demand is a good problem or a bad problem, trouble ramping up production is unclear.

On the gaming side of the coin, AMDs newest line of GPUs -- the Radeon R7 and R9 -- compare well with NVIDIA's high-end gaming graphics cards. Moreover, AMD was able to price its line lower than NVIDIA's, causing the latter to drastically cut prices on its products. This move will undoubtedly cut into NVIDIA's gross margin, which reached a record high last year.

Mantle is an application programming interface designed by AMD to take advantage of its position in each of the newest game consoles from Sony, Microsoft, and Nintendo. Mantle gives developers better access to AMD's GPU hardware so they can get the most out of the hardware, optimizing performance specifically for AMDs graphics cards.

The kicker is that the API carries over to AMD's Radeon GPUs for PCs. In other words, games designed for both consoles and the PC will likely run better on AMD GPUs. At the same time, there's nothing preventing NVIDIA from developing a similar API for its graphics cards. It's unlikely, however, that it would gain nearly as much traction with developers as Mantle, considering AMD's position in the game console market.

NVIDIA passed on the opportunity to develop SoCs for the newest generation of consoles, and instead chose to focus on mobile chipsets. Unfortunately, the company's Tegra processor business has seen steep declines in the past year, and now NVIDIA's GPU business is in a worse position.

AMD's 2014 to look like NVIDIA's 2013?
AMD's plan to diversify its business away from CPUs is firing on all cylinders -- including the cylindrical Mac Pro. Its deals with Apple, Sony, Microsoft, and Nintendo should help its GPU business. Its position with game developers, leveraging its Mantle API, should help AMD do what NVIDIA did last year -- sell more high-end GPUs to offset losses on the low-end.

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Read/Post Comments (4) | Recommend This Article (1)

Comments from our Foolish Readers

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 January 03, 2014, at 11:54 AM, KenLuskin wrote:

    AMD's HIGH end GPUs are SOLD OUT!!

    Adam, Do you live in a CAVE?

  • Report this Comment On January 03, 2014, at 1:00 PM, pgerb4486 wrote:

    Ken, how is that comment beneficial to anyone?

    The reason why their high end GPU's were temporarily sold out is because of the crypto-currency craze. Yes, money is money and it's great that there was a rush for AMD's products, but that was most likely a one-time phenomenon. Anyone that couldn't get their hands on one of AMD's cards probably just bought one of their competitors, it's not like anyone is sitting on their hands and waiting for stores to restock their shelves. It was a nice bump in cash for AMD, but they have a lot of work to do.

    (realistically) Long AMD

  • Report this Comment On January 03, 2014, at 2:35 PM, allansainz wrote:

    pgerb4486, you do realize Cryptocurrency is not a one time thing!

    the cryptocurrency boom is not short lived,infact litecoin mining wich is where AMD's R9 DOMINATE is a newly release crypto currency wich is being widely accepted in many countires and CHINA is one of them! so is INDIA,this is not a one time thing!,AMD's GPU's WILL continue to sell untill something better comes out!AMD ALL DAY BABY!!

  • Report this Comment On January 04, 2014, at 1:26 PM, KenLuskin wrote:

    By my calculation, based upon consensus for at least 1 MILLION MAC Pros sold in 2014, AMD should increase professional graphics revenues by at least $500 MILLION!!

    Add in the $200 million of existing professional GPU revenue, puts AMD total professional revenue at over $700 million.

    That would about be about HALF of the total professional graphics market!!!

    So, AMD's professional market share will increase to a LOT more than the 30% number estimated by some pundits.

    Since ALL the new games are being optimized for the Consoles, which means they are being optimized for AMD graphics, I see no reason why developers would want to include an API from Nviida that does the same as Mantle.

    Eventually, Nvidia will be forced to create new chips that are able to support Mantle.

    In the meantime, AMD will increase their retail GPU market share to OVER 50% of the market.

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Adam Levy

Adam has been writing for The Motley Fool since 2012 covering consumer goods and technology companies. He spends about as much time thinking about Facebook and Twitter's businesses as he does using their products. For some lighthearted stock commentary and occasional St. Louis Cardinal mania

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