AMD Will Succeed Where Others Failed

Renowned semiconductor company Advanced Micro Devices (NASDAQ: AMD  ) is transitioning from PCs to high-growth markets. Last year, AMD gained a foothold in the semi-custom business and posted decent results in the last couple of quarters. The shift toward professional graphics and semi-custom seems to be paying off.

Investor presentation Q2 2014

 The snapshot above depicts AMD's strategy. Growth markets include professional graphics, semi-custom (including gaming), mobility, and dense servers. Embedded systems are also a significant growth market, with a total addressable market of $9 billion, according to VDC Research. AMD has been leveraging its graphics technology to gain share in the professional graphics market, and it's betting on ARM to capitalize on the growth of dense servers. It recently announced a Puma core-based Mullins to seek growth in the tablet market.

However, like Intel (NASDAQ: INTC  ) , the company had to overcome the ARM vs. x86 problem in order to grow in mobility and embedded systems. To counter this challenge, AMD revealed its product roadmap, which embraces ARM along with x86. This development puts the company in a position to grow regardless of whether ARM or x86 emerges as the winner going forward. ARM has been dominating the portable and low-power devices lately, and it is a sensible move on AMD's part to seek growth through ARM.

Ambidextrous roadmap
AMD recently announced a product roadmap that embraces ARM along with x86, something referred to as "ambidextrous." AMD licensed ARM's 64-bit architecture to build custom cores for high-growth markets. The company believes that the combined market for ARM and x86 is expected to grow to $85 billion by 2017. The roadmap also includes SkyBridge and the K12 custom core.

AMD is planning to release systems-on-chip and accelerated processing units based on both x86 and ARM in 2015. Both the SoCs will be pin-compatible, meaning that the same motherboard can be used to deploy either ARM or x86. This will result in flexibility and cost savings for original equipment manufacturers if they want to produce both the x86 and ARM variants. AMD may prove to be an attractive option for them in this regard. The products based on this structure will target embedded systems and certain client markets such as tablets, according to AMD's Lisa Su.




Differentiating features









Extracted from company presentation

K12 core on the way
More promising than SkyBridge is the development of K12, a custom-designed high-performance ARM core that will leverage AMD's CPU, GPU, and design capabilities. It is expected to roll out in 2016. Jim Keller, a former CPU architect at Apple, says the K12 will share more than just pin compatibility. This could mean a combination of x86 and ARM on the same SoC. AMD recently added an ARM security processor in its Beema product line and seems to be quite capable of creating a hybrid ARM-x86 solution.

We have already seen that AMD has outperformed Intel's 22nm BayTrail with its Mullins and Beema using 28nm process. See "AMD's Superior Design Is a Game Changer". Now consider AMD's ARM cores on 14nm/16nm FinFET versus Intel's x86, and the outcome is quite clear. A custom-designed ARM SoC from AMD may be a critical success factor. In fact, it could be the deciding success factor for the company going forward.

Mobility fails and AMD
Critics may ask why AMD's custom SoCs will succeed in portable devices, while Intel and NVIDIA (NASDAQ: NVDA  ) have been unable to gain traction in the mobile space with their products. Here is why:

  • The company has decided to utilize ARM, unlike Intel, and is leveraging its extensive GPU capabilities that others like Qualcomm do not possess. Adreno is currently widely adopted, but when we compare Adreno to NVIDIA's K series SoCs, it can be seen that NVIDIA's latest K1 -- Kepler architecture -- graphics capabilities are superior. It can be inferred that Radeon will at least match NVIDIA.
  • NVIDIA outsmarts Qualcomm in graphics, but its CPU expertise is not as mature as that of AMD.

The point is that AMD has potentially identified a competitive sweet spot as it is overcoming the ARM problem by embracing it. It has more computing expertise than NVIDIA and is differentiated from Qualcomm in graphics. Moreover, it has a fallback position in x86 if its ARM efforts do not pan out.

Bottom line
|AMD might have been an underdog in the past, but its recent transition has placed it in a much better position than Intel to capitalize on high-growth business segments. Its recent design efficiencies in Puma cores, ARM licensing, and ARM custom cores have the potential to make it a very strong player that will leave its mark on the semiconductor industry in the next few years.

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Comments from our Foolish Readers

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  • Report this Comment On May 20, 2014, at 10:20 AM, keeperoftheq wrote:

    Why we will see a stronger Q2, Q3 & Q4 report and strong guidance for all of 2014


    Q3 & Q4 are the strongest quarters for the chip makers. We already know that Microsoft will be launching the Xbox One in 25 countries including China in September. Microsoft will have to order Milions of APU's from AMD for this launch. Sony can not keep up with the demand the PS4. Demand is so strong that Global Foundries was added as a second source for the console chips.

    AMD even after forecasting continuation of PC sales declining stated that AMD would actually show increased in the PC decision. Knowing that PC sales have stabilized, we can expect AMD PC revenue to substantially increase. With Beema and Mullins release, we will see more design wins going forward.

    This will give AMD a strong Q2 report along with strong guidance.

    Now we are looking forward to Q4 which is the strongest quarter of the year. Game consoles, historically, are sold in Q 4 equals the rest of the other 3 quarters combined. The console APU's will have to start shipping in Q3 in perpetration for the holiday quarter.

    We should see AMD reporting a stronger Q3 and stronger guidance for Q4.

    Q4 will also see the launch of the AMD / ARM Seattle servers. This will add even more to the bottom line.

    To add icing to the cake, AMD has not been able to keep up with the strong demand for their GPU's, Global Foundries was added as a second source and will be producing the GPU's in Q2. This will allow for more GPU's to flow into the market and keeping the shelves stocked. Prior quarters the cyber coin minors has been buying up all these GPU's leaving the gamers and DYI croud no choice but to buy from nVidia. This will lead AMD gaining market share away fro nVidia.

  • Report this Comment On May 21, 2014, at 12:01 PM, jpanspac wrote:

    Funny article.

  • Report this Comment On May 21, 2014, at 2:02 PM, wownwow wrote:

    A funny comment from a funny person?

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