Advanced Micro Devices’ Time to Shine Is Here

It's been a rocky road during the last few years for Advanced Micro Devices (NYSE: AMD  ) . As the PC market softened during 2012 and 2013, AMD and its longtime rival, Intel (NASDAQ: INTC  ) , saw their revenues contract on a year-over-year basis. Intel's revenues were buoyed by a strong datacenter group business, and AMD's revenues as of late have enjoyed a boost from its semi-custom business -- namely, participation in game consoles.

With AMD's earnings report fast approaching, and with market research firms like IDC and Gartner reporting that the PC market is springing back, the time for AMD to shine is now.

PCs could be better than expected, even if share loss is meaningful
Intel recently pre-announced a stronger-than-expected quarter as a result of PCs intended for corporate/business use, which might initially seem to benefit Intel more than it does AMD, given Intel's greater exposure to business PCs. However, recent reports show that the PC market, as a whole, seems to be getting a lot better -- perhaps indicating that the consumer market has been improving, in general.

Now, if this is the case, then it seems likely that AMD may surprise to the upside. Even in the case where AMD loses PC share, AMD's guidance/assumptions seem to be based on a view that the TAM will contract 7%-10% for the year. Since it's increasingly likely that this will not actually be the case, AMD could wind up surprising to the upside.

Semi-custom could get interesting
Though it would be unreasonable to expect a large near-term snapback in AMD's PC chip share -- Intel is likely to fight vigorously to defend it and move into the low end -- a stable PC business with incremental adjacent opportunities leading the charge could help drive AMD's long-term growth and profitability.

For example, AMD executed quite well with the game console APU projects, which lent the company significant credibility. While it's tough to envision that there are too many huge game console-like opportunities out there, there are probably a bunch of reasonably sized opportunities in the broader embedded market that, in aggregate, could drive nice growth.

Servers? Let's wait and see.
AMD appears to be one of the more credible ARM (NASDAQ: ARMH  ) -based server players on the market, given that it does have more experience in the general purpose server market than any of its ARM-based competition. The open question here is whether moving to the ARM architecture is going to fundamentally change AMD's competitive positioning in the server market.

AMD found it difficult to compete with Intel in just about every sub-segment of the x86 server market, and it's not as though the ARM server TAM is fundamentally different from the x86 TAM. AMD still needs to compete with Intel head-on, but it now also needs to overcome the difficulties associated with being an alternative instruction set architecture in this market.

At this point, I have very little optimism for AMD's ability to meaningfully reverse its share position in servers, though if it is able to do so, that could drive meaningful upside to the stock.

Foolish bottom line
When AMD reports its earnings on July 17, it will be interesting to see if it was able to catch the PC-recovery wave as Intel did when it pre-announced earnings. More importantly, though, investors should compare the guidance that AMD issues on its Q3 call to the guidance that Intel will issue on its own call two days beforehand. If both trend in roughly the same direction, then AMD's stock could have quite a bit of room to run.

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  • Report this Comment On July 11, 2014, at 9:22 PM, masterwallstreet wrote:

    In my opinion only, I find this article very interesting. I actually like the title of the article Advanced Micro Devices' Time to Shine is Here. I believe it will shine. You have a lot of analysts and critics are changing their tune. It will be very interesting Thursday to see how bright AMD will shine. For the last several days, you see several articles about AMD, all positive. I am hoping for a few surprising announcements during the conference call. I believe that AMD will have a bright future. They have future cutting-edge technology that is available today. AMD has tons of patents to protect their technology. It gives them the edge over the competition. Why are there no analysts and writers or critics talking about their patents and how valuable they are? These patents are assets to the company that protects their technology. These patents could be worth billions of dollars but nobody wants to talk about them.

  • Report this Comment On July 11, 2014, at 9:34 PM, rav55 wrote:

    @Ashraf

    Why did you change your tune from your piece on June 24th?

    http://www.fool.com/investing/general/2014/06/24/can-advance...

    Which appeared to disagree with your assessment on June 22nd?

    http://www.fool.com/investing/general/2014/06/22/will-advanc...

    You seem to lacking coherency in your writing lately vis-a-vis AMD. Or are you trying to balance your writing a tad?

  • Report this Comment On July 12, 2014, at 4:19 AM, ta152h wrote:

    Whenever you talk about ARM versus x86, it's important to remember, ARM is simply better.

    Let's rehash what x86 is, so the non-technical can understand it.

    x86 is an awful instruction set that is so bad, processors (outside of the failed Bay Trail) don't even execute it anymore. Since the K5/Pentium Pro era, x86 processors have put in a front end that changes these awful instructions into something that can be executed efficiently.

    This adds to die size, lowers performance, and increases power use versus an instruction set that doesn't require this.

    Intel did finally decide to execute x86 instructions on a processor, the Bay Trail. But, Bay Trail is easily the worst processor made by Intel since Pentium 4(maybe it's worse, it's hard to say), and rivals all as the worst design of the 21st century. This badly failed design, despite finer lithography, badly trails the similarly sized Jaguar/Puma in GPU performance, while performing roughly 20% fewer instructions per clock cycle. Again, this is using Intel's much finer 22nm process technology, compared to the far cruder 28nm of Global Foundries. It's a horrible design, that has forced Intel to pay companies to use these miserable chips. Even AMD hasn't had to stoop to that level of degradation with their lousy Kaveri.

    ARM doesn't have all this nonsense that one has to deal with. It's clean and mean, with plenty of caffeine. All those extra transistors, and all those extra pipeline stages aren't necessary to decode an instruction set that should have died before it was born.

    Not only does the performance improve, by every metric, but it's also a lot easier to design a processor, requiring fewer resources, or allowing more hand-coding using the same resources.

    Intel does a fine job of working with the awkward and ugly x86 concubine, well, with Haswell and predecessors. But all this complicated nonsense, like the pseudo trace-cache they use to save power, just isn't necessary if you use the right instruction set to begin with. With their extraordinary edge in lithography, Intel has been able to succeed regardless of instruction set, although IBM's POWER 8 absolutely destroys anything Intel can create, or will be able to create in the near future. Blowout. But, even so, Intel does a great job with x86.

    But, it's still a negative. It's also a negative they will have to eat, and AMD won't. That skews things a bit the other way. Also, we'll have to see how different the nodes are when AMD release the K12. If it's half a node, Intel will lose market share, since it's very difficult to believe AMD's products will not be more competitive than the awful processors they sell now in that market.

    Even so, AMD has yet to demonstrate they can make a good big processor. Intel has yet to demonstrate they can make a good low-end processor. Each have gone from one shade of suck to another with each release, with the horrible and laughable Bay Trail and Kaveri looking absolutely awful compared to Puma and Haswell.

    Q2 earnings might give us some indication of how much traction Puma/Jaguar are making as well. It's hard to imagine Kaveri gaining any share, but hopefully it will not lose too much more. However, Jaguar could be selling well in less affluent countries, and we should see some effect if it is. If we don't, that's a concern, because if not now, then when? It's been out long enough to see something.

    GPUs should see a spike too, especially professional. Mantle's crazy success will push this even further once it actually moves from Beta.

    Even so, the cats are the big story. Kaveri isn't going to gain anything, and if AMD hopes to stabilize or gain share, it's got to come from there. We should see some signs of it in Q2. If not, the near-term upside for this stock is limited.

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