Following struggling chipmaker Advanced Micro Devices' (AMD +6.67%) weak earnings and forward guidance, Barron's reported that Jeffries analyst Mark Lipacis reiterated the stock as a "Buy" and maintained his $4 price target, representing a nearly 40% upside from current levels.
Lipacis argued that AMD has "great [intellectual property]," citing x86, ARM, graphics, and server-fabric technologies as examples of such "great" intellectual property. He also reportedly says that AMD just needs a "plan to monetize it."
To be perfectly blunt, I disagree on the value of this IP. Here is why.
If the IP is so valuable, why are AMD products losing market share?
The simple question that investors should ask about this allegedly "valuable IP": If the IP is so valuable, why do AMD products continue to lose market share?
It is well-known that AMD x86 processors are simply outclassed by the competition. Intel processors are known to offer both higher performance and more power efficiency than comparable AMD offerings. This is likely one of the main reasons that Intel keeps on taking substantial market share from AMD in x86 processors.
In graphics processors, it is the same old story -- NVIDIA products deliver better performance-per-watt than their AMD counterparts, which has helped the former gain significant market share, particularly in gaming notebooks.
AMD is still developing products based on its internally designed ARM core, so it is hard to make any assessment of the relative worth of this particular piece of intellectual property.
Finally, the same question needs to be asked about AMD server fabric technology: if it is so great, why isn't AMD out making money with it? I believe the fabric in question actually came to AMD as part of its acquisition of SeaMicro -- you know, the acquisition that AMD just took a writedown on and shuttered.
Another reason AMD IP might not be worth all that much
The big growth markets for CPUs and graphics -- the IP that some assert is so valuable -- are the low-power and mobile markets as well as the networking and server markets.
In mobile, ARM has a whole suite of CPUs, graphics cores, and video processors. This IP is also quite good, which is why it is so broadly adopted.
Imagination also licenses CPU cores (MIPS) and graphics/media (PowerVR). Its graphics IP is also known to be top-notch -- the company reports that it is seeing "record royalties" for its MIPS CPU cores, implying that this IP is competitive.
It is just hard to see a lot of value in the AMD IP portfolio given how rich the current semiconductor intellectual property landscape is.
The best way for AMD to "monetize" its IP
I do not think that IP makes AMD valuable enough as an acquisition target given that good IP can be licensed for cheap. The best way for AMD to "monetize" this portfolio is to make competitive chips based on said IP.
The fact that AMD is losing market share in both PC processors and graphics, and has essentially no presence in servers, tells me everything I need to know about the true value of its current IP portfolio.
