AMD Can Leverage Short-Term Opportunity, but Real Value Comes from Long-Term Positioning

Advanced Micro Devices (NYSE:AMD) competes with Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA) in the PC microprocessor and graphics businesses. Our price estimate for AMD stands at $9.30, which is roughly in line with market price. The company recently launched a marketing campaign to better promote its products against competitors. Intel, for one, has continuously overshadowed AMD. Does AMD’s stock value stand to gain from these initiatives? Here we assess the outlook for a few key metrics.

Intel Vs AMD

Intel and AMD have competed against each other in the PC microprocessor space for decades, with Intel consistently holding by far the majority market share. AMD holds a decent position in the desktop market with about 28% market share, but the stagnation of the desktop market remains a major concern. What hurts AMD is that it is losing a foothold in the markets that are growing – servers and notebooks.

See our full analysis and $9.30 price estimate for AMD

AMD’s market share in server microprocessors has fallen from its peak of about 25% in 2006 to a mere estimated 7% in 2010. In notebooks, AMD only holds an estimated 13.6% market share.  On top of this, the company does not have an offering that is yet competitive in the mobile space to compete with Intel’s Atom.

What  can AMD do in such a situation? The company is emphasizing these factors in its strategic outlook, as is evident from the recent management shakeup – part of a larger effort renew the company’s vigor and challenge Intel. Besides the management change, AMD has taken another step in this direction through its recent opportunistic marketing campaign aimed at exploiting Intel’s chip faults. The company is also working to develop deeper customer relationships to drive longer term growth.

Intel’s Chip Fault

Intel recently made the mistake of shipping flawed chips that were to be used in its Sandy Bridge processor based PCs. Intel stated in a press release that a flaw in its Series 6 chipsets can cause the ports to degrade over time and lead to data access issues for customers. Fortunately for Intel, the company recognized the error relatively quickly and initiated steps to amend the issue. We previously examined the additional costs necessary to correct the matter, noting that these should not be a concern to investors (see: Intel’s Chip Error Should Not Concern Investors).

But the situation has opened a brief window of opportunity for AMD to push its own offerings. Could this opportunity be significant to AMD?

AMD’s Marketing Campaign

AMD has launched a new marketing campaign under the slogan “Ready. Willing. And Stable.”. This program consists of three components – 1) a global advertising program to reach channel partners and end consumers; 2) an online marketing campaign featuring a new web page that offers easy-to-digest information about AMD’s products and how they stand against competitive offerings from Intel; 3) a Twitter contest designed to raise awareness of AMD’s products. ^[1]

AMD executives have acknowledged the window of opportunity created by Intel’s faulty chips, but the potential revenue impact is still uncertain. ^[2] Nevertheless, HotHardware states that (per industry sources) the demand for AMD’s products has seen an uptick. ^[3] The uptick may be short-term, so what will truly determine the impact is whether or not AMD is able to build deeper relationships with its customers and partners over the course of its campaign. To fully benefit from this opportunity, AMD needs to position itself for long-term market share gains rather than fluctuations limited to a quarter or two.

1. AMD’s “Ready. Willing. And Stable.” Campaign to Help Channel Partners and Enthusiasts Build Their Dream PCs Today, AMD Press Release, Feb 18 2011 [↩]
2. AMD Strikes at Intel’s Chip Troubles with Ad Campaign, pcmag.com, Feb 17 2011 [↩]
3. AMD Makes Hay From Intel’s Sandy Bridge Slump, HotHardware, Feb 17 2011 [↩]