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Investment Overview for AMD (NYSE:AMD)
Below are key drivers of AMD's value that present opportunities for upside or downside to the current Trefis price estimate for AMD:
AMD Notebook Processor Market Share: We currently estimate AMD's notebook processor market share to increase to approximately 14.4% over our review period. However, if AMD manages to increase its market share to 20%, there will be a more than 10% upside to our current price estimate for the company.
AMD Average Notebook Processor Pricing: Although this figure has been relatively stable for the last two years, we expect it to decline from an estimated $49 in 2013 to approximately $47 by the end of our forecast period, as competition from other PC forms like tablets as well as ARM-based players in the PC market intensifies. However, if AMD is able to increase its average notebook processor pricing with the help of enhancements and reach a value of around $55 by the end of our forecast period, there will be a marginal upside to our price estimate.
AMD Server Processor Market Share: We expect AMD's server processor market share to increase from an estimated 3.4% in 2012 to 11% by the end of our review period, as AMD pushes back with its Interlagos design. However there could a 25% upside to our price estimate if AMD can go all the way up to its historical peak share of 25% by end of our forecast period. On the other hand there could be a downside of about 5% to our current price estimate if AMD's server market share stays around the current level.
For additional details, select a driver above or select a division from the interactive Trefis split for AMD at the top of the page.
AMD manufactures and markets microprocessors used in servers, desktop PCs, and notebook PCs. Microprocessors are a PC's Central Processing Unit (CPU) or the "brain" behind the computer. A microprocessor is the single most important component that drives computer power and performance. Additionally, AMD manufactures Graphics Processor Units (GPUs), which are used in PCs to process information for graphics displays. AMD sells its processors primarily to PC manufacturers such as Dell, HP, Sony, and Toshiba.
AMD has recently introduced its new microprocessors specifically targeting the rapidly growing tablet market.
We believe the Desktop and Notebook Processors divisions are the two most valuable segments within AMD for the following reasons:
New Growth Markets
In order to reduce its exposure to the declining traditional PC market, AMD intends to derive 40%-50% of its revenue from high growth markets, including semi-custom, ultra-low power client, professional graphics, dense server and embedded solutions in the next two to three years.
AMD devised a unified gaming strategy in March this year that addresses its plan to drive the gaming market across consoles, cloud platforms, tablets and PCs. It believes that gaming is one of the key pillars of its semi-custom chip business.
AMD recently introduced its future road-map for the fast growing embedded computing market. In addition to the new improved x86 processors, the company unveiled its first ARM-technology based processor, extending its ambidextrous strategy to embedded markets. It is now the first company to offer its customers both ARM and x86 architecture based solutions for low-power and high-performance embedded compute designs.
Collaboration With ARM To Help Tap Growth In Servers
In October 2012, AMD announced its collaboration with ARM Holdings to design server processors using the ARM technology in addition to its x86 processors for multiple markets, starting with cloud and data center servers. The collaboration with ARM makes AMD the only processor provider to bridge the x86 and 64-bit ARM ecosystems. AMD believes that ARM CPUs have the potential to account for 20% of the server market by 2016 or 2017.
High share in desktop processor market
In 2013, AMD had a 19.4% market share in the desktop processor market compared to a 13.5% and 3.4% market share notebooks and servers respectively. Although desktop demand has stunted while notebook demand is growing at a rapid pace, AMD's market share advantage in desktops makes the company's desktop processor segment remains an important division for its valuation.
Growing notebook market
Despite a much lower market share, AMD's notebook processor is more valuable for AMD's business, as per our estimate. This is because the notebook market is expected to grow while the desktop market may stagnate. We estimate that about 175 million notebooks were shipped in 2013 globally and expect number to reach 200 million by end of our forecast period.
On-going server virtualization
Server virtualization is essentially server consolidation that enables the running of multiple applications on a single server instead of on multiple servers. Server virtualization is driving a mix shift to higher-end servers, which requires multi-core processor servers that tend to be more complex and more expensive than traditional single core processors.
Shift from Desktops to Notebooks
The shift of consumer preference from desktops to laptops will continue as the performance and pricing gap between desktops and laptops narrows. We expect the desktop market to more or less stagnate while notebooks will continue to grow, driven by demand from emerging markets.
Increasing Importance of Smartphone Chips
Smartphone shipments increased by 43% in 2012 ($675 million), accounting for 39% of the mobile phone market. Gartner forecast the mobile phone shipments to climb to 2.2 billion units by 2016, and we estimate smartphones to account for 60% of the shipments. Improving mobile network speeds, growing awareness of smartphones, multiple options present in the market and innovation from smartphone manufacturers will continue to drive growth.
IDC estimates the global tablet shipments to have reached 117 million units in 2012, a 65% increase from 2011, and forecast the market to rise to over 260 million units by 2016.
Convergence of Graphics & Processing
AMD and Intel have moved away from the idea of integrated graphics. Intel's introduction of Sandy Bridge processors and AMD's launch of Llano essentially indicate that the future of integrated graphics is over. These chips pack GPU within the CPU leading to much better graphics performance than one can get from traditional integrated graphics.
This remains key area that is not yet reasonably explored by both Intel and AMD. Intel has been doing some work with its Atom processor and AMD is also looking to push into this market this year with the launch of its Z-series processors, code-named Hondo. Smartphone and tablets are likely to remain one of the key focus for Intel and AMD in 2013 and beyond.
PC market opening up to ARM
Windows 8 is ARM-compatible and we will see ARM-based processor manufacturers entering PC market which has traditionally been dominated by x86 processor architecture.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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