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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:
Enterprise, Embedded & Semi-Custom
AMD's Enterprise, Embedded & Semi-Custom Revenue: We currently estimate AMD's embedded processor and semi-custom revenue to increase from $2.2 billion in 2014 to $3.6 billion by the end of our review period. However, if the revenue from the embedded division increases to $4 billion, there will be a 30% upside to our price estimate for AMD. On the other hand, if the same remains increases to only $3 billion, there will be a more than 10% downside to our current price estimate.
AMD Enterprise, Embedded & Semi-Custom EBITDA Margin: We estimate the Enterprise, Embedded & Semi-Custom EBITDA margin to increase marginally over our review period, from 20% in 2014 to 22% by 2021. If EBITDA margin for the division remains around the current level for the rest of our review period, there will be a 20% downside to our current price estimate for AMD. On the other hand, if margins increase to 25% over the same period, there will be a 30% upside to our price estimate for the company.
AMD Server Processor Market Share: We expect AMD's server processor market share to increase from an estimated 1.7% in 2014 to approximately 3.7% by the end of our review period. However, there could a 40% upside to our price estimate if AMD's server market share increases to 10%. On the other hand, there will be a less than 10% downside if AMD's server market share stays around the current level for the rest of our forecast period.
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 also manufacturers embedded processors used in products that require high-to-moderate levels of performance, where key features include low cost, mobility, low power, and small form factor. The company also makes System-on-Chip (SoC) products and technology for game consoles.
We believe that 'Enterprise, Embedded and Semi-Custom', 'Graphics' and 'Server 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 believes that it is effectively positioned to drive the next revolution in gaming and now powers all major next generation consoles including Sony’s PlayStation 4, Nintendo’s Wii U and Microsoft’s Xbox One.
Last year, AMD 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.
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.
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 with the launch of its Z-series processors, code-named Hondo.
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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