With Apple (NASDAQ:AAPL) switching back to Nvidia’s (NASDAQ:NVDA) graphic processors to power its next generation MacBook Pro, AMD (NYSE:AMD) might have lost some ground against its ongoing competition with Nvidia.
The current model of MacBook Pro in the market uses AMD’s Radeon HD 6770M and Radeon HD 6750M for graphics processing. However, the next generation MacBook Pro will be powered by Intel’s (NASDAQ:INTC) Ivy Bridge processors with a graphics boost from Nvidia’s GeForce GT 650M, based on its new Kepler technology. Though, this marks a missed opportunity for AMD to gain additional ground in the market, and we do not believe that the move would have any significant impact on its market share in the discrete notebook GPU division.
The discrete notebook GPU division contributes close to 13% to our current price estimate of $8.
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Cut Throat Competition Between AMD & Nvidia Will Keep Market Share Gains In Check
With the launch of its Rodeon chips, AMD witnessed a considerable rise in its market share in discrete notebook graphics, registering an increase in share from 38% in 2007 to 48% in 2011, whereas Nvidia witnessed an equivalent drop in its share during the same period.
After having switched its entire Mac lineup to AMD last year, Apple shifted back to Nvidia for the latest version of its MacBook Pro. The switch over to AMD graphics last year did not lead to any significant share gain for the company; and thus, we do not believe that the absence of AMD graphics in the new MacBook Pro will have a major impact on its discrete notebook graphics division this time either.
We believe, that the neck-to-neck competition between Nvidia and AMD will make any significant share gain by the two companies unsustainable in the long run. There are other smaller players in the market such as VIA Technologies (VIA) and Silicon Integrated Systems Corporation (SiS) that might have greater flexibility to address specific market needs, but do not have the requisite financial resources to do so. Thus, when it comes to discrete graphics, AMD and Nvidia are the only two companies that one needs to watch out for. In 2011, AMD and Nvidia enjoyed a 48% and 52% market share in discrete notebooks respectively; and we do not believe the difference to be significantly different for the period under review.
AMD’s Lower Price Could Help Leverage Growth In Emerging Market
While its true that Nvidia might have a slight advantage with the its graphics present in the new MacBook Pro and several other design deals for Intel’s Ivy Bridge platform scheduled for 2013, it does not completely leave AMD at a loss as the company enjoys a relative price advantage in the market. With demand from emerging countries driving the global PC shipment growth, AMD could leverage on its competitive pricing to target a higher share in this market.
However, given that the average price difference for discrete notebook GPUs is not very steep between the two companies, we do not believe that the company will witness a significant increase in its market share. Thus, we forecast AMD’s market share to remain more or less around the current level, for the period under review.
Even in the likelihood of AMD losing out some market share to Nvidia in the current year, there will not be a significant impact on its overall valuation. If we assume that AMD’s market share drops down to 40% in 2012 and remains at that level throughout our forecast period, there will only be a 3% downside to out price estimate still leaving the valuation at a considerable premium to the current market price.
Our price estimate of $8.39 for AMD is at a premium of around 40% to the current market price.