A change in leadership, hard drive shortage, manufacturing glitch and a potential slowdown in the PC market all contributed to a tough 2011 for AMD (NYSE:AMD). As the industry is still suffering from the aftermath of semiconductor slowdown, we do not believe that this quarter will offer any respite. AMD is set to announce its Q2 2012 earning on Thursday, 19th July, and as indicated by the company’s earning preview, the results could turn out to be far more disappointing than expected.
AMD might be severely hit by the slowdown in PC industry, but its next generation Trinity processors and a partnership with ARM Holdings (NASDAQ:ARM.L) give the company an overall positive outlook.
Softer PC Market To Impact AMD Sales
Coupled with an unfavorable economic environment, the hard drive shortage that resulted from flooding in Thailand in October 2011, negatively affected the demand for chipsets by PC manufacturers. The impact of the same trickled over to the 1st half of 2012, which registered a decline in global PC shipment growth rate. However, according to research firm IDC, the worldwide PC market registered a 2.3% y-o-y increase during Q1 2012, slightly higher than its previous estimate. 
As the demand from developed countries saturate, emerging markets such as China and India are expected to fuel future growth in global PC shipments. However, as revealed by the company in its preliminary earning outlook, AMD’s sales were hit by a lower than expected demand from China and Europe and an overall weaker consumer buying environment.
Given that IDC estimates a better than expected PC shipment growth, does this imply that its competitors – Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA) will have a stronger chip update from these market? We’ll have to wait and watch as the companies post their quarter results.
We expect the PC market to rebound during the second half of 2012 with the upcoming Windows 8 OS launch and the entry of ARM-based players in the market. AMD claims that it will continue to focus on driving sales in China and other emerging markets. Given that the company derives over 70% of its value from the PC market, how it fairs in the emerging economies can significantly impact our valuation for the company.
Partnership With ARM To Enhance Security Solutions
Earlier last month, AMD expanded the security ecosystem for its future product offerings by collaborating with ARM Holdings. The partnership will see ARM’s TrustZone technology being extended into AMD processors, enabling a secure computing experience for its business customers and other consumers.
The future chip, as a result of the partnership, will aligns both AMD x86 and ARM-based hardware to build an industry standard security solution spanning multiple processor architectures for various devices and operating systems.
With ARM-based players entering the PC microprocessor market later this year, the competition is bound to intensify for dominant players such as Intel and AMD. However, the latter’s confirmation of using an ARM license to develop a platform security processor leaves its arch rival Intel as the only x86 player for PC and mobile devices processors.
We feel, that the collaboration with ARM to build a platform security processor with its Cortex A-5 TrustZone technology could work well for AMD to maintain its foothold in the market.
AMD’s Trinity Chips To Challenge Intel Powered Ultrabooks
This quarter, AMD came out with its much awaited 2nd generation APU’s – codenamed “Trinity”, with up to twelve hours of battery life and almost double the performance per watt of last years Llano APU’s. Trinity could give stiff competition to Intel (NASDAQ:INTC) powered ultrabooks, which failed to garner the expected response last year, as their steep price was a cause of concern for many.
Trinity is an improved design over the previous generation, enabling a best-in-class PC mobility, entertainment and gaming experience for mainstream and ultrathin notebooks, desktops, home theater PCs and embedded designs.
The company claims that AMD’s “ultra thin” laptops, with the new Trinity chips could cost around half the price of an Intel Ultrabook.  However, the fact that Intel might or already has slashed its microprocessor prices by over 10%, could be a cause of concern for AMD. (Read Related Article: Will Lower Ivy Bridge Prices Drive Demand For Ultrabooks?)
We will update our price estimate of $8.39 post the Q2 2012 results.Notes:
- PC Market Returns To Positive Growth, Though Gains Remain Small, IDC Press Release, April 11, 2012 [↩]
- AMD reveals Trinity specs, claims to beat Intel in price, multimedia and gaming, engadget, May 15, 2012 [↩]