AMD (NYSE:AMD), which manufactures and markets microprocessors used in servers, desktops and notebooks, has registered a 28% drop in its stock price since the company announced its estimate of an over 10% decline in Q2 2012 revenues. Weakness in the developed markets and slowing demand from emerging economies seems to have taken a toll on the company, which reported lower than expected channel demand for processors, primarily in China and Europe. The slowdown in the PC market has impacted most of AMD’s competitors as well, including market leader Intel (NASDAQ:INTC), but so far it has been the worst hit by the macroeconomic headwinds.
Amid the slowdown in global PC shipments and growing popularity of mobile devices, smartphones and tablets are slated to become the future growth engines for the semiconductor industry. So far, AMD has virtually no presence in this lucrative market. However, the company plans to reveal its new low-power Jaguar core aimed at tablets and netbooks at the Hot Chips show next month.
The move will pitch it against market leader ARM Holdings (NASDAQ:ARM.L), whose processor designs are used in Apple’s (NASDAQ:AAPL) iPad, Google’s (NASDAQ:GOOG) Nexus 7 and Amazon’s (NASDAQ:AMZN) Kindle Fire. Additionally, the company faces threat from arch rival Intel, which entered this arena with three smartphone launches so far this year, and claims to have 20 upcoming tablet designs based on its Atom processors.
Jaguar will succeed AMD’s Bobcast processor, which will be used in the upcoming Hondo tablet chips expected to be launched later this year. Apart from a smaller processor size, Jaguar cores are expected to have performance and power consumption advantages over Bobcast. The Jaguar processors could hence play a greater role in igniting AMD’s ambition to enter the mobile computing space.
The chips based on the Jaguar design are expected to be more power efficient with higher levels of GPU and CPU integration.  As tablets require high levels of graphic performance, the graphic processors could turn out be the company’s biggest advantage by giving it an edge over competitors.
While we do believe that introducing a low-power processor for tablets is a welcome move, we strongly feel that improving its performance in the PC market, which contributes over 75% to our price estimate for AMD, is important for the company to retain its current valuation.
We recently extended our forecast period and updated our price estimate for AMD to $5.71.Notes:
- AMD to detail upcoming Jaguar low-power processor design for tablets, IT World, July 16, 2012 [↩]