Can The New Opteron Chips Revive AMD’s Server Business?

by Trefis Team
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Deriving over 85% of its revenue from the PC market, AMD (NYSE:AMD) has been the worst hit from the slowdown in global PC shipments compared to other market players such as Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA). AMD’s stock, which had crossed the $8 mark in March this year, is currently trading around its lifetime low of $1-$2. Failing to keep pace with the change in consumer trends and faced with mounting debt and declining cash reserves, AMD has been struggling to revive investor confidence in the company. (Read Our Article: Why AMD’s Stock Collapsed And How It Can Recover)

After posting negative cash flows for two consecutive quarters amid declining revenues, in light of the broader macro issues, AMD announced a restructuring plan last quarter in an effort to strengthen its competitiveness and reduce its expense base. Additionally, the company aims to increase its focus on particular growth areas, including dense servers, embedded devices and ultra-portable computing devices. We believe the move can help AMD obtain a stable financial footing in light of the uncertain PC market.

Earlier this week, AMD launched nine new mid-range and entry-level Opteron processors which are ideal for use by cloud providers, web hosts and small as well as medium-sized businesses. In addition to the upcoming ARM-based servers in 2014, AMD has been stepping up efforts to revive its share in the server processor market. The new updates for its existing x86 server chips promise to offer a better combination of performance, power and price to its customers.

With SeaMicro on board, combined with its continuous focus to regain its lost market share, we believe that AMD’s server business could witness a turnaround hereon.

See our complete analysis for AMD

Historically, AMD enjoyed 15% share in the server processor market but has witnessed a continuous slide ever since mainly on account of execution issues. With Intel’s launch of its Xeon processors, this has put additional pressure on the company and almost all the market share that it lost over the years has been grabbed by Intel.

However, since the launch of its Bulldozer architecture, AMD has seen a steady increase in demand for its high-end server processors. The company now powers 24 of the world’s top 100 supercomputers and is showcasing speed and throughput of its Opteron chips in the world’s third fastest supercomputer, Jaguar.

New Opteron Series Offers Ideal Performance and Price for Cloud Applications

The newly launched Opteron 4300 and 3300 series processors are based on AMD’s Piledriver architecture and offer a lucrative combination of improved power efficiency at lower prices. AMD claims that the processors provide optimized performance which make them apt for cloud providers, web hosters and small & medium sized businesses. Cloud servers represent a high-volume market and any major win could significantly fuel AMD’s server business.

The new Opteron series products deliver lower power consumption and around 24% better performance per watt compared to its predecessor, which were based on the Bulldozer core.

AMD Banks On SeaMicro To Gain Market Share

AMD completed its acquisition of SeaMicro, which makes ultra-dense servers, earlier this year. Post the acquisition of SeaMicro, we believe the company is better positioned with strong IP and an enhanced product offering to leverage growth in the server market. With an enhanced portfolio, AMD plans to increase its focus on mainstream IT buyers and is targeting growth in mega data centers.

AMD’s server computing products are focused on driving industry-leading cloud computing and virtualization environments as it remains focused on driving growth by capturing opportunities in the changing market landscape around low-power, disruptive server technology and cloud based computing.

The new Opteron processors can be used in the SeaMicro dense servers, which currently employ the 4200 and 3200 Opteron server chips.

Collaboration With ARM Could Give It An Edge Over Intel

Apart from the PC market, Intel (NASDAQ:INTC), with over 90% market share, remains a major threat for AMD in the server processor market as well. Currently, Intel and AMD are the only companies that are working on the x86 architecture. However, with the expected entry of ARM-based players in the server market, the competition could intensify for both players.

Earlier in October, 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 new generation server products will start production in 2014. The collaboration with ARM will make AMD the only processor provider to bridge the x86 and 64-bit ARM ecosystems.

Though the wide time-frame leaves scope for existing as well as potential competitors to counter AMD’s move, the company feels that its suite of processor and graphics IP, third-party processor cores and SeaMicro’s innovative supercomputer fabric will enable it to deliver differentiated solutions.

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