The slowing PC market, leadership woes, a manufacturing glitch and a slow response to rapidly changing consumer needs are some of the key factors that contributed to an over 60% decline in AMD’s (NYSE:AMD) stock price in 2012. Though most of its competitors such as Intel (NASDAQ:INTC) and Texas Instruments are being hurt by the PC slowdown, AMD has been the worst hit.
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In an effort to strengthen its competitiveness in the market, AMD announced a restructuring plan in Q3 2012, which aims to reduce its expense base by 25% in light of the macro headwinds. As part of the restructuring plan, AMD will cut its global workforce by 15%, which is estimated to result in operational savings of $190 million in 2013. With lower expenses, the company aims to deliver break-even results with $1.3 billion in revenue and reduce operating expenses to $450 million per quarter by Q3 2013.
In addition to lowering its expense base, the introduction of a number of new platforms and partnerships in the last few months could help turnaround AMD’s business in the future. In this article, we take a deeper look at some of these developments.
1. New Tablet Platform Could Open Additional Revenue Stream
Failing to score significant design wins, AMD’s earlier efforts to enter the tablet market have been unsuccessful. Its first two tablet chips, including last year’s Hondo and Z-01 tablet chip failed to make an impact in the market. Earlier this year, AMD introduced its Temash platform that targets the fast growing performance tablets and hybrid markets. AMD claims that the new processor offers 100% higher graphics processing performance compared to its predecessor, the Hondo chip.
Temash will be industry’s first quad-core x86 SoCs, though it will be available in both dual and quad-core variants. It offers a longer battery life and is specifically targeted at high performance tablets that can run full HD games and productivity applications. APUs based on the Temash platform also support the Turbo Dock technology. The Turbo Dock technology automatically adjusts AMD’s APU performance when a hybrid PC/convertible is docked, and the device is being used for complex tasks such as content creation. On the other hand, the Turbo Dock lowers power consumption when in tablet mode.
IDC research shows that speed and high resolution display are two key features that tablet users are concerned about. By saving battery life, the Turbo Dock extends video watching and web browsing time on devices. Temash-based performance tablets and hybrid notebooks will be available in the market later this year.
We believe that AMD’s growing focus on the mobile computing market will have a minimal impact on turning around the stock price as it has a long way to go before it can effectively compete with Intel and established ARM players in the tablet market. Nevertheless, its mobile computing strategies are could provide an additional revenue stream for AMD. We estimate Temash’s target market to reach 29 million by 2016. (Read: AMD’s Entry Into Tablets Will Not Help Its Stock)
2. Strong APU Line-up Could Accelerate Product Wins
With the increasing popularity of notebooks, the PC industry is shifting toward lighter and thinner form factors. Though PC shipments remained flat this year, research firm IDC estimates shipments to grow on an average of around 7% from 2013-2016. 
AMD has a robust pipeline of upcoming platforms which could fuel demand for its products in 2013 and beyond. At the 2013 Consumer Electronics Show in January, it introduced the Kabini platform, meant for ultrathin notebooks in the low power segment. Kabini will be AMD’s first quad-core APU and will replace its Brazos 2.0 platform.
Earlier this year AMD also introduced a new APU, code named Richland, which target the desktop and performance ultrathin segments. AMD claims that the Richland platform delivers over 20%-40% better visual performance compared to its predecessor, the Trinity chip. Despite its declining sales, AMD’s Trinity notebooks marked a 70% sequential increase in unit shipments and accounted for one third of its total notebook shipments in Q3 2012. We feel that the introduction of higher efficiency processors by AMD could lead to additional design wins, helping the company maintain its market share in the coming years.
The follow-up to Richland – Kaveri, is also expected to start shipping in the second half of 2013, and promises to offer significant performance per watt improvement and a stronger battery life, offering higher efficiency.
3. Collaboration With ARM To Revive AMD’s Server Business
AMD is in the process of designing ARM technology based processors 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.
On the flip side, the wide timeline leaves an opportunity for AMD’s competitors to retaliate, which might negate any potential advantage that AMD could have. However, AMD claims 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.
Additionally, certain ARM players such as Nvidia are developing ARM-based chips for servers and plan to enter the market in the near future. Nevertheless, collaborating with ARM Holdings could give AMD an edge as, unlike other ARM-based players; it already has certain expertise in the market.
4. Leveraging High-Growth Opportunities In Adjacent Markets
AMD aims to diversify itself beyond the PC market and target other adjacent markets including dense servers, new embedded markets and new lower-power form factors where its IP provides differentiation and a better opportunity for it to grow its share. The company intends to drive 40% to 50% of its portfolio to these faster growing markets in the future.
AMD intends to combine its extensive 64 bit design experience X86 processor IP and ARM processor cores with the SeaMicro offering to leverage the increasing transition to dense servers.
AMD is focusing on increasing its share in additional embedded markets including communication, industrial and gaming among others. It intends to leverage the success of its APUs and graphics to tap the growing potential in such markets. AMD aims to increase the revenue contribution from its embedded business to almost 20% by 2014, from the current level of a mere 5%. It scored significant design wins last quarter and claims to be in line to achieve its target growth.
5. Stable GPU Business Will Help Retain Market Share Vis-à-Vis Nvidia
Nvidia continues to account for a dominant share of the discrete GPU market, though its lead is significantly less when compared to Intel’s lead over AMD in the PC microprocessor market. In 2012, Nvidia gained some market share from AMD in the discrete graphics add-on market for PCs. While Nvidia might have the upper hand in the GPU market right now, we believe the stiff competition between the two will make any significant market share gain by either, unsustainable in the long run.
AMD released a full line of mobile discrete graphics to market recently, apart from recapturing the graphic performance leadership position with the launch of the world’s fastest GPU. It also announced a new series of discrete graphics processors for performance gaming earlier this year. The new product portfolio aims to target high growth markets such as ultrathins, convertibles and tablets.
Our price estimate of $3.15 for AMD is at a 30% premium to the current market price.Notes:
- IDC Lowers PC Outlook As Shipments Decline In Second Quarter Ahead Of Fall Product Updates, IDC Press Release, August 23, 2012 [↩]