Android Support Can Expand AMD’s Footprint In The Tablet Market

In an effort to turn-around its business and increase its competitiveness in the market, AMD (NYSE:AMD) recently launched three new families of processors – Temash, Kabini and Richland. While the Kabini and Richland platforms are focused on the entry level touch notebooks and premium ultrathin notebooks respectively, the Temash platform targets the small form-factor notebook, tablet, and hybrid markets. AMD claims that its new APU lineup offers faster and more power-efficient products at lower prices compared to its competitors.

We believe that the new notebook APU lineup places AMD in a better position to take on market leader Intel (NASDAQ:INTC) and hold its ground against the upcoming ARM-technology based players in the PC microprocessor market. However, though AMD’s growing focus on mobile computing is a welcome move, we feel it will not make a significant contribution in its top-line growth just yet. AMD has a long way to go before it can effectively compete with Intel and established ARM players in the tablet market.

Temash is a low-power mobility processor for Windows 8 tablets and hybrids. Though AMD says it is willing to embrace the Android operating system (OS) in the future, it is currently not pushing its new chips in Android tablets and intents to only focus on the Windows 8 OS. Microsoft’s Windows 8 platform currently accounts for a very small portion of the tablet OS market and has been unable to garner the expected response since its launch last November. Though the Windows 8 platform is estimated to register the fastest growth in the tablet OS market in the next few years, the Android platform will continue to command a higher market share for years to come.

We think that losing out on a rapidly growing user base for low-cost tablets might limit AMD’s growth potential in the fast growing tablet market.

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Temash Offers Significant Improvement Over Predeccesors

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. Temash will be the industry’s first quad-core x86 SoC and offers significant performance and power improvement over its predecessor. Temash offers a longer battery life and is specifically targeted at high performance tablets that can run full HD games and productivity applications.

Embracing Android Will Expand AMD’s Target User Base

With a 54% market share, Apple’s iOS is the clear winner in the tablet market. However, owing to growing demand for low-cost tablets, especially from emerging economies, Android is not far behind and accounts for approximately 43% of the market. Despite the launch of Windows 8 and Microsoft Surface last year, Windows OS based tablets were estimated to account for only 2.9% of total tablet shipments in 2012. Windows 8 adoption on tablets and smartphones has been weak and though its adoption is expected to rise in the future, we believe that Android support could open up a potentially larger market for AMD.

The worldwide tablet shipments are estimated to reach 282.7 million units by 2016, which means that the Windows OS will power approximately 29 million (10.3%*282.7) tablets by 2016, as per IDC’s estimate. ^[1] While Android’s market share is estimated to decline, it will still account for 112 million units (39.7%*283) of tablets shipped in 2016, almost four times that of the Windows platform.

Many popular low-cost tablets such as Google’s Nexus 7 and Amazon’s Kindle Fire run on the Android OS and are priced at $199. While Android is a popular choice for low-cost tablets, the Windows platform is more prominent in the $499+ tablet range. Targeting high performance tablets, AMD’s Temash aims to gain a foothold in the $499 – $599 tablet price range. ^[2]

In addition to ARM, the market leader in mobile computing, AMD’s entry in the tablet market lags behind Intel that offers support for both the Android as well as the Windows platform. Thus, its target market for tablets is higher compared to AMD. In order to tap the fast growing low-end smartphone and tablet market Intel introduced its low-power Atom processor earlier this year. Considering that both companies work on the x86 architecture, AMD’s tablet processor will have to be superior in performance compared to Intel’s Atom processors to effectively compete with Intel in the market.

Source: IDC

Our price estimate of $2.91 for AMD is discount of over 20% to the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. IDC Raises Tablet Forecast for 2012 and Beyond As iOS Picks Up Steam, Android Gains Traction, and Windows Finally Enters the Market, IDC Press Release, December 5, 2012 [↩]
2. AMD not interested in low-cost tablets, Computer World, January 8, 2013 [↩]