At the recently concluded 2013 Computex Taipei, AMD (NYSE:AMD) showcased a range of new platforms and products which can re-accelerate its growth momentum in the future. AMD manufactures and markets microprocessors for PCs, servers and more recently for tablets. The company derives more than 85% of its valuation from the PC market and thus lower PC shipments led to a 17% decline in its 2012 revenue. Additionally, AMD suffered a net loss of $1.18 billion as apart from a weak macro environment it faced internal challenges such as a change in leadership, a temporary manufacturing glitch and a slow response to rapidly changing consumer needs. Consequently, its stock price declined by more than 60% in 2012.
AMD announced a restructuring plan in Q3 2012 in an effort to strengthen its competitiveness in the market and better manage its expenses and cash. In addition to lowering its operating expenses, it has been focusing on introducing new product offerings and leveraging growth in adjacent markets to drive growth. We think AMD’s Q1 2013 results confirm its improving operational efficiency.
Here we have a look at AMD’s key product developments highlighted at the 2013 Computex Taipei.
1. New APU Line-Up To Spur PC Demand
A weak consumer buying environment and seasonal factors led to lower desktop, notebook and chipset unit shipments for AMD last year. Global PC shipments witnessed the sharpest quarterly decline (13.9% y-o-y) in Q1 2013 in almost two decades which impacted the sale of AMD processors in the quarter as well. Though IDC estimates a revival in demand in the second half of the year, it forecasts global PC shipments to decline for the second consecutive year in 2013.
We believe that a new APU line-up can help fuel demand for AMD’s products in 2013 and beyond.
- Richland: At Computex 2013, xAMD introduced its Elite A-series APU (code-named Richland) which target the desktop and performance ultrathin segments. The Richland platform delivers over 20%-40% better visual performance compared to its predecessor, the Trinity chip, and is ideal for desktop PC builders and mainstream gamers.
- Kaveri: AMD also showcased new OEM designs wins for Kabini, its first quad-core APU set to replace its Brazos 2.0 platform. The Kabini platform offers solutions for entry-level and small-form factor touch notebooks. Both HP and Acer have announced small form-factor, touchscreen-based notebooks with many new designs expected to be launched later this year.
With the expanded product offering, AMD aims to increase its share in the PC market by winning designs across customers, regions, price points and form factors.
2. Temash To Help Leverage Growth In Alternate Markets
In addition to the small form-factor notebook, AMD’s recently introduced Temash platform targets the fast growing tablet and hybrid market segments. Temash is the industry’s first quad-core x86 SoC and promises significant performance and power improvement over its predecessor. It offers a longer battery life and is specifically targeted at high performance tablets that can run full HD games and productivity applications. Winning the “Best Choice of Computex Taipei” award this year, AMD showcased new OEM design wins for the platform from MSI, Gigabyte, and Quanta. It expects more design wins in the latter part of 2013.
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 used for complex tasks such as content creation. On the other hand, the Turbo Dock lowers power consumption when in tablet mode.
While we believe that AMD’s growing focus on the tablet market is a good long-term strategy, we do not think it has a significant impact on turning around the stock price. The company has a long way to go before it can effectively compete with Intel and established ARM players in the mobile computing market. (Read: Android Support Can Expand AMD’s Footprint In The Tablet Market)
3. Increasing Presence In Game Consoles To Diversify Revenue Base
AMD devised a unified gaming strategy in March this year that addresses its plan to drive the gaming market across consoles, cloud platforms, tablets and PCs. It believes that it is effectively positioned to drive the next revolution in gaming and provided updates on it progress so far at the 2013 Computex Taipei. AMD now powers all major next generation consoles including Sony’s PlayStation 4, Nintendo’s Wii U and Microsoft’s Xbox One.
In an effort to reduce its dependence on the traditional PC market, AMD recently launched a semi-custom chip business unit where the chip combines AMD’s central processing and graphic capabilities and can be integrated with the customers’ intellectual property. The new unit focuses on high-volume, high-value applications that span a wide range of markets, including gaming. AMD aims to increase the revenue contribution from its embedded business to almost 20% by 2014, from the current level of a mere 5%.
Despite stiff competition from other forms of gaming, game consoles account for 42% of the $65 billion global video game market.  Jon Peddie Research valued the PC gaming hardware market at $23.6 billion in 2012, and forecasts the market to cross $30 billion by 2015. 
AMD’s game consoles wins have been one of the primary factors behind the more than 50% increase in its stock price in the last few months. We believe that AMD can significantly increase its processor shipments in the future as it is present in most of the leading players in the gaming market. However, we do not think that it alone justifies the sudden surge in its stock price this year. (Read: AMD’s Surge On Game Console Wins Looks Overdone)
Our price estimate of $2.91 for AMD is at a discount of over 20% to the current market price.Notes:
- Microsoft: Global video-game market hits $65 billion, and consoles still lead the way, Geek Wire, May 17, 2013 [↩]
- PC Gaming Hardware Market to Hit $23.6 Billion in 2012, Jon Peddie Research, May 3, 2012 [↩]