AMD Highlights Its Strategy For Profitable Growth At Its Analyst Day Meet

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Advanced Micro Devices

At its 2015 Financial Analyst Day on May 6, 2015, AMD (NYSE:AMD) provided details on the company’s multi-year strategy to drive profitable growth by delivering next-generation technologies across key areas of gaming, immersive platforms and the datacenter. Despite a weak Q4 2014, AMD’s 2014 revenue grew (by 4% annually) for the first time since 2011, and the company delivered its first full year of non-GAAP profitability in three years. However, weaker-than-expected PC sales, market share loss and a seasonal decline in the semi-custom business led to a disappointing Q1 2015.

AMD claims to be focusing its investments on the strongest opportunities to enable its customers to create great products that push the boundaries of what is possible and allow the company to achieve profitable growth in the years to come.

AMD showcased a number of new technologies and platforms at its analyst day, including:

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– The next-generation 64-bit x86 processor core, codenamed “Zen”. AMD expects Zen to drive its re-entry into high-performance desktop and server markets through improved instructions per clock of up to 40%, compared to the current x86 processor core.

– Updates on its first custom 64-bit ARM core, “K12” core, which is designed for efficiency and are ideally suited for server and embedded workloads.

– Plans to extend its graphics technology leadership by offering the first high-performance graphics processing unit (GPU) in the industry featuring die stacked High Bandwidth Memory (HBM) using a 2.5D silicon interposer design using stacked die. AMD plans to introduce this innovative packaging solution this year with its latest GPU.

– A new high-performance network-on-chip (NoC) technology, a modular design approach that leverages re-usable IP building blocks to maximize design efficiency, which is expected to lower cost and time-to-market for both AMD’s standard and future semi-custom products.

AMD also announced updates on its Computing and Graphics  product roadmaps for accelerated processing unit (APU), central processing unit (CPU), and GPU products planned for introduction in 2016 and beyond. Additionally, the company detailed the long-term strategy for its Enterprise, Embedded and Semi-Custom Business Group to grow a number of high-priority markets based on leveraging high-performance CPU and GPU cores that allow customers to build differentiated solutions.

For fiscal 2015, AMD is concentrating on three key initiatives: 1) reversing the decline in the PC business; 2) increasing R&D investments in enterprise, embedded and semi-custom devices;  and, 3) diversifying its revenue base by growing in new markets. Just how the strategy plays out for the company as the year progresses will be of great interest.

Our price estimate of $3.31 for AMD is at a considerable premium to the current market price.

See our complete analysis for AMD

AMD Is Taking Appropriate Steps To Reignite Growth In The Computing & Graphics Business

AMD’s Computing and Graphics solution group has seen a steep decline in its revenue base in the last three years, primarily due to declining PC shipments and market share losses to Intel. The company claims to have taken appropriate actions to re-position its product stack and reduce downstream desktop and AIB channel inventory. Though these actions will result in short-term pressure on the business, AMD believes they are integral to building a stronger and more profitable business, going forward.

We believe AMD has a long way ahead to improve the overall revenue and financial performance of this segment. The company feels confident that it is taking the right actions to return the business to a healthy trajectory starting in the second quarter. It has right-sized its investments in the Computing and Graphics business and is taking appropriate actions to reduce its downstream channel inventory. It aims to bring the segment back to positive growth starting in the second quarter.

Semi-Custom & Embedded Business Continues To Be A Key Growth Driver

The game console business has a cycle of three to four years. Microsoft and Sony launched new products in late 2013 and thus AMD expects another few years of strong game-console revenue growth from them. Last year, AMD announced securing two new wins in the segment, which are expected to deliver combined total lifetime revenue of approximately $1 billion over approximately three years. Design work for these opportunities has started and AMD anticipates first silicon revenue from these deals in 2016.

AMD has a broad range of embedded processors for different segments in its portfolio, offering a number of price, performance and power options to meet the needs of embedded designers. The company intends to take on the different segments in the embedded market by offering its customers a range of solutions to chose from —  from low-power to high-performance — with a broad ecosystem of software and hardware partners supporting multiple operating systems, including Windows and Linux. The embedded market is a very competitive market and AMD’s strategy is to play to its strengths. The company is focusing on its strengths in efficient computing and image processing, factors that it believes differentiates it from other players and will fuel its growth in the embedded market.

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