Can The New GPU Lineup Help AMD Regain Its Share In Discrete GPUs?

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AMD’s (NYSE:AMD) stock has lost approximately 40% of its value in the last six months as the company has seen a steep decline in its top line in the last few quarters. In addition to being the worst hit by the sluggish PC demand this year, AMD has suffered market share losses to Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA). AMD has undertaken a number of restructuring initiatives in the last two years, but its efforts have so far failed to provide a continuous growth momentum to its top line. In 2014, the company saw marginal growth in its revenue as it successfully ramped up a diverse set of new products in non-PC growth markets, primarily the gaming industry.

AMD believes that Q2 2015 will be a revenue trough for the year.  Management looks forward to seeing improvements in the back half of the year as the company ramps semi-custom wins and its newest APU and GPU products.

Last week, AMD launched its third “Fiji”-based product this summer (Radeon R9 Nano), the first two being AMD Radeon R9 Fury and R9 Fury X graphics cards. Radeon R9 Nano is the fastest Mini ITX graphics card ever to enable 4K gaming in the living room through ultra-quiet, ultra-compact PC designs. The Fury graphics family marks a turning point in PC gaming with the implementation of High-Bandwidth Memory (HBM) to deliver extreme energy efficiency and performance for ultra-high resolutions, unparalleled VR i.e., Virtual Reality) experiences, and smoother gameplay. Offering a number of variants ranging from $199 – $649, the Radeon R9 Series claims to meet virtually every need and budget for anyone who demands a premium gaming experience.

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Whether AMD’s new Radeon GPU lineup can help the company regain its lost market share from Nvidia, only time will tell.

Our price estimate of $2.43 for AMD is at a 30% premium to the current market price.

See our complete analysis for AMD

The PC Gaming Graphics War Between NVIDIA and AMD

In March 2013, AMD devised a unified gaming strategy to drive the gaming market across consoles, cloud platforms, tablets and PCs. The strategy has clearly paid off well so far, as the company now powers all major next generation consoles including Sony’s PlayStation 4, Nintendo’s Wii U and Microsoft’s Xbox One. However, when it comes to discrete graphics cards, Nvidia still has an upper hand over AMD, as far as the current market share is concerned.

PC gaming account for a large chunk of the worldwide gaming market, higher than consoles, phones, tablets or any other individual gaming segment. The PC gaming market is expected to grow from $26 billion in 2014 to $35 billion by 2018. [1]

Following AMD’s acquisition of ATI in 2006, AMD has been one of two key players in the discrete graphics cards market, along with Nvidia. The two companies account for almost 100% of the GPU market. The market shares of the two companies have fluctuated a lot between quarters, but Nvidia still manages to retain its lead over AMD in the discrete GPU market.

Nvidia has pursued architecture updates aggressively and more quickly placed them in products while AMD, strapped for resources as it tries to compete with Intel in CPUs and Nvidia in GPUs, has fallen back on re-branding existing chips in many of its cards. In the past, AMD has often resorted to slashing its prices in order to better sell its graphics chips.

During its financial analyst meeting in May, AMD highlighted that its larger gaming efforts include not only consoles, but everything from casinos to PCs.  And it will leverage GPUs, CPUs, software, as well as its semi-custom chips. Plans for AMD’s Graphics Core Next architecture include high-performance capabilities with twice the power efficiency of current GPUs and a FinFET 3D transistor architecture. [2]

AMD has launched a number of new products (CPUs, APUs and GPUs) with added features and improved efficiency so far this year. There are indications that AMD might enjoy an upswing in popularity as DirectX 12 games start to emerge. The only DX12 game benchmarked so far seems to show that AMD’s R9 390X offers performance at par with the Nvidia GTX 980, but for significanty less. [3]

We forecast a marginal increase in AMD’s discrete GPU market share (both notebooks and desktops) in the long-run.

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Notes:
  1. Core Gamers Are Expected To Drive Record Growth For PC Games, Open Gaming Alliance, March 2, 2015 []
  2. AMD Launches Radeon GPUs with High-Bandwidth Memory, eWeek, June 16, 2015 []
  3. AMD discrete GPU market share eroded to less than 20 percent, Hexus, August 19, 2015 []