AMD’s (NYSE:AMD) management recently stated that the new CEO is fostering a new mindset and thinking inside the company that will go beyond to AMD vs Intel (NASDAQ:INTC).  The company believes that its domain of competition has broadened and now incorporates mobile chip companies such as Nvidia (NASDAQ:NVDA) and Qualcomm (NASDAQ:QCOM). We agree that the broader consumer shift and convergence of devices is the future rather than around one giant competitor. But some analysts think that AMD is publicly acknowledging its defeat against Intel. We believe that AMD is in fact trying to send a positive message to its investors indicating that there are plenty of other opportunities which the company can tap, other than beating Intel, in order to create value for shareholders.
The outline is great but execution is needed, and we feel that this is one area where AMD has lagged. The recent manufacturing issues are not the only examples of where AMD has faced come up short, such as its delay with the Barcelona chip in 2008. With its sharpened focus on the tablet and smartphones as well as other connected devices, AMD should also keep its focus on the server business.
We estimate that AMD’s server business constitutes more than 20% to the company’s business, assuming that future market share gains will be limited to just 12% at best, well below what AMD once achieved. This business could be really expand, especially in the face of the PC business possibly losing out to tablet computers to some extent. Servers still offer potential for better margins and is growing significantly because of the explosion of data and processing required online.
Our price estimate for AMD stands at $8.50, implying a premium of about 50% to the market price.Notes: