AMD’s Worth $8: Eyes Growth In Servers, Notebooks And Tablets

While its long time rival Intel (NASDAQ:INTC) marked its entry in the fast expanding smartphone market with the launch of Intel powered smartphone by Lava International last week, AMD (NYSE:AMD) seems to be focusing on the opportunities available in the server, notebook and tablet markets instead. In these segments it faces competition from companies such as Nvidia (NASDAQ:NVDA) and Qualcomm (NASDAQ:QCOM). We have revised our price estimate for AMD to $8.02 following earnings and updated market share forecasts.

See our complete analysis for AMD

Increasing Share in the Server Market

After losing almost half its market share since 2007, AMD has reached a trough in 2011. We believe that it will see marginal y-o-y growth going forward and regain some of the lost market share from Intel, reaching 12.5% by the end of our forecast period.

Last year, we saw robust worldwide server growth driven by mega data centers and the explosion of client devices such as smartphones and tablets accessing web content. Research firm Garner, sees the growth continuing in 2012 as well. ^[1]

With the acquisition of SeaMicro now complete and the recent launch of bulldozer based chips, AMD seems to be geared up to face the growing competition with entry of ARM based players in the market. In the past, AMD has shown a willingness to adopt the ARM based architecture if the industry demands so, and we feel it might be part of the company’s long term strategy to regain its server market share. Servers still offer potential for better margins and are growing significantly in the face of a slowing PC market, because of the explosion of data and processing required online.

Growth in Notebook Shipment

Notebooks, is again an area where AMD lost share from 17.4% in 2007 to 13.3% in 2010. However, after four consecutive years of decline, it saw a significant increase in its share in 2011. Last week, AMD sent word that it was already shipping processors based on Trinity and Brazos 2.0 platforms, almost in sync with Intel’s Ivy Bridge processors.

The launch of Trinity chips second generation APU is built with a more advanced 32-nanometer process and features significant power and performance improvements. We expect AMD’s share to peak at around 17% and reduce to about 16% at the end of the forecast period. AMD has long been overshadowed by Intel in the PC microprocessor business and could face increased threat with the potential entry of ARM based players.

When it comes to the discrete notebook GPU business, AMD competes with Nvidia. With a current market share of close to 50%, we believe that going forward the company will not only benefit from the growth in global notebook shipments, but also from an increase in discrete GPU penetration in notebooks. With a slowdown in desktops and the potential shift to notebooks, the market is projected to increase; however there remains a threat of potential cannibalization from tablets. Nevertheless we remain positive on the overall outlook.

Processing and Graphics Power for Tablet Computers

The tablet market could be an untapped vein of possible revenue for the company. The first tablet chip coming this year code-named Hondo, combines a microprocessor and graphics in the same chip. The chip will feature ultra low power consumption.

With Intel entering the smartphone market, tablets are likely to remain one of the key focuses for AMD in 2012 and beyond. Although this segment provides less revenue per unit opportunities, the trajectory of smartphones and tablets is impressive. AMD needs to push its way into this market to hedge against a potential slowdown in the PC market.

To regain the lost investor confidence, AMD has to focus on improving execution, delivering innovative products and building a strategy to identify the growing opportunities in the market and execute on capturing those opportunities.

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1. Gartner Says Worldwide Server Revenue Grew 7.9 Percent and Shipments Increased 7 Percent in 2011, Gartner Press Release, February 28, 2012 [↩]