AMD’s Server Market To Rebound After A Dismal Q2

Weakness in the global economy has led to an environment of lower consumer spending and slow growth in the semiconductor market. Posting an overall sequential decline of 11% and a 13% sequential decline in its computing solution segment in Q2 2012, AMD (NYSE:AMD) was hit by these negative trends currently plaguing the industry. The company’s stock has lost around 36% of its value since the start of this month and continues to trade in the $4-$5 range. (Read Our Article: AMD’s Earnings Were Weak But Long-Term Positives Are Intact)

Though AMD’s revenue from its server business registered a y-o-y increase, it witnessed a sequential decline this quarter mainly on account of lower unit shipments and a marginal decline in the average selling price (ASP). However, with closure of the acquisition of SeaMicro during the end of the first quarter and a new line-up of its Bulldozer based chips in the second quarter, we believe that the company is in a good position to regain its lost share in the server processor market.

We estimate the server processors segment to contribute around 12% to our current price estimate of $5.71 for AMD.

See our complete analysis for AMD

Geared With SeaMicro, AMD To Regain Lost Share In The Server Market

For over two decades, Intel (NASDAQ:INTC) has been AMD’s arch rival in the PC as well as the server microprocessor market. Even in Q2 2o12, while AMD registered a sequential decline, Intel posted a 14% increase in revenues from its data center group.  Historically, AMD enjoyed a 15% share in the server processor market but has witnessed a continuous slide ever since, mainly on account of execution issues. With Intel’s launch of its Xeon processors, this has put additional pressure on the company and almost all the market share that it lost over the years has been grabbed by Intel.

However, since the launch of its Bulldozer architecture, AMD has seen a steady increase in demand for its high-end server processors. The company now powers 24 of the world’s top 100 supercomputers and is showcasing speed and throughput of its Opteron chips in the world’s third fastest supercomputer-Jaguar. After the disappointing Q2 results, AMD plans to increase its focus on mainstream IT buyers and is targeting growth in mega data centers with its enhanced product portfolio post the SeaMicro Acquisition.

AMD’s server computing products are focused on driving industry-leading cloud computing and virtualization environments as it remains focused on driving growth by capturing opportunities in the changing market landscape around low-power, disruptive server technology and cloud based computing. Post the acquisition of SeaMicro, we believe the company is better positioned with strong IP and an enhanced product offering to leverage growth in the server market.

Additionally, the new line-up of Opteron chips based on the Bulldozer micro-architecture further strengthens AMD’s ability to offer greater choices to a data-starved base of enterprises and growing cloud customers.

Post Q2 2012 results, we have extended our forecast period till 2019 and updated our price estimate for AMD to $5.71.

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