AMD (NYSE:AMD), which manufactures and markets microprocessors and graphic processors for PCs, has been facing a tough time coping with the adverse macroeconomic conditions. While competitors Intel and ARM Holdings (NASDAQ:ARM.L) have successfully weathered the economic headwinds, AMD registered a 11% sequential decline in its Q2 2012 earnings. (Read: AMD’s Earnings Were Weak But Long-Term Positives Are Intact)
In the PC and server processor markets, AMD faces stiff competition from Intel, which has been the market leader for the past two decades. In the graphic processor segment, which contributes close to 24% to our price estimate of $5.71, AMD’s Radoen and FirePro product lines compete with Nvidia’s (NASDAQ:NVDA) GeForce and Quadro lineups. Earlier last month, AMD launched Radeon HD 7970 GHz, tying up with Nvidia’s GeForce GTX 68o, and it claims that this is the world’s fastest GPU. (Read: AMD Takes On Nvidia With The World’s Fastest GPU) By launching the FirePro W9000 GPU, said to be the world’s most powerful workstation graphics, the company seems to have struck another blow to market leader Nvidia.
New FirePro Graphics Line-Up
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- Factors Behind Our Revised Price Estimate For AMD
AMD’s latest line of workstation graphics features incredible compute, higher memory bandwidth, and greater multi-display support performance than the competitors’ products.  The latest AMD FirePro workstation graphic cards also offer smooth handling of complex models and dynamic power management that provide enhanced performance and efficient power usage.
The FirePro graphic cards line up (W9000, W8000, W7000 and W5000) cater well to today’s software applications that demand advanced visualization and complex models. They bring a gamut of features and capabilities for professionals working in digital signage, broadcast graphics, CAD/CAE and M&E.
Where Does AMD Stand In Professional Graphics?
AMD’s professional GPU market share fell sharply from 18% in 2007 to about 12% in 2008 as Nvidia gained with its product. Though the company’s share remained flat in 2009 and 2010, it registered healthy growth in 2011. We estimate AMD had about 16% share of the professional GPU market in 2011, and we forecast that to reach close to 20% by the end of our review period.
We believe the company has plenty of room to grow its market share, and the launch of the new FirePro graphic cards is just a case in point.
We estimate the professional graphics division to contribute a little over 4% to our price estimate for AMD. Hence, even a significant increase in its share in the professional graphics market will only have a marginal impact on the company’s valuation.
AMD’s stock price registered a significant decline post its Q2 2012 earnings release. The company will have to fare well in the PC market, which contributes around 50% to our price estimate, to retain its valuation in the long run.
Our price estimate of $5.71 for AMD is at a premium of above 40% to the current market price.Notes:
- AMD Launches World’s Most Powerful Workstation Graphics Line–Provides Unmatched Improvements in Productivity and Workflow, AMD News Release, August 7, 2012 [↩]