For many years, AMD (NASDAQ:AMD) has been under-represented in the professional graphics segment, which is dominated by Nvidia (NASDAQ: NVDA). Nevertheless, competitive pricing and improving hardware has helped increase AMD’s professional graphics market share from 12% in 2009 to 20% at present. Strong performance in professional graphics was an important factor that drove AMD’s growth in the last few quarters. In Q1 2014, the company marked its seventh consecutive quarter of revenue and share growth in the professional graphics business segment. AMD is increasing its investment in the area to build a stronger relationship with key customers.
In December last year, Apple (NASDAQ:AAPL) announced that it is using AMD’s dual FirePro professional graphics solutions in its new Mac Pro (a professional desktop computer). AMD has custom-designed the GPUs specifically for Apple. With AMD’s FirePro™ D300, D500 and D700 GPUs, Mac Pro users will have the ability to seamlessly edit full resolution 4K video and simultaneously render effects in the background, and still have enough performance to power up to three high resolution 4K displays.
DigiTimes reports the deal could increase AMD’s professional GPU market share to 30% by the end of 2014.  Apple Mac Pro is a solid long term revenue stream for AMD’s professional graphics division as these are high priced, high margins products. Defying the declining trend in the desktop market, Apple has aggressively priced the Mac Pro in the $3,000 – $4,000 range. The dual D300 GPUs in the lower-priced Mac Pro are estimated to be worth $1,200, while the D500 GPUs powering the higher-end version of the desktop are valued at $2,500. 
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How Many Mac Pro units will Apple have to sell for AMD’s share to rise to 30%
According to Jon Peddie Research, 4.9 million professional graphics cards were sold in 2013. AMD accounted for 20% of the market and shipped 0.98 million professional GPUs (20% of 4.9). We estimate the global professional GPU market to increase to 5.2 million units in 2014. If AMD’s professional GPU market share rises to 30% (as predicted), then it implies that the company will sell 1.6 million GPUs (30% of 5.2), half a million more compared to 2012. Assuming that the entire increase is attributed to the Apple MacPro deal, this implies that Apple will be selling a quarter million MacPro’s (0.5 million divided by 2, since each MacPro uses dual GPUs) this year.
Considering that the current demand for the new MacPro is outpacing supply by a wide margin, we don’t think selling a quarter million unit of the new MacPro is an unachievable target.  The MacPro is a fast selling product and has a current waiting period of 5-6 weeks. 
In the past, Apple has shifted between Nvidia and AMD graphics in the consumer space. If AMD manages to hold onto the Mac Pro deal, it stands to gain significantly in the long run. If the company also manages more design wins with Apple for its consumer products ( iMacs, Mac mini, Macbooks) in the future, it can gain additional share in the market. We estimate the professional graphics segment to account for 7% of AMD’s valuation.
Our price estimate for AMD is at a slight discount to the current market price.Notes:
- AMD may reach 30% share in professional GPU market in 2014, Digitimes, December 23, 2013 [↩]
- Apple’s Mac Pro is the new black, Computerworld, December 19, 2013 [↩]
- Can AMD Win the High-End?, The Motley Fool, January 3, 2014 [↩]
- Very Strong Demand For Mac Pro Makes AMD A Buy, Seeking Alpha, April 7, 2014 [↩]