AMD: The Year 2016 In Review

by Trefis Team
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AMD‘s (NYSE:AMD) stock price appreciated by approximately 300% in 2016, making it one of the best-performing technology stocks of 2016. The company’s performance in 2016 signals that it is has made considerable progress on its strategy to improve its business by gaining share in the graphics and PC markets, growing its semi-custom business and expanding into the data center market. The following factors can be attributed to the strong rally in AMD’s stock in 2016:

Strong Polaris GPU Sales Drove AMD’s Top-Line: The ongoing semi-custom SoC ramps, the introduction of Polaris GPUs, and the launch of the seventh generation APUs boosted AMD’s revenues in 2016. AMD launched its GPUs based on the 14 nanometer Polaris architecture towards the end of Q2’16. This translated into higher revenues for the company in Q3. In Q3’16, AMD’s revenues from its computing and graphics segment increased by 9% sequentially and 11% on a year-over-year basis, clearly showing that the company’s newly launched Polaris GPUs were gaining traction in the market.

Improved Cash Position: In 2016, AMD commenced concurrent public offerings of approximately $600 million of its common stock and $700 million of 2.125% convertible senior notes due 2026. The company retired its existing debt and invested the net proceeds after repayment in capital expenditure, with the capital raised from this offering. Because of which, AMD’s debt declined by $606 million and its cash position improved by $101 million. Going forward, this should help the company reduce interest expense payments, and support the investments required for growing its business.

Furthermore, AMD’s new debt will be due in 2026. This implies that the company will be able to lock in the lower interest rate for a longer period of time, at a time when Fed is expected to hike interest rates. Moreover, considering the riskiness of AMD’s business, debt holders would have demanded a hefty premium from the company, had it issued a standard nominal bond.

Expansion Into The Server Market: AMD clinched a deal with Google to supply its FirePro S9300 x2 GPU in the latter’s cloud platform. In addition, the company also bagged a deal with Chinese company Alibaba to supply Radeon Pro chips for the latter’s servers. These deals are quite significant for AMD, as most of the big players in the cloud storage market currently use Nvidia’s GPUs.

In 2016, AMD took another major step to expand its presence in the server market. The company licensed its x86 processor and SoC technology to a newly formed JV with China based Tianjin Haiguang Advanced Technology Investment Co. The JV will use the technology to develop chips for server systems to be sold only in China. There is a great incentive to develop chips for server systems specific to China, as it is the world’s biggest semiconductor market and the local supply of server chips can help the company accelerate its presence in the market. It is worth noting that AMD has an edge over its competitors in the server market, as it is the only processor provider to bridge the x86 and 64-bit ARM ecosystems. In 2012, the company announced its collaboration with ARM Holdings to design server processors using the ARM technology in addition to its x86 processors for multiple markets.

See our complete analysis for AMD here

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