A Licensing Deal From Intel To Give Further Impetus To AMD’s Growth Momentum

by Trefis Team
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According to a recent report by Fundzilla, Intel (NASDAQ:INTC) has written a check to license AMD’s (NASDAQ:AMD) graphics technology, though neither of the two companies have acknowledged or refuted the news. During the last one year, there has been a lot of speculation that Intel was contemplating switching over to AMD graphics when its cross licensing deal with Nvidia (NASDAQ:NVDA) ends in March 2017. Intel and Nvidia announced a 6 year cross-licensing agreement in 2011, as a way to settle the Nforce chipset dispute between the two companies. Intel has paid close to $1.5 billion to Nvidia as part of the licensing deal since then.

Over the years, Intel and AMD have developed many CPU industry standards that they cross-license between them. The two companies have a long-standing x86-64 cross-licensing agreement and thus, it would make sense for Intel to strike a similar deal on the graphics side. [1] The licensing deal from Intel, if true, could give AMD a much needed cash infusion to support its current growth momentum.

Over the last few quarters, AMD has managed to significantly grow its top line and cut down its losses, as it 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. However, in 2016 its net loss still stood at a staggering $497 million.

Assuming that AMD gets close to what Nvidia got from the licensing deal with Intel annually ($264 million), it could boost top line marginally, but the profitability significantly, as the licensing business is a 100% gross margin business.

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Note – We have not factored in the potential revenue stream from the licensing deal in our model.

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Notes:
  1. Intel Reportedly Strikes Deal With AMD To License Graphics IP, wccftech, May 16th, 2017 []
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