Advanced Micro Devices' Time to Shine Is Here
It's been a rocky road during the last few years for Advanced Micro Devices . As the PC market softened during 2012 and 2013, AMD and its longtime rival, Intel , saw their revenues contract on a year-over-year basis. Intel's revenues were buoyed by a strong datacenter group business, and AMD's revenues as of late have enjoyed a boost from its semi-custom business -- namely, participation in game consoles.
With AMD's earnings report fast approaching, and with market research firms like IDC and Gartner reporting that the PC market is springing back, the time for AMD to shine is now.
PCs could be better than expected, even if share loss is meaningful
Intel recently pre-announced a stronger-than-expected quarter as a result of PCs intended for corporate/business use, which might initially seem to benefit Intel more than it does AMD, given Intel's greater exposure to business PCs. However, recent reports show that the PC market, as a whole, seems to be getting a lot better -- perhaps indicating that the consumer market has been improving, in general.
Now, if this is the case, then it seems likely that AMD may surprise to the upside. Even in the case where AMD loses PC share, AMD's guidance/assumptions seem to be based on a view that the TAM will contract 7%-10% for the year. Since it's increasingly likely that this will not actually be the case, AMD could wind up surprising to the upside.
Semi-custom could get interesting
Though it would be unreasonable to expect a large near-term snapback in AMD's PC chip share -- Intel is likely to fight vigorously to defend it and move into the low end -- a stable PC business with incremental adjacent opportunities leading the charge could help drive AMD's long-term growth and profitability.
For example, AMD executed quite well with the game console APU projects, which lent the company significant credibility. While it's tough to envision that there are too many huge game console-like opportunities out there, there are probably a bunch of reasonably sized opportunities in the broader embedded market that, in aggregate, could drive nice growth.
Servers? Let's wait and see.
AMD appears to be one of the more credible ARM -based server players on the market, given that it does have more experience in the general purpose server market than any of its ARM-based competition. The open question here is whether moving to the ARM architecture is going to fundamentally change AMD's competitive positioning in the server market.
AMD found it difficult to compete with Intel in just about every sub-segment of the x86 server market, and it's not as though the ARM server TAM is fundamentally different from the x86 TAM. AMD still needs to compete with Intel head-on, but it now also needs to overcome the difficulties associated with being an alternative instruction set architecture in this market.
At this point, I have very little optimism for AMD's ability to meaningfully reverse its share position in servers, though if it is able to do so, that could drive meaningful upside to the stock.
Foolish bottom line
When AMD reports its earnings on July 17, it will be interesting to see if it was able to catch the PC-recovery wave as Intel did when it pre-announced earnings. More importantly, though, investors should compare the guidance that AMD issues on its Q3 call to the guidance that Intel will issue on its own call two days beforehand. If both trend in roughly the same direction, then AMD's stock could have quite a bit of room to run.
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The article Advanced Micro Devices' Time to Shine Is Here originally appeared on Fool.com.Ashraf Eassa owns shares of ARM Holdings and Intel. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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