Intellectual Property, Value Add Shine to Graphics Pioneer AMD
AMD’s competition
So far, we have seen that Advanced Micro Devices (AMD) has been surrounded by strong competition from Intel (INTC) and Nvidia (NVDA). Although it has been an industry leader in several technologies, it failed to beat Intel’s dominant position and Nvidia chips’ features and efficiency.
Analysts have mixed opinions about AMD due to the uncertainties surrounding the company. Let’s look at the factors that could impact the company in 2016 and 2017.
The upside for AMD
ATMP JV: The ATMP (assembly, test, mark, and pack) joint venture with Nantong Fujitsu Microelectronics should give AMD ~$317 million in cash that it can use for development of products such as Zen.
Game consoles: AMD supplies chips to Sony’s PS4 (PlayStation4) and Microsoft’s (MSFT) Xbox, and it is rumored to win the contract for Nintendo. Sony announced that PS4 sales have surpassed 30 million units, indicating strong growth for AMD from the game console market. This is one place where AMD outperforms Nvidia, with its intelligent GPU (graphic processing unit) architecture supported by API (application program interface).
Transition to 14nm: AMD plans to transition the production of its GPU and CPU (central processor unit) processors to 14nm (nanometer) technology, making them competitive with Intel’s 14nm cores. This may see AMD gain market share starting in 2017.
The launch of Zen: As we discussed earlier in this series, Zen would open new markets for AMD and put it in strong competition with Intel. If the processor is a success, AMD will gain market share across CPU and GPU in 2017.
Increase in GPU market share: In fiscal 3Q15, AMD saw its discrete GPU market share increase to 18.8% from 18.0% in 2Q15. This has raised hopes of further growth in the GPU market.
Reduced expenses: AMD was able to cut its SG&A (selling, general, and administrative) expenses significantly though its restructuring initiatives, which included offloading several businesses and implementing job cuts. However, it increased its R&D (research and development) expenses to introduce new products.
In the next part of this series, we will examine the performance of AMD stock in 2015. You can get exposure to AMD’s rivals through the iShares Core S&P 500 ETF (IVV). IVV has a 2.54% holding in MSFT, 0.90% in INTC, and 0.09% in NVDA.
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