), which manufactures and markets microprocessors and graphics
processors used in PCs and servers, will report its Q4 2014 and
full year results on January 21.The consensus revenue estimate for
the quarter is $1.54 billion, a robust 33% over the prior year
level. Having incurred losses for several quarters, the
company returned to profitability and positive cash flow in Q3
2013, as it reported its highest sequential growth (26%) in the
last five years. We indeed believe that AMD will close fiscal 2013
on a strong note. Renewed demand in its traditional PC
segment, and growth opportunities in new markets, are allowing for
improvement its financial and operational performance.
Having restructured its operations in the last few quarters,
AMD intends to now focus on executing its new product plan to
accelerate growth and expand its new businesses to improve profits.
Though PCs remain an important part of its overall portfolio, AMD
aims to derive 40%-50% of its revenue from other high
growth businesses in the next two to three years,
including semi-custom and ultra-low power processors,
professional graphics processors, as well as processors for dense
server and embedded solutions. Expanding its footprint in alternate
growth markets insulates AMD, to some extent, from the declining PC
shipments. It also increases its focus on differentiated products.
It is a credible strategy.
price estimate of $3.55 for AMD
is at a discount of approximately 10% to the current market price.
We will update our valuation after the Q4 2013 earnings
See our complete analysis for AMD
PC Shipments To Decline For The Second Consecutive Year
The main factors leading to the slump in the PC market include:
1) the cannibalization by tablets and smartphones; 2) the weak
reception for Microsoft's Windows 8 OS; 3) the slowing enterprise
market; 4) consumer softness in mature markets (the U.S. and
Western Europe); and, 5) the slowing demand from emerging
markets. PC sales declined marginally in 2012, and research
firm IDC estimates shipments to decline by 10.1% in 2013, slightly
above its initial forecast of a 9.7% decline.
However, while overall PC shipments are expected to decline
for the next few years, IDC estimates the portable PC segment to
grow at 8.7% between 2013 - 2017.
AMD believes that its updated product portfolio better positions
it to gain share in the traditional PC market, as well as generate
higher revenues from new growth markets. In its last earnings call,
the company declared that it is seeing improving demand for
its products in the traditional PC market. It has a
robust pipeline of upcoming products and platforms which
we believe could fuel demand for its products in
Strong Game Consoles Sale To Aid Revenue Growth
AMD devised a unified gaming strategy in March 2013 that
addresses its plan to drive the gaming market across
consoles, cloud platforms, tablets and PCs. It believes that
it is effectively positioned to drive the next revolution in gaming
and now powers all major next generation consoles including
Sony's PlayStation 4, Nintendo's Wii U and Microsoft's (
) Xbox One.
AMD believes that gaming is one of the key pillars of its
semi-custom chip business. It shipped millions of units to support
the next-generation Sony and Microsoft game consoles in Q3
2013, which utilize AMD's system-on-chip Jaguar core
and Radeon HD graphics chips. Going by the rate at which these
game consoles are being sold, we expect they were an important
factor driving AMD's revenue growth in Q4 2014, and will continue
to be going forward. While Sony's PS 4 sold 2.1 million in the
first two weeks, the Microsoft Xbox achieved 2 million in 18
In Q3 2013, AMD generated over 30% of its revenue from its
semi-custom and embedded business, exceeding its target of earning
20% of its revenue from these markets by Q4 2013. AMD believes that
the two segments will be important revenue drivers in subsequent
quarters as well.
The Mac Pro Deal To Increase AMD's Share In Professional
) has used AMD's dual FirePro professional graphics
solutions in its recently launched Mac Pro desktop. 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
AMD currently accounts for 21% of the professional GPU
market, which is dominated by Nvidia. However, the Mac Pro deal can
considerably elevate AMD's standing in the professional GPU market.
Digitimes reports the deal could increase AMD's professional GPU
market share to 30% by the end of 2014.
Strong performance in professional graphics was an important
factor that drove AMD's growth last quarter. The company marked its
fifth consecutive quarter of revenue and share growth in
the professional graphics business segment, which accounts
for approximately 7% of its valuation (as per our estimate).
We expect the Apple Mac Pro deal accelerated AMD's revenue growth
in the segment in Q4 2013 and will continue to drive graphics
revenue going forward.
How a Company's Products Impact its Stock Price at