AMD Value Justified on Higher Notebook Processor Pricing


The average price of AMD's ( AMD ) notebook processor has gradually declined over the past years due to increased competition from market leader Intel ( INTC ) as well as emerging competition from tablets like Apple's ( AAPL ) iPad.

While we expect pricing declines to persist, reaching $50 by 2016, the Trefis community expects better price levels of around $60, translating to an upside of 8% to our price estimate for AMD stock.

We currently have a Trefis price estimate of $7.74 for AMD's stock , about 6% below market value.

Pricing Crucial for AMD's Competitive Positioning Against Intel

Intel is globally recognized for its line of notebook processors and consumers are willing to pay a premium for the "Intel Inside" brand (particularly for notebooks, when tend to be more costly than desktops).

AMD's popular processors, including Turion and Sempron, are widely used in low-priced notebooks. As the increasing demand for low-priced notebooks from emerging countries drives down processor pricing, AMD will have to keep its prices lower than Intel's in order to maintain its competitive position.

Threat to AMD Processors From Tablets

Apple's iPad sales have risen significantly over the past few quarters and the product is now widely considered to be a direct competitor to notebooks, particularly low-end models. With more tablets expected to flood the market in 2011, it could put pressure on notebook makers like Dell ( DELL ) and HP ( HPQ ) to reduce prices. Any such reduction to notebook pricing would likely flow through to AMD's processor pricing.

Trefis Community Forecast

The Trefis community predicts that AMD notebook processor pricing will remain within a range of $61 to $64 in the years ahead, compared to the baseline Trefis estimate of a gradual decrease from $58 to $50 by 2016. The member community imply an upside of 8% to the Trefis price estimate for AMD's stock, which would bring our estimate in line with market value.

Drag the trend-line in the chart above to assess the impact of various notebook processor pricing scenarios on AMD's stock value.

Our complete analysis for AMD's stock is here .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AAPL , AMD , DELL , HPQ , INTC



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