Lackluster Showing for AMD's Server Business, Though Still Worth $9.80


AMD ( AMD ) reported its Q2 earnings Thursday - a day after Intel ( INTC ) reported solid earnings. As expected, some of the trends like higher average selling price (ASPs) echoed that of Intel's. We wrote about some of these in our first AMD note AMD Aims for $9.80 on Llano & Brazos Despite CEO Overhang in which we highlighted our bullish view for AMD. However the server market is one area where Intel has continued its rapid growth while AMD had little exciting to report in its Q2 results. Below we take a quick look at AMD's updates in the server market.

Our price estimate for AMD stands at $9.80 implying a near 30% premium to the market price.

Servers Important to AMD, But So Far 2011 Hasn't Produced Much

Based on our expectations, we estimate that server microprocessor business constitutes more than 20% to AMD's business. This could be much higher if AMD could bounce back to where it was once in terms of market share. However so far in 2011, AMD hasn't been able to make much progress on this front.

Given that the earnings transcript from AMD was focused on talking about what is about to come rather than what happened in Q2 2011 concerning server microprocessors and also the fact that server revenue sequentially declined compared to Q1 even though AMD's share in Q1 was very low, we conclude that AMD still hasn't gained any market share.

Outlook Looks Better, AMD Betting on Bulldozer Launch

AMD is hoping that its launch of Bulldozer server chips in Q3 2011 combined with Interlagos platform aimed at cloud-computing environment will help it gain some share towards the latter half of this year. As a result, we maintain our expectations of slight market share gains . If this happens, we believe that the company will be able to maintain some momentum and gain market share even beyond 2011. However long-term expectations rely on the fact that Nvidia's ( NVDA ) entry into this market in later years may put pressure on further share expansion.

See our complete $9.80 Trefis price estimate for AMD's stock.

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: AMD , INTC , NVDA



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