AMD (AMD) has come under a bit of scrutiny in the last few years, and its financials have taken some serious blows in recent quarterly and annual reports. The massive downtrend in PC sales has left many companies in the sector beaten and downtrodden, and AMD is no stranger to this hardship. However, I would like to present a long-term case for the risk-tolerant investor, with a focus on future opportunities in the one area AMD has its competitors beat: integrating video processing. This article will do so looking from 30,000 feet up with a key focus on the product pipeline and future path to recovery. Also, I'd recommend you read what other authors on Seeking Alpha have written for a more in-depth discussion of recent financials.
The last few years have been a severe struggle for the semiconductor company, and it has been in the red for a lot longer than anyone would have anticipated. AMD has lost money three out of the last four years, and four out of the last five quarters. At one point, many whispered the word that no long-term investor wants to hear: "bankruptcy." However, CEO Rory Read has done his best to cope with the ailments, taking the necessary measures to generate cash flow via layoffs, selling the company's headquarters, and creating generous bundling campaigns that have reinvigorated the ailing gaming consumer GPU segment.
The key point to take from all this, in my opinion, is the versatility of management and the willingness to do whatever it needs to do to survive. We are looking at a very distressed company here and an intermediate- to long-term investment. If you can enter at the right price, hopefully the rest of my article will convince you there are some products in the pipeline worth waiting for. In addition, the company does have ~50 cents a share in book value left, despite the drastic cuts that have been made to raise cash and bonds at near junk status.
An Impressive Pipeline
Read knew he was getting into a mess when he signed up for the job, and he has come under scrutiny for not guiding the company to profitability as quickly as many investors may have anticipated or hoped. However, I believe that he gives investors many reasons to be excited going forward.
We are undergoing a major shift in the consumer computing world, and though the PC has been written off as dead, dedicated gamers are shifting their focus toward the best quality per dollar in the GPU market. AMD offers the best per dollar hands down. I built my own custom PC this past spring using one of AMD's new APUs and I can attest to the quality one gets for their money; the discrete GPU is no longer a necessity. However, I recognize that the era of the PC is behind us, and this is in fact why I believe in AMD for the future.
The "Console Triple Crown" as a Stepping Stone?
AMD has won the rights to production to all three of the next-generation gaming consoles, each of which offers unprecedented levels of entertainment. There has been some pretty hefty debate among authors and readers alike as to whether or not the consoles will be enough to bring AMD back to power, but I think we are missing the point here. AMD will profit from the next generation of consoles without question. The real focus here should be on the bigger picture. AMD's big console win is more about the fact that AMD can do something that Nvidia (NVDA) can't do, and that is combine CPU and GPU in an efficient, effective, and attractive manner. Not only will the consoles boost AMD in the short term, but they will highlight the one place AMD has both Nvidia and Intel (INTC) beat. What is the stepping stone toward?
"The cloud" is an exotic term that has been thrown around quite often in the last few years, and most people who hear it know nothing of what it actually means. So when I say that AMD is taking the future of mobile gaming to the cloud, many readers will scratch their heads. AMD's share price has been hit lately, in part, by the shock and awe effect of Nvidia's recent release of information related to their future in the mobile gaming segment.
However, I think that the market has been quick to forget about AMD's own future in the mobile segment via the cloud. AMD revealed this spring what lies in store, and as we move toward gaming as a service (GaaS) AMD will be more than prepared for the future. We are moving forward into a new era in gaming and entertainment, one that will require an expertise that leaves a void. AMD has the expertise and the capacity to fill this void.
The company has been hit by major financial instability and severe debt problems. It has been forced into last-resort efforts at raising cash in the form of massive layoffs and the sale of its headquarters in California. Many investors have written AMD off as a dud and left it to rot on the path toward bankruptcy. Despite the very visible financial mess the company is in, Read has steered AMD away from its worst of days. He is on the right track with the company, as it has been revealed that we can expect a return to profitability in Q3.
AMD won the three next-generation consoles and despite the belittling commentary from Nvidia, the real reasons that AMD won the console wars was because of their quality and expertise in the APU market. More importantly, cloud gaming presents itself as a potential game changer down the road for the company. I am not a raging bull, and I know that AMD has some serious issues, but this would work for the investor looking to park a small portion of capital away for the long run in a bet that could pay off handsomely. I'd suggest getting in at $4/share while the company is in the thick of the storm, and dollar-cost averaging -- this stock moves up and down on the slightest bit of news -- so that you aren't left behind looking at what could have been in one to three years.