If you look at the release schedule and proposed products Advanced Micro Devices (AMD) will be releasing during the remainder of 2013, you can see a potentially strong fourth quarter forming.
- GPU refresh
- Mac Pro refresh
- Xbox One and Playstation 4 available for retail
- Kaveri launch to OEM partners
AMD is holding a launch event at the end of September for their upcoming GPU series. Early rumors suggest that the GPUs will begin mass shipping in October, according to Digitimes.
Here I will add the disclaimer that I have discovered first hand these rumors are often wrong, either in full or in part. For example, an article was published on Heise.de stating that the PS4 would be the only next generation console to feature AMD's hUMA architecture -- and that Microsoft's (MSFT) Xbox One would not. However, shortly after publishing my story I was contacted with an official response stating:
"During a recent Gamescom 2013 interview, an AMD spokesperson made inaccurate statements regarding the details of our semi-custom APU architectures. AMD will not comment on the Microsoft Xbox One and Sony PS4 memory architectures and will not speak for Microsoft, Sony or other AMD customers."
As an investor, I will be scouring retail sites to know when cards are available for sale, to see the flavor of consumer reviews the cards are receiving, the number of reviews the cards are receiving (to give a rough idea as to sales volume), and looking at supply to see if they are selling out (potentially indicating high demand or low availability).
Lastly, the prices of AMD's flagship 7990 GPU have been dropped, along with the release of beta drivers to deal with some of the issues the cards had been seeing. Couple this with the updated Never Settle Forever program in which AMD gives users the ability to pick anywhere from one to three free games with the purchase of a new GPU. These cards come with download vouchers that users can either use immediately or play the 'Never Settle Lottery' by waiting for games to be added later. The potential implication of this being that those users wanting to update their systems in preparation for the upcoming release of games such as Battlefield 4 have an incentive to upgrade now in the hopes of BF4 being added to the Never Settle program.
Recently Apple (AAPL) has teased the release of the Mac Pro as launching in "Fall 2013" during movie previews. Depending on Apple's definition of "Fall," AMD could start shipping the workstation class GPUs to Apple in time for it to impact this quarter's financials.
At the highest end, Apple will most likely use dual W9000 cards (based on disclosed specs, the W9000 I believe is the only FirePro card that uses 6GB GDDR5) which retails for over $3000. Assuming the budget model Mac Pro comes with a lower end card, the lowest FirePro offering from AMD is the W5000, which retails for around $400.
Keeping in mind that AMD's Graphics division had slid from profitability to breakeven between Q1 and Q2, a boost in sales of most likely higher margin work station cards alone could drive AMD's GPU division back to slight profitability, provided everything else remains static.
Gamers with pent up demand to buy new consoles will be placated this year in November. Regardless of who wins the console wars between Sony (SNE) and Microsoft, as the 'arms dealer' AMD is in the best position.
Two schools of thought surrounding consoles are that mobile gaming is eating away at console sales, similar to the situation in the PC industry, or that the current generation demand is waning due to being at the end of their life cycle and the impending console refreshes. I am firmly entrenched in the latter camp. Pre-orders seem very strong for the consoles, and when more pre-orders become available it makes national news.
Regardless, AMD is almost undoubtedly shipping as much silicon to Sony and Microsoft as they can. With limited launches worldwide this year, I am expecting demand to remain strong throughout at least 2014. The biggest remaining outlier surrounding console is going to be the gross margin question, which is most likely heavily affected by APU yields.
After some initial confusion, AMD has made official statements stating that Kaveri will launch to customers this year but will not be available in the retail channel until the beginning of next year. Kaveri will be a major refresh of AMD's big core lineup, and is thought to be able to at least somewhat close the performance gap between AMD and Intel (INTC).
According to Jon Peddie Research, there is a disconnect between the actual PC market and the enthusiast market. Although the outgoing tides of the PC market have caused Intel and AMD profits to somewhat sink, the enthusiast crowd that has been waiting for the release of Kaveri could somewhat buoy AMD's financials in the beginning of next year. If you read through IDC numbers, you will find PC shipments tracked by each vendor, but you'll also notice there are no statistics detailing sales of individual components by suppliers such as Newegg.com or Amazon.
As AMD's board partners start rolling out motherboards in anticipation of Kaveri, Charlie Demerjian of Semiaccurate notes the importance of both the timing and quality of the motherboards we are seeing detailed prior to launch.
I still feel AMD is a speculative play at this point, but I have been using this price to add small lots to my position with the overall goal to sell a small portion of my position if I see a nice pop to lower my overall cost and risk. If the price starts rising higher, more caution may be in order as it has further to fall on bad news. And unfortunately for us longs, the stock price seems to react quickly to news. The bad news I am most on the lookout for would be either penalty payments to Global Foundries or if the console gross margins turn out worse than expected, which could be an indication of other underlying problems. However, I am currently not expecting either to be the case, but those are the things that would concern me the most as an AMD long.
With the exception of the Mac Pro, it can be argued that the upcoming products from AMD make the cut as good candidates for gifts this holiday season. And depending on the timing of the product releases, we may get a preview of the momentum we could see going into Q4. For example, if the GPUs launch prior to the Q3 earnings release and we see AMD's graphics and visual solutions rebound during Q3 based on strong demand for the new GPUs, I would expect the trend to continue into Q4. Undoubtedly questions regarding console profits will be at least somewhat answered during the Q3 earnings call as well.
My overall long thesis resides more in the potential of HSA/hUMA, so barring any really bad news that would make me want to sell, I am looking forward to any news coming out of Hot Chips or AFDS this year. Given AMD's official response to the Heise.de article, I am curious to see the presentations on the Xbox One silicon after Hot Chips next week. But while I am waiting patiently to see what becomes of HSA/hUMA, I am okay if product launches manage to pad my stocking this year.
Additional disclosure: I actively trade my AMD and Intel positions. I may add or liquidate shares at any time.