Advanced Micro Devices (AMD) is Intel's top competitor in the central processor unit market and Nvidia's main rival for the graphics processor unit market. The semiconductor company has been around almost as long as Intel, which launched in the late sixties. Ever since the company's $5.4 billion acquisition of Canadian graphics company ATI Technologies in 2006, Advanced Micro Devices has been downsizing to straighten out its balance sheet while its stock has fallen from $40 to $3.50 per share.
AMD vs Intel (INTC)
At one time in the early 1980s Advanced Micro Devices and Intel were partners when Advanced Micro Devices helped manufacture 8086 and 8088 processors. The reason the competitors became partners was because International Business Machines Corp (IBM) wanted to work with two different chip makers for its PC. A few years later Advanced Micro Devices decided to create its own chip for IBM based on Intel's engineering, which led to a long legal battle against Intel in which Advanced Micro Devices prevailed in 1994. Since that time Advanced Micro Devices and Intel have been in a battle to produce the fastest processors at the lowest cost. In February 2006 AMD traded as high as $42 per share but it was a short lived celebration. Since early 2007 Intel has been the higher trading stock. In November 2013 Intel has a valuation near $120 billion while Advanced Micro Devices has a valuation near $2 billion.
New Notebook Development
Earlier in 2013 AMD began targeting low-cost notebooks with system-on-chip parts, in hopes of taking market share away from Intel, which has also entered the low end market. At the same time both semiconductor companies have gone after the high end market. AMD saw a glimmer of hope with low cost Kabini notebooks but this success was offset by the failure of the less energy efficient Temash tablets. AMD then went back to the drawing board and designed more powerful processors.
Unfortunately for Advanced Micro Devices, Intel seems to be winning the race at performance-per-watt designs for both high end PCs and low end notebooks. Intel simply builds its architecture with superior transistors. AMD's only hope in winning at the popular low-end market is to undercut Intel's prices enough to appear to be the better deal. The company's Jaguar cores still have importance in the video game space, as they are used in both Xbox One and PlayStation 4.
Innovation with Supercomputing Graphics and APUs
In November 2013 AMD announced it has designed a new graphics card for high end computing. The FirePro S10000 12 GB Edition GPU is set for release in the Spring of 2014 and is aimed at industries such as defense, aeronautics, automotive, medicine, finance, oil exploration and engineering. The 3D graphics card offers increased memory for larger data projects designed for creating new products and services. A 6 GB edition of the graphics card is currently available on the market. According to the University of Frankfurt's Institution of Advanced Studies, the 6 GM edition when combined with the SANAM supercomputer is one of the five most powerful and energy-efficient supercomputer solutions.
One of AMD's more influential developments has been Accelerated Processing Units (APUs), which combine graphics and computing on the same piece of silicon. AMD introduced the new idea in 2010 and Intel has played follow the leader. The CPU technology comes from the x86 standard while the GPU technology was developed by ATI, leading to an advancement known as parallel computing. The design is meant to improve performance with low power and is part of a new set of standards known as Heterogeneous Systems Architecture (HSA), in which AMD appears to be a leading pioneer.
Financial Condition and Outlook
Advanced Micro Devices secured a $500 million loan over five years with a group of investors represented by Bank of America, N.A. (BAC) in November 2013. The cash will be used for general corporate purposes such as working capital. The company's third quarter earnings report released in October 2013 delivered good news such as a return to profitability with free cash flow. Revenue improved to $1.46 billion from the previous Q3 of $1.27 billion as a $131 million operating loss shifting to operating income of $95 million. Net income also improved from a $150 million loss to a $31 million profit.
The stock has a long way to go to repeat what it did in 2006, but it appears that the company's turnaround efforts and innovation can fuel valuation growth. In the past two years the stock briefly dipped under $2 after climbing as high as $8. With that history, the $3.50 level seems like a bargain and it's not a stretch of the imagination that the stock is poised to double sometime in the next two years. The company has cash with improving earnings and appears to be in good shape, regardless of what happens with other tech companies.