Will Plummeting PC Sales Affect Advanced Micro Devices' Stock?

Dec. 4.13 | About: Advanced Micro (AMD)

Over the past several years, desktop and notebook shipments have weakened as tablets that are lighter and more portable have surged in popularity. Slowly, they have begun to replace the traditional computers. According to analysts, tablets will make up half of the PC shipments next year. This is definitely not good news for PC chip makers including Advanced Micro Devices, Inc. (NASDAQ:AMD). Add the fact that there are strong competitors around - Intel (NASDAQ:INTC) and Qualcomm (NASDAQ:QCOM) to name a few - the pressure is on for AMD to come up with something innovative.

The PC sales decline does not mean that the semiconductor company is not profitable. In fact, AMD has recently cut costs and is developing new tools that will improve revenues. Six years ago, AMD's stock was stronger than supercomputer manufacturer Intel, where AMD was able to trade above $40 for every share. However, the numbers dropped after the company had to spend huge amounts of money. Right now, AMD has a market cap of $2 billion, which is not bad. Compared to Intel though, the company is short $118 billion to match its rival.

This is not good news for investors, especially since last month there were at least six firms that rated AMD's stock as a Strong Buy. The consensus sentiment right now is Neutral for the stock.

A New Strategy

The popularity of smartphones and tablets is undeniable, and perhaps the company did not pay attention to this major detail, which is why it lagged behind its competitors. AMD did fairly well with its Kabini notebooks, but the same thing cannot be said about the Temash tablets. This does not mean that the company will not join the bandwagon though.

Earlier this year, AMD CEO Rory Read announced that the company will set its new focus on tablets as well as development markets and cloud computing. This is in hopes of repositioning AMD and to allow the company to embrace the changes that are currently occurring in the industry. The SoC-centric plan is designed to drive execution, speed up productions, and enable developments that are more tailored for the customers.

Good News

Recently, AMD was sued by an employee for birth defects in the Tumlinson v. Advanced Micro Devices, Inc. case. Two former workers brought suit against the chip company, as they claimed that their children have birth defects due to chemical exposure at the semiconductor plants in Texas. Nevertheless, the Delaware Supreme Court has strongly asserted that the testimony of an epidemiologist was unreliable, a ruling that was in favor of AMD.

As for new products, Alienware's X51 was introduced with Haswell processors. However, Dell is not satisfied and is giving consumers one more reason to purchase the pint-size desktop. It is now equipped with Radeon R9 270X from AMD with an engine clock of up to 1.05 GHz and memory speed of 5.6 Gbps. This version adds $100 to the price of the i7 model.

An End to PC Sales Drop

Probably what chip makers like AMD have been waiting for is the end of the dismal sales of notebooks and desktop. The quarterly results provided by Intel along with data from Gartner and IDC have shown that it is possible for computer sales to finally be steady. Intel is slowly moving to smartphones and tablets and may choose to manufacture components for other chip companies.

On the other hand, AMD is earning benefits through the console releases. Stories have circulated that the company is currently making around $100 for every PS4 sold in the market. However, this does not mean that AMD has forgotten about the PC market. In fact, the chip maker has multi-core chips that do not need too much energy in order for them to function well.

Although not everyone is pleased with AMD's desktop roadmap for 2014, it does look promising with chips that operate as high as 3.5 GHz. With AMD stock performing better than Intel in terms of stock price change, it seems like AMD will survive even the slow PC market.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.