For the last few quarters, Advanced Micro Devices (NASDAQ:AMD) has been focusing on transforming itself through diversification of its portfolio and by driving a larger percentage of its revenue from semi-custom, ultra-low power client embedded dense servers and professional graphics. Having incurred losses for several quarters, the microprocessors and graphics processors manufacturer returned to profitability and positive cash flow in Q3 2013. The positive momentum continued into year end as AMD’s net income increased by 85% sequentially in Q4 2014.
AMD announced a three-part restructuring plan in Q3 2012 in an effort to strengthen its competitiveness in the market and better manage its expenses and cash. In 2013, the company completed the restructuring phase which helped generate strong revenue growth and a return to profitability in the second half of the year (by successfully ramping a strong and diverse set of new products). AMD claims to have lowered its operating expenses by more than 20% in the latter part of 2013 compared to the Q1 2013 level, and exceeded its target of deriving over 20% of its revenue from semi-custom and embedded products.
In 2014, AMD aims to further diversify its portfolio and derive a larger share of its revenue from high growth markets. AMD’s expanding semi-custom business was one of the primary drivers behind its growth in the last two quarters.
Our price estimate of $3.55 for AMD is at a slight discount to the current market price.
AMD devised a unified gaming strategy in March 2013 that addresses its plan to drive the gaming market across consoles, cloud platforms, tablets and PCs. It believes that it is effectively positioned to drive the next revolution in gaming, and now powers all major next generation consoles including Sony’s (NYSE:SNE) PlayStation 4, Nintendo’s (OTCPK:NTDOF) Wii U and Microsoft’s (NASDAQ:MSFT) Xbox One. Sony and Microsoft together sold more than 7 million units in less than two months, more than double the number of prior generation consoles sold in their first quarter of introduction.
AMD believes that gaming is one of the key pillars of its semi-custom chip business. It shipped millions of units to support the next-generation Sony and Microsoft game consoles in Q3 2013 and Q4 2013, which utilize AMD’s system-on-chip Jaguar core and Radeon HD graphics chips. It expects the positive momentum to continue with the rise in game console SOC shipments and new wins from its semi-custom design pipeline.
Below are some recent developments that highlight AMD’s expanding presence in the gaming market:
Three New Game Developer Partnerships
Earlier this week, AMD announced three new game developer partnerships — Rebellion Developments, Square Enix and Xaviant — for AMD Gaming Evolved, a relationship program that assists developers in creating an enhanced PC gaming experience. Collaborating with these key developers, AMD aims to play an important role in enabling quality PC gaming experience by optimizing the image quality and performance of highly-anticipated titles for an intense gaming experience.
Rebellion Developments is currently developing “Sniper Elite III”, the latest chapter in an award-winning series. Square Enix is the publisher behind “Murdered: Soul Suspect,” a supernatural thriller, and Xaviant is the developer behind “Lichdom,” an exploration of a time known as The Sixth Age of Roth. (For more details, read AMD’s press release.)
Crytek Adopts AMD’s Mantle API
AMD also entered into a technology partnership with Crytek this week, which adds AMD’s Mantle graphics API support to CRYENGINE, the latest iteration of the industry-leading game engine that has powered Crytek gaming titles for almost a decade. AMD’s Mantle API launched in September 2013, helps improve overall game performance. AMD believes that the combination of Mantle and CRYENGINE empowers game developers to accelerate PC development and extract unprecedented gaming performance.