Advanced Micro Devices Could Head Higher After Earnings

Mar.25.14 | About: Advanced Micro (AMD)

Summary

AMD sold off sharply after last quarter's earnings.

The chipmaker could sustain recent gains this time, instead moving higher.

Mantle, lower short interest, and growing developer support are the main reasons for bullishness.

Since bottoming in February following disappointing quarterly results, Advanced Micro Devices (NASDAQ:AMD) is on the move once again. AMD could make another run-up, ahead of Q1 results set for April 17, 2014 after market close. This time, its shares could hold gains made over the last few weeks. The reasoning is straightforward: AMD's Mantle and GPU refresh is gaining traction. Console sales are still growing, giving manufacturers the freedom to sustain premium pricing power. By the end of 2014, AMD will have an even more stable balance sheet. More importantly, Mantle will continue to gain more support from software demanding intensive graphics processing. This will translate to better GPU sales for AMD.

Analyst forecasts divided

Analysts that cover AMD are in agreement for sales and earnings for the upcoming quarter. They forecast a 23% sales growth in the current quarter ended March 2014. The revenue estimate is between $1.33 billion and $1.35 billion, up from $1.09 billion last year. This translates to breakeven earnings per share, compared to a loss last year. The forecast diverges for the fiscal year. The earnings ranges from a $0.02 per share loss to as much as a $0.36 per share profit in 2014:

Current Qtr.

Next Qtr.

Current Year

Next Year

14-Mar

14-Jun

14-Dec

15-Dec

Avg. Estimate

0

0

0.13

0.16

No. of Analysts

23

23

25

24

Low Estimate

0

-0.07

-0.02

-0.28

High Estimate

0.01

0.06

0.36

0.44

Year-Ago EPS

-0.13

-0.09

-0.11

0.13

Click to enlarge

Source: Yahoo Finance

The average earnings estimate for 2015 is too low. The forecast does not factor strong momentum supporting AMD's new products. Revenue forecasts are also on the conservative side for console sales. Analysts are simply following AMD's conservative outlook for consoles.

DirectX 12 No Threat to Mantle

Mantle is a low-level Application programming interface, or "API." Developers with access to the hardware may take advantage of the communication that is happening between the CPU (central processing unit) and GPU (graphics processing unit). The end result is that programs using Mantle's API could get performance improvements. Further, standardization on Graphics Core Next ("GCN") architecture will also extend Mantle's success, as AMD explains in its community blog here.

AMD's lack of driver availability for DirectX 12 should benefit Mantle. Access by developers for Mantle's low-level instruction set will benefit games that apply the low-level API ("Application programming interface") solutions. Developers may accelerate support for Mantle, since the instruction sets are like that used in consoles.

When Mantle is available as an open standard by the end of 2014, AMD's solution will be mostly platform-agnostic. Whereas gamers previously relied primarily on Microsoft (NASDAQ:MSFT) Windows, they will soon have Mantle-based solutions on Linux (via SteamOS) and Apple's (NASDAQ:AAPL) OSX. If Microsoft and Nvidia (NASDAQ:NVDA) limit DirectX 12 support to Windows 8.1 and above, developers could accelerate immediately after Mantle is available.

Partners announced

At the Game Developers Conference ("GDC") 2014, AMD announced a partnership with Crytek, whereby Mantle will support CRYENGINE. Xaviant will use TressFX Hair and TrueAudio technology in the game Lichdom. Rebellion Developments will support Mantle in Sniper Elite III. Square Enix, which is releasing Murdered: Soul Suspect, is also partnering with AMD.

Nvidia announced it would partner with Epic Games Inc., making Unreal Engine 4 ("UE4") available on Nvidia. AMD has yet to announce a partnership to get UE4 on Mantle.

Bearishness declining

Short interest rose as AMD's share price increased. Bearishness declined since February 14, 2014:

Settlement Date

Short Interest

Avg. Daily Share Volume

2/28/2014

116,796,237

13,237,062

2/14/2014

124,382,405

19,888,475

1/31/2014

127,420,739

39,112,976

1/15/2014

122,944,329

34,319,201

12/31/2013

121,028,680

12,840,490

Click to enlarge

Source: Nasdaq

Carrizo APU planned

Kaveri is an Accelerated Processing Unit, or "APU." Its features are detailed here. Kaveri's selling points are TrueAudio technology, Mantle API, and unlocking the compute power of graphics cores beyond gaming. Leaked documents suggest AMD plans to release Kaveri's successor, codenamed Carrizo. The successor to Kaveri will support DDR4, and full Fusion Control Hub ("FCH"). FCH just means the "south bridge" will be on-die. It will allow Carrizo chips to run more efficiently, while reducing the die size.

Bottom line

AMD's Mantle will have a solid efficiency and release date lead over DirectX. This will drive up the level of graphics performance requirements from Nvidia, Intel, and Microsoft. Another benefit of Mantle is that it will work on Nvidia cards. Unlike when Nvidia made PhysX proprietary, Mantle is open to all vendors. This will further accelerate adoption for Mantle.

Disclosure: I am long AMD. 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.