Cloud computing has become increasingly popular over the last few years and the benefits of cloud computing are making it a necessity for businesses as well as individuals. However, the setup requires hyper-scale data centers in order to perform the operations swiftly, which creates an opportunity for server manufacturers. Advanced Micro Devices (NYSE:AMD) is the world's second largest supplier of x86 architecture microprocessors. The company recently announced its future plans regarding the first ever 64-bit ARM Core Server series. The company also has a partnership deal with ARM Holdings (NASDAQ:ARMH) that is intended to give the company an advantage over rivals like Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA). Moreover, the new server series will prove to be a game changer in the server industry and holds strong growth potential in the coming years.
In the semiconductor warfare, AMD wants to be more than just an alternative to Intel - the company wants to lead the server industry as 2014 shapes up to be a pilot year for hyper-scale servers, mostly used in cloud computing. As mentioned earlier, the cloud computing segment has experienced huge growth over the last few years, and now the world's biggest technology giants are moving towards it. Hewlett-Packard (NYSE:HPQ) is also investing over $1 billion in open source cloud computing over the next two years. Similarly, Cisco Systems (NASDAQ:CSCO) has been trying to increase its footprint in the cloud computing segment and the company will spend around $1 billion over the next two years.
AMD graphics segment has gained some serious momentum over the last few quarters and now with the upcoming revival of its core microprocessor business, the growth is more visible over the next few years. AMD recently disclosed its near and medium-term plans regarding its future computing solutions. The company, after working more than two years on its "Skybridge" technology, finally pulled the curtains on its "ambidextrous architecture."
Moving on to the technical side, Project Skybridge combines the world's two most popular processor architectures: x86 and ARM. The 64-bit ARM hybrid server processor holds a design framework, which features a new family of 20 nanometer Accelerated Processing Units [APUs] and System-on-a-chip [SOCs] and is expected to be the world's first pin-compatible ARM and x86 processors. The company claimed that it will have 2-4 times the performance of its Opteron X-Series, which was the first server chip to use AMD's APU architecture, with improvements in compute per watt.
The company also publicly demonstrated for the first time its 64-bit ARM based Opteron A-series processor, codenamed Seattle, running a Linux environment derived from the Fedora Project. Fedora Project is a Red Hat sponsored, community driven Linux distribution, providing a familiar, enterprise class operating environment to developers and IT administrators worldwide. Due to this Fedora-Project based Linux environment, companies could transform ARM-based servers without the need to integrate entirely new tools and software platforms to their IT environments. This demonstration represented a significant step towards the expansion of ultra-efficient 64-bit ARM processors within the data centers.
Moreover, depending on the complex computing needs, the company will also offer 8 core and then 16 core systems on a chip with 64GB DRAM support, which will boost its performance substantially. This new technology will hit the market in 2015 with Puma+ APUs. The motivation of AMD behind offering both ARM and x86 designs is pretty simple: increasing the market for ARM, which is expected to grow more than $85 billion by 2017. Also, the company management projected that by 2015, 50% of the company's revenues will come from such "high growth" segments.
The stabilizing PC and the growing gaming and GPU market have enabled AMD to widen its focus towards the high margin server industry. Server industry has seen a substantial growth in the past few years due to increased focus towards cloud computing. With the solid growth in its graphics segment and the expected growth from the server processors; we believe AMD is well positioned to grow over the next few years. The focus on the high-margin, rapidly growing segments will allow the company to enhance its profitability, which should result in a considerable jump in the stock price over the next 2-3 years.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. IAEResearch is not a registered investment advisor or broker/dealer. This article was written by an analyst at IAEResearch and represents his/her personal opinion about the companies mentioned in the article. The article is for informational purposes only and it should not be taken as an investment advice. Investors are encouraged to conduct their own due diligence before making an investment decision. I am not receiving any compensation (other than from Seeking Alpha) for this article, and have no relationship with the companies mentioned in the article.