Though microprocessor and graphic processor manufacturer AMD (NYSE:AMD) reported a strong Q2 2014 (which was within company guidance but missed analysts estimates), the company's stock price declined by more than 15% since its earnings release on July 17 on account of a conservative Q3 2014 outlook (Read: AMD's Restructuring Initiative Translates Into Strong Growth In 1H 2014). However, new product launches (explained below) toward the end of last month has led to a marginal increase (5%) in AMD's stock price in the last few days.
We believe that AMD's restructuring strategy is paying off. The company has diligently managed its expenses and lowered its cost structure, in turn significantly reducing its operating expenses, which has helped it increase its investment in innovations that will fuel future growth. It is on track to derive 40% and 50% of its revenues from high growth markets, including semi-custom and ultra-low power processors, professional graphics processors, as well as processors for dense server and embedded solutions in 2014 and 2015, respectively.
Our price estimate of $4.17 for AMD is at a marginal upside to the current market price.
New products launched last week include:
Availability of AMD Opeteron 64-Bit ARM-Based Developer Kits
After successfully sampling to major ecosystem partners such as firmware, OS, and tools providers, AMD announced the immediate availability of its Opteron 64-bit ARM based processor, code-named Seattle, last week. AMD is the only provider to offer the standard ARM Cortex-A57 technology. AMD claims that the ARM-technology based server processors will be faster and more powerful than its existing low-power x86 server processors. In October 2012, the company had announced its collaboration with ARM Holdings (NASDAQ:ARMH) to design server processors using the ARM technology in addition to its x86 processors for multiple markets, starting with cloud and data center servers.
AMD's server market share declined from 15% in 2007 to 5% in 2013. The success of Intel's (NASDAQ:INTC) Xeon processors combined with AMD's execution issues are the key factors responsible for AMD's continuous slide in the server market. With new improved servers, its industry-leading graphics processing capabilities and its strategy to embrace both the x86 and ARM architectures, AMD remains committed to strengthenING its foothold in the server processor market and regain lost market share from Intel.
The collaboration with ARM makes AMD the only processor provider to bridge the x86 and 64-bit ARM ecosystems. Gartner expects ARM-based servers chips to represent a 5% revenue share by 2017.  AMD believes that ARM CPUs have the potential to account for 20% of the server market (by volume) by 2016 or 2017. 
We estimate server processors to account for 17% of AMD's valuation, and expect the company's server market share to reach 13% over our review period.
New Chip For Small Desktops and Gaming Devices
AMD also rolled out its new fourth generation A-series APU (A10-7800), which supports the Heterogeneous System Architecture (HSA) features and boasts powerful AMD Radeon R7 Series graphics, to the component channel last week. The company claims that the A-Series APUs bring a superior level of gaming and compute experiences to the desktop PC, and the Mantle API support simplifies game optimizations for programmers and developers to unlock unprecedented levels of gaming performance.
The new chip from Advanced Micro Devices is being promoted as a cheaper, powerful, new chip that could help reduce the costs of desktops as well as decrease their overall size. As per Tech Times, the chips are already receiving positive media coverage. Almost all gaming titles currently on the shelves can be played on desktops with the chips, which are the same ones used in graphics core next (GCN) graphic tech being employed in both Sony's PlayStation 4 and Microsoft's Xbox One gaming consoles. 
AMD claims that its 2014 A-Series APU, which combines the power of a multicore CPU with AMD Radeon graphics, are the most advanced and developer-friendly performance APUs from AMD to date. Around 47% of the Kaveri silicon is devoted to graphics, as compared to 31% in Intel's Haswell chips. 
AMD shipped more than 80 million APUs between 2011 and 2012. The company expects shipments to rise to 150 million in 2014 and cross 300 million within a few years.  We believe that its expanding APU portfolio will help accelerate demand for AMD processors.
Disclosure: No positions.