According to a recent IDC report, AMD (AMD) was able to increase its total PC microprocessor market share by 1.5% in Q2 versus Q1 thanks to better performance in the desktop and notebook processor market. However, the server processor business continues to be a drag on the company with the share declining to 5.5% in the second quarter.  On the other hand, Intel (INTC) continues to deliver strong performance with its server processor market share currently standing at 93%.
Based on our analysis, servers make up for 20% of our price estimate for AMD’s stock suggesting the importance of this business to AMD’s overall growth. While we estimate AMD’s server processor market share will increase from 7.5% in 2012 to 11.5% by the end of our forecast period, Trefis members predict an increase from 13% to 15.5% during the same period. The member estimates imply an upside of 10% to the Trefis price estimate for AMD’s stock. This upside is justifiable if AMD can replicate the success it had with the Opteron series of processors in 2006 with its bulldozer chips to be launched in Q3 as well as its growth in supercomputing technology.
We currently have a Trefis price estimate of near $10 for AMD’s stock, which is about 50% above the current market price.
(Chart created by using Trefis' app)
AMD Losing Momentum in Servers
AMD’s server processor share has tumbled over the years – from 15% in 2007 to around 6% currently – due to strong competition from Intel’s Xeon processors, product transitions, and product delays like that of its Barcelona chip in 2008. Also in 2006, when AMD’s share peaked to 25%, the number of supercomputers in the top-500 companies based on AMD’s processors increased by almost 40%. However, it has declined since then, causing a drop in its market position as well.
Can Interlagos & Bulldozer Turn AMD’s Fortunes?
In a June press release, AMD stated that it saw 15% growth in the number of AMD-based supercomputers in the top-500 companies list in last six months, and that more than half of 68 supercomputers based on AMD technology have 8- and 12-core Opteron 6100 Series processor. With the company now focusing on 16-core processor named “Interlagos,” computing will only get faster, more powerful and will more higher memory. This combined with the launch of Bulldozer server chips in Q3 is a good opportunity for AMD to get back some of its lost market share.
Disclosure: No position