Advanced Micro Devices (NYSE:AMD) has not had a particularly pleasant 2012. After running up significantly during the beginning of the year, shares of the company have plummeted to multi-year lows. The main reasons behind the share price decrease include a seeming lack of mobile strategy, an unfavorable competitive position against Intel (NASDAQ:INTC) in the PC and server spaces, and the looming threat that ARM-based (NASDAQ:ARMH) competitors would begin to eat into AMD's low end, low power niche.
However, AMD struck back hard today when it announced its "Z-60" APU intended for use in tablet systems running Microsoft's (NASDAQ:MSFT) Windows 8. In this article, I plan give the investor's viewpoint of this latest chip, delve into AMD's roadmap in the tablet space, and then address the competitive concerns on a go-forward basis.
The Z-60: Hey, It's Actually Decent!
The Z-60 is a 40nm processor that combines two "Bobcat" CPU cores running at 1GHz with an AMD Radeon graphics processor with 80 cores. The chip has a thermal design power of 4.5W.
Now, many will look at the specifications of Intel's tablet chip, which runs at 1.8GHz and consumes 2W, and balk at the AMD solution. However, AMD's in-house, DirectX 11 capable integrated graphics should be superior to Intel's licensed DirectX9 level solution from Imagination Technologies on both speed and image quality metrics.
More importantly, though, this represents a first step in the right direction for AMD. The tablet will run the full version of Windows 8, play modern PC games at playable frame-rates, have decent battery life and thermal characteristics, and most of all be quite affordable. This will allow AMD to gain some traction in the Windows 8 tablet space, even if Intel is likely to gain the lion's share of the sales this generation.
The Future: Jaguar
The Z-60 chip is a decent attempt to leverage a fundamentally netbook and notebook-oriented processor architecture in tablets. AMD's next "big thing" in the low power space will be its "Jaguar" micro-architecture.
This will be more power efficient due in part to a new micro-architecture and additional powerful instruction set extensions, but the big thing will be the move from the 40nm process on the Z-60 to the 28nm process. This will shrink die size and lower power consumption while improving performance and efficiency.
The ARM-based competition in this space will also be built on the same 28nm process node. However, AMD will be able to compete with the ARM vendors on the gross margin front because it need not license the ARM instruction set (and pay royalties) and/or designs, nor does it need to license graphics technology.
Against Intel, AMD has a tougher challenge as the former is at least a process generation ahead. However, AMD's strengths in integrated graphics will likely continue, and AMD's ability to accept a lower gross margin profile than Intel will allow it to aggressively fight for design wins.
AMD is in the tablet game. It hasn't the most power efficient solution, nor is it likely that these chips will be significant near-term revenue drivers for the company. But this is what AMD needed to do - to show the investing community that it has a mobile strategy that it can begin to execute to.
AMD's increased focus on the mobile side of things started with its "Llano" and "Trinity" and has been a good first step to continued relevancy for the company, which traditionally was not strong in notebooks. Now the company is edging its way into the tablet space, and even with current generation technology, it is able to produce a compelling, competitive product. AMD's officially in the high growth tablet game, and that's what value and growth investors need to pay attention to.
Disclosure: I am long AMD, INTC, MSFT. 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.