Will AMD Sustain Its Recent Rally?

Although shares of Advanced Micro Devices (AMD) have rallied significantly in the last few weeks, the company’s business still looks dodgy. NVIDIA (NVDA) has been gaining at the cost of AMD and this trend will continue to NVIDIA’s superior product offerings. AMD will have to reshuffle significantly so as to win back share from NVIDIA, which looks unlikely at the moment.

NVIDIA and AMD are the two top companies in the world of high-performance, stand-alone graphics processor, where NVIDIA has a significant market segment share lead over AMD.
In prior quarter, NVIDIA gripped an enormous 81.1% market segment share.

NVIDIA’s GeForce GTX 980 Ti is comparably faster and cheaper than the AMD’s Fury X. The main problem for AMD is that it may not have much benefit in the way of opportunity to reduce prices while keeping its margin sturdy. AMD’ Fury X is a full “Fiji” die, whereas NVIDIA’s GeForce 980 Ti is based on cut-down type of its GM200 GPU used in the Titan X for $999.

In terms of comparison, NVIDIA’s GeForce GTX 980 Ti and AMD’s Fury X chips are almost of same die size grounded on the same Taiwan Semiconductor Manufacturing Company’s 28-nanometer process, but NVIDIA’s 980 Ti operative yields are most likely superior than AMD’s Fury X, providing it an intrinsically better cost structure.

However, it is worth remarking that the AMD’s Fury X uses a newer memory technology known as High Bandwidth Memory, whereas, NVIDIA’s 980 Ti uses a more advanced technology known as GDDR5. It can be clearly observed that at the present stage, GDDR5 memory is moderately a bit low-priced than High Bandwidth Memory.

The company is unwilling to reduce prices because it knows that NVIDIA is more capable of handling a price war than AMD. Another reason for not being focused on pricing is may be company wants to extract as much revenue as conceivable from clients who only desire to buy AMD’s products.

The negative effect of competition from NVIDIA is evident from the company’s latest quarterly result. In Q3FY15, AMD shared earnings per share of -$0.17, $0.05 less than the consensus estimate of -$0.12. The company reported revenue of $1.06 billion compared to analyst estimate of $995.8 million.

Conclusion

With AMD unwilling to reduce prices, I can see the chip maker struggling. NVIDIA’s superior product offerings will enable it gain more market share from AMD. Hence, I think investors should continue avoiding AMD.
Published on Dec 2, 2015
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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