Is a Turnaround in the Cards for Advanced Micro Devices?

Despite facing stiff competition from the likes of NVIDIA (NVDA), Advanced Micro Devices (AMD) has managed to appreciate considerably in the last few months. Despite the fact that Advanced Micro Devices missed on earnings estimate in the last quarter, the stock has moved up considerably.

In Q3FY15, Advanced Micro Devices shared earnings per share of -$0.17, $0.05 less than the consensus estimate of -$0.12. Revenue for the quarter came in at $1.06 billion versus the analyst estimate of $995.8 million.
2015 has been an awful year for Advanced Micro Devices. The company’s revenue buckled as it lost market share to both Intel (INTC) as well as NVIDIA in the CPU market and GPU market, respectively. The company observed a net loss in its previous four quarters mainly due to the slothful demand for PCs.

In spite of all the problems faced by the company in 2015, the company believes that 2016 has the potential to be the finest year for the company. In terms of CPU, Advanced Micro Devices strategies to introduce a new CPU architecture, called Zen, and in terms of GPU, the company plans to renovate its entire collection, increasing performance to strongly compete with its major rival – NVIDIA.

In 2015, the company has lost huge market shares, and at present, NVIDIA accounts for almost 80% of market share. Advanced Micro Devices’ latest graphic cards did not perform well in the market. The company’s high-end products such as Fury and Fury X, failed to interrupt NVIDIA’s line-up, and the rest of the company’s new products were just rebranded models of older graphics cards. Throughout the third quarter, the high end GPUs failed to give the Advanced Micro Device an edge, whereas NVIDIA’s gaming revenue escalated 44% y-o-y.

In 2016, both the companies are likely to introduce new graphics cards in the market, and both company strategies to upgrade to either 16nm or a 14nm process instead of using 28nm process from last few years. After the launching of NVIDIA’s GTX 970 and GTX 980, the company started trailing NVIDIA. The only way for the company to gain market share is to introduce competitive products in 2016 in conjunction with NVIDIA.

Conclusion

Although Advanced Micro Devices’ shares have risen considerably in the last few months, I am not sure about the company’s prospects. I reckon investors should wait to see how Advanced Micro Devices’ products are received in the market before investing in the company. Until Advanced Micro Devices is able to win market share from NVIDIA, its recent rally will be short lived. Hence, I think investors should stay on the sidelines and not buy into Advanced Micro Devices’ turnaround just yet.
Published on Jan 5, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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