AMD Needs More Than Game Console Design Wins to Offset PC Market Declines – Analysts

AMD Has to Develop Competitive Product Lineup to Survive in Current Environment

by Anton Shilov
05/16/2013 | 10:59 PM

Sales of Advanced Micro Devices declined to nine-year-low in the Q1 FY2013, but the company remains moderately optimistic since it has won contracts to supply chips for next-generation game consoles from Microsoft Corp. and Sony Corp. However, sales of such chips will not completely offset declines in shipments of microprocessors for PCs and servers. Market analysts advice AMD to develop a competitive lineup of products to survive in the current situation.

 

AMD reported revenue for the first quarter of 2013 of$1.09 billion, an operating loss of $98 million and a net loss of $146 million, or $0.19 per share. The company’s sales results were lower than those in Q1 2009 (the worst quarter for the industry during the recent economic downturn) and those in Q1 2004, but still somewhat better than AMD’s sales in Q1 2003. In general, the situation may be not that bad as the company has competitive products in the pipeline and has a lot of opportunities with Microsoft Xbox Next as well as Sony PlayStation 4.

But there are challenges for AMD. The company supplies graphics cards that are very competitive with Nvidia Corp. and in many cases outperform the rival’s solutions. However, since 2006 the company has not even tried to compete against Intel’s high-end microprocessors. Currently AMD’s FX-series chips for desktops is officially positioned for enthusiasts, but its prices are set in between $101 and $195, Intel’s Core i3 and Intel Core i5 range. Moreover, AMD’s server microprocessor market share is now about 4.3%, down from 25% in 2006. Therefore, while AMD can offer the right products for the mainstream, it does not compete in the lucrative high-end part of the market. Financial analysts consider this a danger for the company as demand for mainstream PCs is slowing these days and game consoles are not going to offset those declines completely.

“I am really worried about the core business. They have actually lost more than a billion dollars from their core business over the last two years. Does that stop? I am not sure,” said Stacy Rasgon, an analyst at Sanford C. Bernstein, reports Bloomberg news-agency.

Other financial analysts also share the same opinion.

“We expect continued disappointing results in the PC segment to mitigate the impact of increased revenue from gaming,” said James Covello, an analyst at Goldman Sachs Group, in a report for clients.

Given AMD’s history, most analysts remain wary. About 71% of the 31 who cover AMD have hold ratings, while 16% recommend to sell the stock. The chip designer will have to show measurable benefits from game consoles and other new markets to prove that it can maneuver its way out of the shrinking PC market. The game console business is clearly a good start, since it actually has a huge impact on PCs, it is just the first step.