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Over the past 12 months, Intel shares are up 25%, while those of fellow chip maker Advanced Micro Devices are 32% lower. The overall group, tracked by the Semiconductor HOLDRs (SMH), advanced by 4%.
In 2011, AMD’s stock had a tough run. Battling with chip supply issues, a lack of leadership and a dismal performance of its early Bulldozer chips, AMD hasn’t been able to regain investor confidence and has again remained in the shadow of rival Intel.
This year looks to be no easier for the company as the CPU market will get more crowded by the entry of ARM-based processors and shortage will impact results for at least Q1 2012. Gaining meaningful market share in mobile computing will still not be easy AMD, facing established players such as Qualcomm. Bulls take some heart that with new leadership and thinking, the company can engineer a recovery.
Our price estimate for AMD stands at $8.50, implying a premium of about 55% to the market price.
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See our complete analysis for AMD
New CEO & Strategy
In Jan 2011, AMD's previous CEO Dirk Meyer announced his resignation due to clashes with the board of directors over the company's strategy. The company was reportedly interested in a CEO with a different vision for the business as it looked to tap the growing demand for mobile devices.
This was a very significant development for AMD that exposed the internal problems and weighed on the share price as the search for new CEO stretched longer than many expected.
Finally in August 2011, AMD named the previous President and COO of Lenovo as its new Chief Executive Officer. While this ended a long awaited search for a new leader, it did not excite the market. Nevertheless, the new leadership is bringing new thinking to AMD’s management and has expressed a willingness to adapt ARM architecture to compete if the business needs require such a move.
APU Transition Occurred
This past year also marked a significant change in CPU technology for AMD as well as for its main competitor Intel. The company launched its Llano APU (Accelerated Processor Unit) chips in June 2011, combining the power of a CPU and GPU in a single chip. The new design is aimed to enhance the performance and makes the requirement of integrated graphics or entry level graphics cards obsolete.
Although Intel was the first to make this transition, AMD is looking to put more emphasis on the GPU aspect of its APU chips in order to try and grab some share from Intel (See article Can AMD's Llano Beat Sandy Bridge?) and NVIDIA.
So far, the impact has not been material and AMD’s overall notebook share for 2011 hasn’t moved much.
Execution Holes Exposed
When Intel hit a minor roadblock due to shipping of some faulty chips back in February 2011, AMD attempted to take advantage of that window of opportunity with its marketing campaign, under the slogan "Ready. Willing. And Stable" (See article AMD Can Leverage Short-Term Opportunity, but Real Value Comes from Long-Term Positioning).
Ironically, several months later, AMD itself ran into trouble due to some manufacturing issues that limited the supply of Llano chips. The outline is that AMD has not been stellar with its execution. The recent manufacturing issue is not the only example of where AMD lagged in execution; the company also faced delay with the Barcelona chip in 2008 and consequently lost server microprocessor market share.
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