AMD (AMD) continues to gain momentum on expectations pertaining to the EPYC 2 launch, which should in turn drive demand on the basis of higher performing chip counterparts, which has given AMD a much-needed foothold in the graphics and CPU markets. Though this is contingent on a number of things going well for AMD. TSMC’s 7nm fab is fully operational and is expected to pump-out chips in Q3’19 at full capacity, which gives investors greater hope that AMD is finally on the right track with both its graphics and CPU family to finally gain an edge against its competitive rivals Nvidia and Intel.
In the past week, expectations have continued to trend higher, as investors now turn their attention to AMD’s product roadmap and the anticipated market share gains from improved performance when compared to their rivals in both graphics and computing. This helps to reassure investors, as more and more of the business has shifted to CPUs given the difficulties of the graphics market in the past couple quarters that led to an inventory surplus that put a gaping hole in financial results from AMD’s graphics division.
Though things could change, as the market could return to supply/demand balance as we roll through the fiscal year, and during that period AMD could gain market share against Intel and Nvidia, which wouldn’t be surprising given AMD’s in a better position to compete on both price and performance with the anticipated launch of Ryzen 2 and Navi 10 and 20 architecture over the foreseeable two-year period.
According to Nomura analyst, David Wong:
AMD has an opportunity to gain share. In recent years, with the launch of new microprocessor and GPU families, AMD has managed to lift from its market share lows in all categories of x86 microprocessors and GPUs. We estimate AMD will be able to achieve >10% market share in x86 processors for datacenter, 15-20% share in desktop/notebook, and >30%/>40% share in desktop/mobile GPUs in the near future. We believe that further share momentum, as well as favorable mix, will help drive AMD’s sales growth through 2019, 2020, and beyond.
Given the roadmap of Ryzen 2, it certainly seems plausible that AMD will deliver chips that can compete on performance with Intel later this year. Not only will they have more transistor density per square mm, but they’re likely to ship with more cores, higher core counts, and other added features like more memory cache. Assuming all goes to plan, and AMD does in fact deliver CPUs in the second half of 2019, AMD’s positioning in the CPU market will drive meaningful revenue growth, as consumers will be responsive to better performing parts at lower prices. Although, the caveat is that Intel’s branding, and pre-existing OEM relationships may diminish the degree to which AMD can capture market share, it wouldn’t be surprising to see some share loss on the part of Intel, thus contributing significantly to AMD’s financial performance in the next couple years.
Source: Nomura Instinet
The worst-case scenario has already passed for AMD when it reached a server market share low of 0.3%, and its current market of 4% while minimal could easily expand to 10% or more upon the launch of Ryzen 2 in the next couple quarters. Intel has made efforts to keep its product line-up robust, but there’s not a high likelihood that Intel can continue to sustain 96% market share in the datacenter despite their impressive showing of server products in the past week.
Likewise, desktop and notebook market share could improve to 15% to 20% assuming AMD has a robust enough of a line-up in the market when it launches parts. However, the notebook market is arguably larger than the desktop market currently, and it’s an area where AMD hasn’t been able to demonstrate the same low powerband performance as Intel parts. This could change in the next couple quarters, but it depends heavily on AMD’s customization of those notebook chips despite the implicit advantage of manufacturing at a 7nm TSMC process versus Intel’s delayed yet expected release of 10nm Ice lake chips.
The difference in manufacturing advantage is noted, but the architecture for mobile notebooks could trail that of Intel in the foreseeable year. However, AMD’s desktop chips could easily outperform expectations because there’s less engineering involved with improving performance at much higher power bands.
AMD is moving past a market share trough in its corporate history, and if trends continue, AMD will take an increasing number of sales away from Nvidia and Intel. They do have a compelling technology roadmap and they do have the technologies. From here, it’s all about execution, and whether they can continue to gain market share. This comes at a bad time for Intel and Nvidia however, especially because they’ve grown accustomed to such a sizeable segment of the graphics and processing market, and if in the event they were to face more competitive headwinds, the financial results will show.
Disclosure: The author has no position in AMD. The information contained herein is for informational purposes only.
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