The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

AMD Stock Forecast

Summary:

AMD recently filed patent infringement complaints against LG Electronics, MediaTek, and Vizio. AMD claims those three companies are using/licensing GPU designs from ARM Holdings.

AMD believes ARM Holdings’ Mali mobile GPU architecture designs infringed on three of its graphics-related patents.

MediaTek licenses ARM Holding’s Mali GPU designs and build mobile processors that are used by phone vendors like LG Electronics.

Better monetization of its patents could make up for any weakness in x86 GPU/processor sales.

Forcing MediaTek and other firms to properly license graphics patents could notably speed up AMD’s path to profitability.

All electronics products manufacturers that uses Mali GPU-integrated processors should give a damn about the patent infringement complaints filed by Advanced Micro Devices (AMD) against MediaTek and LG Electronics. MediaTek manufactures mobile processors like the Helio P10 that used licensed Mali GPU (Graphics Processing Unit) designs from ARM Holdings. LG Electronics also sells smartphones with mobile processors with Mali GPU-licensed integrated chips.

Source: MediaTek

AMD’s complaint points out that ARM Holdings’ current Midgard Mali GPU designs infringes on three of its graphics patents. The infringement complaint also includes violation of another pending GPU patent. Here’s a chart illustrating AMD’s complaint against MediaTek, LG, Sigma, and Vizio. Two of the alleged patents infringed are from AMD’s acquisition of ATI Technologies, Patent nos. 7,633,506 and 7,796,133. AMD decided not to go after ARM Holdings because it doesn’t actually create commercial products. Infringement cases are easier to win when there are actual physical commercial products that committed such patent violations.

Source: AnandTech

Monetizing Patents Is Great For AMD’s Future

AMD admitted in 2007 that it overpaid over the $5.6 billion purchase of ATI in 2006. It is therefore very important that AMD better monetize the patents and intellectual properties it acquired from ATI. Licensing fees from graphics patents could be used for debt payments and research and development. AMD still has more than $1.4 billion of long-term debt.

AMD claims Samsung and GlobalFoundries already licensed the mentioned patents. Samsung and GlobalFoundries clearly found merit in AMD rights over the said patents. AMD therefore has a decent chance to force MediaTek and others to fork licensing fees.

The Midgard Mali GPU designs cover system-on-chip processors released since 2012. The Midgard architecture is used on Mali-T604 up to the latest Mali-T880 GPU design from ARM Holdings. ARM Holdings touted that more than 550 million products used Mali GPUs in 2014. My guesstimate is that Midgard-related processors could be found in more than 2 billion products right now.

AMD definitely has long-term economic potential if it could force firms who manufactures/uses Mali GPU-based processors. An AMD victory against MediaTek, LG Electronics, Vizio, and Sigma Designs could also mean it could sue other firms who use Midgard-based GPU designs.

Out-of-court settlements on erring firms could potentially give AMD $200 million in new revenue. After which, AMD can earn at least $100 million annually from licensing its graphics patents to firms who use Mali-based GPU designs. My guesstimate is reasonable since AMD won’t charge too high for its graphics patents. ARM processor manufacturers/users could switch to licensing Imagination Technologies’ PowerVR GPU designs.

I believe AMD is not going to sure Imagination Technologies anytime soon. The reason is that Apple (AAPL) exclusively uses AMD Radeon graphics for its Mac computers. On the other hand, Apple is also using PowerVR-licensed GPU on its in-house ARM-based processors.

Conclusion

A more aggressive monetization of AMD patents is one way to raise new money for product research and development. Raking in $100 million licensing fees annually from its graphics patents is can help AMD fund more research into improving its Radeon GPU and Ryzen CPU products.

Impressing ordinary consumers and institutional buyers require AMD to release x86 chips that are better but cheaper than Intel’s (INTC) products. This is only possible through increased budget for R&D. Consequently, better products from AMD can lead to more buyers. More people buying Radeon and Ryzen products can lead to AMD finally turning a net profit.

I am not recommending a buy rating for AMD right now. The 30-day and 90-day algorithmic forecasts for AMD are negative. It might be more prudent of me to say that now is the right time do some profit-taking. My thinking is that take profit now and wait for a lower re-entry point for AMD. The 30-day algorithmic forecast is that AMD is more likely to trend down than up.

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.

I Know First Past Success With AMD

On April 22, 2016, an I Know First analyst wrote a bullish article for AMD and discussed the company supply gaming consoles with CPU/GPU chips. In accordance with I Know First’s self-learning algorithmic forecast, AMD shares increased over 422.9% since its publication.