One of Advanced Micro Devices’ (AMD) main businesses is the EESC (Enterprise, Embedded, and Semi-Custom) unit, which sells custom chips for gaming consoles like the PS4 and Xbox One. In the past quarter, the chip giant reported EESC sales of $715 million, down 5% year over year. The decline was driven by lower semi-custom product and IP-related revenue.

Wells Fargo analyst Aaron Rakers estimates EESC revenue to decline 40% q/q at ~$430M in 4Q18. This reflects estimated Custom Semi rev. down 60%+ q/q in 4Q18, compared to 40%+ q/q declines in 4Q16 and 4Q17. However, Rakers forecasts Enterprise (server) revenue at ~$184M in 4Q18, up from our estimate of $82M in 3Q18 and ~$17M in 4Q17.

Rakers noted, “With an expectation that AMD’s 14nm Naples EPYC CPUs can garner continued share gains in the cloud vertical, we model Enterprise revenue to grow to ~$200-$250M/quarter in 1H2019, followed by an anticipated strong 7nm Rome EPYC driven ramp to ~$380M and $450M+ in 3Q19 and 4Q19, respectively. This reflects estimates that AMD’s server unit share will grow to ~10%-12% in 2H2019; using a blended ~$700 ASP ($/CPU) – using IDC’s CPU shipment estimates […] AMD’s server strength into 2019 remains a key focus as we / investors gauge the ramp of the company’s 64-core / 128-thread 7nm Rome EPYC CPUs.”

The analyst modestly reduced his 4Q18 revenue and EPS estimates from $1.456 billion and $0.09 to $1.411 billion and $0.08, respectively. The analyst also adjusted his 1Q19 estimates from $1.577B /$0.14 to $1.375B / $0.07. He adjusted his 2019 and 2020 estimates from $6.988B / $0.77 and $7.420B / $0.86 to $6.862B / $0.71 and $7.354B / $0.85, respectively (vs. street @ $6.942B / $0.62 and $8.070B / $0.96).

Overall, Rakers reiterates an Outperform rating on AMD stock with a price target of $30, which implies an upside of 56% from current levels. (To watch Rakers’ track record, click here)

What do other analysts say about the chip maker? It’s nearly split. TipRanks analytics shows out of 25 analysts, 12 are bullish on AMD stock, while 11 are sidelined and only 2 bearish. The consensus price target of $25.68 shows a potential upside of 32%. (See AMD’s price targets and analyst ratings on TipRanks)