Omri Elani is a Junior Business Developer & Research Analyst for I Know First. Also a frequent contributor for the investment research website Seeking Alpha.

AMD Stock – SWOT Analysis

AMD CEO is optimistic

SWOT Analysis

I Know First forecast Bullish View On AMD

The Semi-Conductor giant AMD had a day conference in March where they discussed the firm’s financial position as well as the direction it chooses to follow for the upcoming future. Many argue how the Information Technology company will not thrive in future years as highlighted by its recent poor managerial decisions and poor product performance. AMD stock have portrayed this lack of faith; the firms stock have been valued at $2.30/share giving it a market cap of only $1.8 billion. This is extremely poor when compared to market leader, Intel, who boast a market cap of $155 billion.

CEO, Lisa Su, who has already been CEO for roughly 1.5 years raises some interesting argument regarding AMD future performance and with this, and other consideration, the future of AMD does look bright, as will be discussed in this article. The global semiconductor company offers x86 microprocessors for the commercial and consumer markets, embedded microprocessors for commercial, commercial client, and consumer markets. Moreover, the firm also specializes in graphics, video and multimedia products for desktop and mobile devices. The multinational cooperation has manufacturing facilities in China, Malaysia, and Singapore. As well as being a dominate seller in Russia, India, China, Taiwan, and Japan.

Su is optimistic and believes 2016 will be the best year ever for AMD. Citing its incoming cash flows and its failing costs as its main competitive edge.

SWOT Analysis

Strengths:

Reaping Rewards From Managerial Hierarchy- Lisa Su has been appointed as CEO of AMD roughly 1.5 years ago. Therefore, AMD will only start reaping the rewards of Su’s amazing work now. She boasts a Ph.D. in EE and has 20 years’ experience delivering new semiconductor products at the well-established company Freescale and IBM. Su has ample amount of experience in delivering promised products which will prove vital for AMD’s future. Although, the previous CEO, Rory Read, did produce reasonable process within the company, the new appointment of Su is timely and especially significant due to her engineering background.

Lisa Su has been appointed as CEO of AMD roughly 1.5 years ago. Therefore, AMD will only start reaping the rewards of Su’s amazing work now. She boasts a Ph.D. in EE and has 20 years’ experience delivering new semiconductor products at the well-established company Freescale and IBM. Su has ample amount of experience in delivering promised products which will prove vital for AMD’s future. Although, the previous CEO, Rory Read, did produce reasonable process within the company, the new appointment of Su is timely and especially significant due to her engineering background. Cash inflow: AMD has sold its Semiconductor Assembly and Test Services (SATS) in October, following an agreement with Nantong Fujitsu Microelectronics. The deal resulted in the sale of 85% of its SATS facilities for net cash of around $320 million. The significant amount of cash now gives AMD enough funds to complete the all-important product developments, especially on its upcoming new Zen processor .

AMD has sold its Semiconductor Assembly and Test Services (SATS) in October, following an agreement with Nantong Fujitsu Microelectronics. The deal resulted in the sale of 85% of its SATS facilities for net cash of around $320 million. The significant amount of cash now gives AMD enough funds to complete the all-important product developments, especially on its upcoming new Zen processor Gaming: Game consoles sales are still rising worldwide and are likely to do so in the future. As seen by Sony, who have announced that sales of their PlayStation 4 (PS4) console have exceeded over 30 million consoles. Likewise sales of Microsoft’s, Xbox One has also been on the rise. The increase in gaming units is good news for AMD as it is the main semiconductor supplier for this industry, thus providing a hint of sustainable long term growth.

Game consoles sales are still rising worldwide and are likely to do so in the future. As seen by Sony, who have announced that sales of their PlayStation 4 (PS4) console have exceeded over 30 million consoles. Likewise sales of Microsoft’s, Xbox One has also been on the rise. The increase in gaming units is good news for AMD as it is the main semiconductor supplier for this industry, thus providing a hint of sustainable long term growth. Costs – Falling costs means rising profits. AMD abides this rule as demonstrated by AMD Sales, General and Administrative (SG&A) expenses which have been falling over the last 5 quarters. Moreover, the sale of the SATS facilities will lower it even more in 2016. In addition, it is assumed that CAPEX should also fall in the upcoming years.

(Source: AMD Website)

Weaknesses:

Poor PC Market- The PC industry is in decline. It is no surprise as highlighted by the chart below, which shows the steady decline in worldwide PC sales. Such news is especially bad for AMD as they heavily rely on supplying microchip’s to such devices.

(Source: IDC Worldwide Quarterly PC Tracker)

Poor Earnings report: Fundamental evidence does not portray AMD in a positive light. The semiconductor firm demonstrated a loss and a sharp drop in revenues from a year prior. Moreover, the company reported a third quarter net loss of $0.17 per share on $1.06 billion in revenue compared to consensus estimates of a net loss of $0.12 per share on $996 million in revenue.Such poor performance may illustrate a poor downward cycle which the firm is facing.

Fundamental evidence does not portray AMD in a positive light. The semiconductor firm demonstrated a loss and a sharp drop in revenues from a year prior. Moreover, the company reported a third quarter net loss of $0.17 per share on $1.06 billion in revenue compared to consensus estimates of a net loss of $0.12 per share on $996 million in revenue.Such poor performance may illustrate a poor downward cycle which the firm is facing. Lack of Acquisition: The firm’s lack of ambition is highlighted by the lack of potential acquisitions in the future. The firm is targeting small tuck-ins like Sea-Micro which was purchased for a $335 million unlike its previous larger acquisitions such as ATI’s which was purchased for $5 billion. The lack of drive by AMD suggests poor confidence with company management which may not go well with company shareholders.

Opportunities:

GPU Radeon Pro Duo – AMD reviled its VR (virtual reality)-optimized GPU Radeon Pro Duo, which will help content creators and game developers come up with VR games using AMD’s Liquid VR SDK. It is thought to be the most powerful GPU available in the market. This is a brilliant opportunity for AMD, as the market for VR is ready to take off. Since a true VR experience needs high quality immersive display powered by an advanced GPU, it’s interesting to see how AMD will tackle this market.

(Source: Pixabay)

Zen – AMD is set to launch its first Zen-based CPU in October this year. The new chips will be made using the 14nm FinFET fabrication process, which is said to offer improved performance and power efficiency to the 32nm Piledriver processors. The new chip could become a new leader in the high-end desktop and server processor space, in turn boost AMD potential greatly.

Threats

Intel – Intel, the American multinational, has always been considered better than AMD, this is mostly due to the more efficient CPU architecture design. Intel designed their CPU to simply process more instructions than AMD’s design. The Californian based company boasted impressive profits of 11.4 billion USD (2015). The company’s huge market dominance is always a threat when compared to AMD much weaker financials.

Intel, the American multinational, has always been considered better than AMD, this is mostly due to the more efficient CPU architecture design. Intel designed their CPU to simply process more instructions than AMD’s design. The Californian based company boasted impressive profits of 11.4 billion USD (2015). The company’s huge market dominance is always a threat when compared to AMD much weaker financials. IBM: The Company is slowly cementing itself as the main player in the electronics market. IMB was able to demonstrate a broad range of new products at the Open POWER summit this last month. The event was also done in conjunction with NVIDIA’s GTC (GPU Technology Conference), thus opening the doors to speculation that a strong partnership is developing between IBM and NVIDIA, which maybe even more damaging to AMD.

The above SWOT analysis looks into AMD framework showing the firms greatest challenges and potential. We will now look at porters five forces model which help to illustrate the attractiveness of the microchip industry. The model will look at five forces that shape industry competition; the threat of new entrants, bargaining power of buyers, a threat of substitutes, bargaining power of suppliers, and competitors.

5 Forces Analysis

Potential Entrants

The semi conductor industry is a very expensive one to penetrate due to its high sunk cost and a large amount of capital. Therefore, the threat of new entrance, from this perspective, is low.

Any new company that would try to compete with is at a tremendous disadvantage because they have a much smaller economy of scale.

Most of the microchip users have high brand loyalty and are unlikely to switch to a new firm, hence demonstrating high barriers to entry.

Buyers

There are a handful of competitors in the semiconductor market, therefore, the power of buyers is relatively large because if a consumer is not happy with AMD products they can switch to a more efficient provider, for example, Intel.

Moreover, due to the increase in globalization and the increase in the online market it is much easier for the consumer to find other substitutes or similar companies which provide relatively similar products.

Suppliers

AMD uses a large chain of suppliers thus has both a negative and a positive impact on the bargaining power of suppliers. On one hand a broken piece in the chain of suppliers is likely to cause havoc to AMD production line. On the other hand, with the growing amount of electronic suppliers coming from the Far East, this gives a little leverage to the current AMD suppliers.

AMD quality assurance for suppliers are very strict thus, if not met at all times, AMD will stop partnership with them.

Lots of different revenue streams, which lead to a high cost to switching suppliers. Costs are based on quality control that AMD demands on order time, delivery time and time production restrains

Industry Competitors

As highlighted throughout this article AMD has a large amount of competitors within the industry. The likes of Intel and IBM are much more dominate players in the industry.

Although there are many rivals in this industry AMD produces unique products which stand out when compared to other rivals within the industry.

Competitive Rivalry:

AMD has a few points of differentiation from its competition and potential competition. The main advantage that AMD has, which is bolstered by other advantages and methods, is its potential ability to penetrate the virtual reality sector. It plans to achieve this through Lu’s experience and stern managerial approach.

Forecast:

I Know First is a FinTech company that created an advanced state of the art algorithm based on artificial intelligence and machine learning to foresee market performance for more than 3,000 markets including stock forecasts, world indices, commodities, interest rates, ETFs, and currencies. In essence, the algorithm generates a with a signal and a predictability indicator. The signal is the number at the center of the box. The predictability is the figure at the bottom of the box. At the top, a particular asset is identified. This format is standardized across all forecasts the results of these predictions are shown on a daily basis on the I Know First website.

I Know First has a bullish forecast on AMD for the one-month, three- month and one-year forecast.

In this stock forecast, we can observe that AMD had a signal of 259.07 and a relative strong predictability of 0.4 on March 20th, 2016 for the 1-month forecast, for the 3 months forecast a signal of 386.48 and a relative predictability of 0.39 and for a year forecast a signal of 21.29 and predictability of 0.44.

Past Predictions

In the past, I Know First has predicted correctly the bullish signal for AMD stock movement in the past, as seen in the forecast from January 21st, 2015. AMD had a bullish signal of 42.84 strong predictability indicator of 0.3 managing to bring high returns of 27.23% in just 14 days.

Conclusion:

For the reasons illustrated in this article, we recommend to long AMD for fruitful results. The I Know First’s algorithmic analysis mirrors the bullish stance that the company is showing. The indicators throughout this article suggest that AMD will be of long-term value in the future, and a stock investor should consider purchasing.