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Over the past two decades, Advanced Micro Devices has been a perpetual also-ran to chip giant Intel. While AMD has made brilliant technological strides over the years, it has never gained lasting competitive advantage over its rival. But that could soon change, thanks to a new executive team led by CEO Lisa Su, 47, who joined the company in 2012 and took the helm in October 2014.

“AMD has, in the past, suffered from a lack of execution and a lack of focus,” says Linley Gwennap, head of the Linley Group, a tech research firm. “They didn’t bring out the right products, or they were late to market.” But, now, he says, the company (ticker: AMD) could soon recoup lost market share. That could dramatically boost both revenue and profit.

It could also recapture share in graphics chips, called GPUs, which power videogames and, increasingly, novel applications such as machine learning. That is a multibillion-dollar market of its own and a strategic chip opportunity for years to come.

AMD’s shares have already responded to the new spirit at the top, rising more than fivefold over the past year, to a recent $12.24. We flagged that opportunity two years ago, when the shares were at $2.61 (“AMD Bets With a New Stack of Chips,” Jan. 31, 2015). The stock could double again, as AMD rolls out new products and gives both Intel (INTC) and graphics-chip maker Nvidia (NVDA) a run for their money.

ADVANCED MICRO DEVICES IS UNIQUE in its ability to make microprocessors that are compatible with those of Intel, dubbed “x86,” making it the world’s only alternative to run all of the software that dominates business and consumer computing.

That has been a blessing and a curse. On the blessing side of the ledger, AMD’s chief technology officer, Mark Papermaster, says, “It’s a law of markets. Capitalism wants competition.” On the curse side, it has meant the company was always chasing a moving target—Intel’s chip-making prowess.

For example, AMD peaked, with a 23% share of desktop and notebook x86 chips, in 2006. It’s now down to 8.5%, according to data from research firm IDC, after AMD failed to deliver new chips that were sufficiently innovative and on time. In server chips, its market share has plunged to 0.4% from 24% over the same period.

However, there’s good reason to believe the company could regain much of its lost ground. Su and Papermaster in 2012 brought back legendary microprocessor designer Jim Keller. He had a major role in creating the fundamental circuitry in the late 1990s that led to the last peak in AMD’s market share—before AMD fumbled that technological lead. Keller has left the company and now works for Tesla Motors.

The innovations wrought by Keller this time promise a dramatic boost in performance for AMD products. The new design will appear in x86 chips for desktops this quarter, servers in the second quarter, and notebooks later in the year.

AMD last week beat Wall Street’s fourth-quarter expectations, sending its shares up 14.7% for the week, as investors await the new products. All AMD has to do now is deliver those products on time. At its market-share peak, in 2006, it had $5.1 billion in revenue from x86 and related items, compared with $1 billion for such products in 2016.

“Will they blow the doors off Intel?” Gwennap asks of Keller’s designs. “Probably not, but AMD doesn’t need a home run. It needs some solid singles to get on base and move the whole process forward.”

To avoid stumbling again, Su has radically streamlined; she and Papermaster have said no to numerous projects. “We were a company with great engineers, great talent, but we had a foot in one thing, a foot in another, and a whole lot of things that were more than we could do and do well,” says Su.

They also put in place an engineering structure whereby some staff members will focus rigorously to enhance and extend Keller’s x86 designs. That’s a big change in AMD’s way of operating, and it may prevent another lapse into obsolescence.

“I think the difference now is we are a real company,” says Ruth Cotter, head of human resources and investor relations, and a 13-year AMD veteran. Su knows how to hold individual executives responsible, she says, in contrast to a corporate style that for years let engineers run around with no accountability.

“Lisa brings incredible rigor around operational excellence,” adds Jim Anderson, a longtime Intel veteran now tasked with selling AMD’s x86 processors to the PC market. “That’s where AMD always fell down against Intel. Intel was always able to out-execute, out-operate AMD.”

ONCE THE COMPANY starts to recoup market share, it can set its sights on bigger goals. AMD has 32% of the market for graphics chips, which are increasingly being used by cloud-computing titans, such as Google parent Alphabet (GOOGL) and Alibaba Group Holding (BABA).

While AMD trails Nvidia’s GPU share, at 68%, the market for things like machine learning is new. That means there’s still room to define the way Google and other cloud giants build their data centers, argues AMD GPU director Raja Koduri.

And by having both x86 and GPU chips, Su points out, the company can offer Google and others a more diverse set of computing approaches than either Intel or Nvidia.

Supplying a brand-new market like cloud computing, where the rules are still being written, gives AMD an opportunity that lies well beyond being a second banana to Intel and Nvidia. It could even make AMD a much more strategic company with an importance all its own.

Email: editors@barrons.com

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