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Zen Core Processor Gives AMD Investors Hope for Future Growth

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Jan. 18 2016, Updated 1:07 p.m. ET

AMD’s new high-performance core

In the previous part of this series, we saw that Advanced Micro Devices (AMD) is increasing its investment in the high-performance core. The company has been making news as it develops its new x86-design core processor, called Zen.

At a time when the company suffers from cash burn, a new processor provides much-needed hope that investors need to remain invested in AMD. Let’s look at the opportunities and challenges Zen could bring for the company.

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What is Zen?

AMD is expected to roll out Zen, its first CPU (central processing unit) core with multithreading capability, in 4Q16. The company claims that Zen’s instruction per clock would be improved by 40% over its predecessor, Excavator. Zen is likely to carry the power-efficient feature of Excavator with an improved design.

The core would be produced on Samsung (SSNLF) and Global Foundries’ 14nm (nanometer) process node, which would improve its performance and make it competitive with Intel’s (INTC) 14nm core line. However, it remains to be seen whether Zen is able to significantly narrow the technology gap between AMD and Intel.

Opportunities

  • Zen would open the server market for AMD, which has less than 1% market share.
  • It could enable AMD to win some share back in the workstation and high-end desktop market.
  • It would also open a new target market for AMD’s semi-custom chips, helping the company win more gaming console customers.
  • Zen would combine the features of Intel’s CPU and Nvidia’s (NVDA) GPU (graphics processing unit) and deliver a competitive high-end gaming notebook. The opportunity would be further enhanced with the Zen-based APU (application processing unit) featuring next-generation graphics.

Challenges

While Zen does bring hope, it also raises doubts given the company’s history of unsuccessful higher-end processors such as Bulldozer.

  • If Zen fails to show superiority in a significant amount of workloads, it would not win AMD a decent share in the server market.
  • If Intel starts a price war by releasing similar processors at competitive prices, Zen would have difficulty making its mark in the market.
  • Unlike previous lithography improvements, the 14nm shrink would not significantly reduce the cost per transistor anytime soon. In that event, the high cost of 14nm would force AMD to sell chips at a premium price.

In the next part of this series, we will look at the areas where AMD is lowering its investment. You can gain exposure to large-cap semiconductor companies through the SPDR S&P 500 ETF (SPY), which has 0.09% exposure in NVDA and 0.91% in INTC.

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