Impact on AMD’s market share
The demand is high in the PC and server markets, and the CPU (central processing unit) market leader Intel (INTC) has been unable to meet this growing demand due to capacity constraints. As a result, a window of opportunity has opened for rival Advanced Micro Devices (AMD) to gain market share and see better-than-expected earnings.
AMD has seen the robust execution of its product roadmap so far. Although its products have delivered better price-to-performance metrics, Intel still offers some of the highest-performing CPUs. So, AMD’s share in the computer and server CPU market remained at ~10.0%.
However, the supply shortage of Intel’s high-performance CPUs has encouraged PC vendors to adopt AMD’s CPUs. According to a September 21 CNBC report, Jefferies analyst Mark Lipacis, citing a report from Fubon Research, stated that HP Inc. (HPQ) would use AMD’s CPUs in up to 30.0% of its consumer PCs in 2019. Plus, Dell would use AMD’s CPUs in its commercial PCs.
Lipacis stated that if Intel’s supply constraints continue until the second quarter of 2019 as predicted, AMD would be able to triple its computer and server CPU market share from its current 10.0% to 30.0% in 2019. His estimate of AMD’s 2019 market share is double the Wall Street estimate of 15.0%.
Impact on AMD’s earnings
Intel is not only facing supply constraints, but it’s also facing a delay in its 10nm (nanometer) process technology. As a result, it’s giving way to TSMC (TSM) and Samsung (SSNLF) in terms of manufacturing technology. TSMC has already started manufacturing AMD’s 7nm Vega GPU (graphics processing unit), which is scheduled to launch by the end of 2018.
A higher share of new products and a lack of competitive products could help AMD improve its gross margin. Stifel analyst Kevin Cassidy expects AMD’s gross margin to reach 45.0% in the coming years, up from the estimated 40.1% for fiscal 2019.
Apart from AMD, Intel’s supply constraints also present an opportunity window for TSMC. We’ll look into this topic next.
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