Despite a shrinking personal computer market and some under-performing acquisitions (namely ATI), Advanced Micro Devices, Inc. (NYSE:AMD) has an interesting future ahead with the next generation of Microsoft Corporation (NASDAQ:MSFT) and Sony Corporation (ADR) (NYSE:SNE) consoles on the horizon.
This mixture of events is the break AMD needs to redefine itself as a diverse, successful semiconductor company. The future for consoles looks bright, with China officially announcing it will lift its foreign console game ban provided companies develop their products in the free trade zone designated by the government. This development opens a fresh, densely populated market with gaming already ingrained in the culture. I have no doubt console giants like Microsoft Corporation (NASDAQ:MSFT) and Sony Corporation (ADR) (NYSE:SNE) will comply with such a request.
This means more console sales, and with that, more demand for Advanced Micro Devices, Inc. (NYSE:AMD)’s chips and cores. The best part is it doesn’t matter who wins this console war – whether it is the Playstation 4 or Xbox One – AMD comes out on top because it is supplying hardware for both consoles.
Before you say, “But what about the Nintendo’s console? It has the highest market share of all consoles when measured globally,” consider that Advanced Micro Devices, Inc. (NYSE:AMD) is in fact also supplying its silicon to Nintendo for the Wii U.
But will there be demand?
So with AMD supplying to all three major consoles, what remains to be seen is the volume of product that will be in demand.
Based on comments from console manufacturers like Sony Corporation (ADR) (NYSE:SNE), sales forecasts are looking good and possibly better than previously thought, with a surprised Sony Computer Entertainment CEO Andrew House stating “demand may well outstrip supply.” There is similar news on the Xbox front, with Microsoft Corporation (NASDAQ:MSFT) stating, “Xbox One pre-orders are trending ahead of Xbox 360 pre-orders during the same time period and have already sold out at most major US retailers.”
This information indicates that this next generation of consoles will be just as successful – if not more so – than the previous generation. In addition, Sony Corporation (ADR) (NYSE:SNE) has learned its lesson regarding pricing strategy. This time around investors can expect Sony to not sell the new Playstation at a loss – part of a strategy employed by both Microsoft and Sony Corporation (ADR) (NYSE:SNE) last generation. This will buffer the business from negative returns in the unlikely event Playstation game sales are poor.
In summary – great news for Sony investors.
Comparatively, I’m not as keen on Microsoft Corporation (NASDAQ:MSFT)’s offering. While sales forecasts look healthy, Microsoft’s public relations coming up to the launch of the Xbox One have been nothing short of a disaster. Journalists reeled at the Xbox One media briefing, where Microsoft Corporation (NASDAQ:MSFT) announced a $499 price tag, $100 more than the Playstation 4. In addition, the outcry from the public regarding restrictions attached to the console was so fierce that Microsoft was ‘forced’ to remove said restrictions by way of public opinion. Despite making changes, Microsoft was heavily criticized in the gaming media for its handling of the debacle.
As a result, investors might witness Microsoft Corporation (NASDAQ:MSFT) lose its edge to Sony Corporation (ADR) (NYSE:SNE)with this generation of consoles. Coming up to the highly anticipated release of these consoles brand image is more important than ever and I feel like Microsoft may have dropped the ball on this one.
The current consensus, however, on Advanced Micro Devices, Inc. (NYSE:AMD)’s side is that even with exceptionally strong console sales, AMD’s future will be a short one if it loses its grip on the PC market to companies like Intel and Nvidia. In this particular instance, I beg to differ. My opinion is Advanced Micro Devices, Inc. (NYSE:AMD) is moving away from a mature market (the PC) and moving towards growth (Next-gen consoles) and ultimately towards winning its own share of the growing tablet market.
The fact of the matter is that the PC as we know it is declining.
In fact, the PC is currently suffering the longest decline in the industry’s history, with an almost 11% decrease in global shipments last quarter alone. Mikako Kitagawa, an analyst from Gartner has stated that “…inexpensive tablets [now] displace the low-end machines used primarily for consumption in mature and developed markets.”
When it is time to replace the average PC, people are no longer buying a replacement – they are purchasing a tablet instead. At the same time, this is destroying the mini notebook market, which filled the gap between awkward tablets and more expensive computers. As touchscreen technology develops and portable keyboards for tablets are released, convenience is becoming king as opposed to raw hardware power. Technology is at the point where you don’t need an expensive PC to run the latest Microsoft Office suite, play a movie or even 3D games.
AMD CEO Rory Read is aware of this as well, referring to the tablet boom as, “…a huge opportunity in front of us.”
Traditionally, ARM has given Advanced Micro Devices, Inc. (NYSE:AMD) a run for its money when comparing market share, with ARM heavily entrenched in the tablet market as shown below.
Source: Q3’11 DisplaySearchTablet Quarterly report
Bullish on AMD
However, Advanced Micro Devices, Inc. (NYSE:AMD) has now demonstrated it can hold its own against its rivals; unanimously beating ARM out of the console market, backed by three corporate giants. AMD is set for a revival and will have an exciting year ahead. Strong performance here will allow AMD to build upon its most potentially lucrative business – micro hosting. This console deal is the first step in a line of business deals that could put Advanced Micro Devices, Inc. (NYSE:AMD) back on the radar.
The article AMD: The Semiconductor Set to Soar originally appeared on Fool.com and is written by Dan Sayers.
Dan Sayers has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft Corporation (NASDAQ:MSFT). Dan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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