Why Advanced Micro Devices, Inc. (AMD) Could Turn Around

If we take a look at the charts, shares of AMD have lost around 90% of their value since 2006. Over the same period, its gross profits have nearly halved, while its operating cash flows have shrunk by 127%. With a debt/equity ratio of 493% and fiscal year 2012 losses mounting to $793 million, it is hard to find a single metric that proposes a buy rating for Advanced Micro Devices, Inc. (NYSE:AMD). But despite all that, I believe that AMD is a value play here for three reasons.

Reason No. 1

It might be old news, but its benefits are just beginning to show up. NVIDIA Corporation (NASDAQ:NVDA) was known to spearhead the graphical capabilities of Sony’s Playstation 3, while Advanced Micro Devices, Inc. (NYSE:AMD) powered up Microsoft’s Xbox 360 with its Xenos GPU. But earlier this year, NVIDIA Corporation (NASDAQ:NVDA) backed out of powering up the Playstation 4.

Nvidia doesn’t release information regarding its Playstation 3 margins, so it is hard to pinpoint its lost opportunity cost. But analysts estimate that Nvidia will miss out around $120million-$150 million in 2014 revenues. According to its management, the tie up with Sony made it explicitly clear that the graphics architecture used in the Playstation, can’t be used by Nvidia in its own products. So, in order to grow beyond the world of consoles, NVIDIA Corporation (NASDAQ:NVDA)’s top brass saw it fit to opt out of the Playstation 4.

And thus, Advanced Micro Devices, Inc. (NYSE:AMD) was roped in by Sony to power its console.

This is a huge achievement for AMD, as most of the developers will now tweak their game engines for AMD’s devices. As a matter of fact, AMD has struck a deal with Electronic Arts, in which the latter will optimize all of its Frostbite 3 titles, along with Battlefield 4, for AMD’s architecture.

If other developers follow suit, we would be able to witness higher frames per second, or FPS, rates across several game titles, without a major change in Advanced Micro Devices, Inc. (NYSE:AMD)’s graphical architecture. This will certainly result in better benchmarks, and gamers will obviously feel compelled to buy AMD powered GPUs.

Reason No. 2

But that was just hindsight. Advanced Micro Devices, Inc. (NYSE:AMD) is planning to unveil its next generation of graphics cards next year, which will come equipped with GDDR6 memory. According to estimates, the shift from the current GDDR5 memory to GDDR6 will double the memory bandwidth. This would be a similar performance boost as the shift from GDDR3 to GDDR5 had. This would certainly be a game changer for AMD.

This is because AMD has been the frontrunner in the development of GDDR standards. And the company is actively working with JEDEC group to pursue the rapid development and deployment of GDDR6 memory standards. However, Nvidia is yet to make an announcement regarding the development of its GDDR6 modules.

According to a couple of speculative reports, AMD will be unveiling its GDDR6 equipped GPUs in early 2014, and will be ahead of Nvidia by atleast 6 months. Since Advanced Micro Devices, Inc. (NYSE:AMD) has always priced its GPUs on a relatively better “Dollar/Performance” ratio, the company will most likely introduce reasonable pricing for its next gen GPUs.