It’s no lie that it has been a difficult couple of years for Advanced Micro Devices
(NYSE:AMD). Changes in management precipitated by strategic decisions that have gutted the chip maker’s market share and revenue stream, however, are beginning to point the way to a brighter future. Now on the eve of the launch of its most interesting product in a couple of years, it looks like the plan begun late in 2011 by then new-CEO Rory Read has been executed well enough to secure not only the firm’s present, but position it for what may turn out to be one of the great turnaround stories of all time.
AMD made very questionable architectural decisions that have rippled through the years. Read et al put an end to those changes, admitting that competing with Intel
(NASDAQ:INTC) at the high performance end of the computing spectrum was not only beyond the company's capability but also irrelevant to the future needs of consumers. Read looked at Brazos, the firm’s most successful processor in its history, and saw that AMD’s future was to compete, like ARM SoC’s (system on a chip) powering smartphones and tablets, in that low to mid CPU capability/low-power arena
The successor to Brazos, Jaguar is to be officially launched in May and has already made serious waves within the industry. An 8-core Jaguar APU will be at the heart of Sony’s
(NYSE:SNE) Playstation 4 as well as Microsoft’s
(NASDAQ:MSFT) next Xbox. Early performance numbers published by AMD and from various engineering samples have Jaguar competing very competitively with Intel Core i3 CPUs while AMD’s Graphics Core Next 1.1 based GPU runs circles around even the upcoming HD 4600 shipping with Haswell.
The future of computing will be low-power, multi-core CPUs with on-die GPUs that efficiently take on tasks previously handled by the CPU. The Playstation APU -- along with the first Jaguar-based APUs, which will be marketed under a variety of product lines -- are the next evolution in what AMD calls "heterogeneous computing." Some aspects of this are found in the SoCs shipping this summer with the upcoming Kaveri, based on the Steamroller core, which will implement even tighter integration between the CPU and GPU in terms of shared resources.
It is this drive towards integration, along with simplified design for greater potential portability across fabrication processes, that will allow AMD to provide superior overall performance at whatever price point it decides to compete at. Case in point, AMD just released the details on the versions of Jaguar designed for embedded computing solutions which is a product line, specs-wise, that is very similar to what has been announced for the consumer PC market. Prices are between $49 and $72 spanning five SKUs which start at 9W TDP dual-core products to 25W quad-cores. By contrast Intel just released a new Ivy Bridge-based Celeron priced at $102 for a part that competes with 9W Temash at twice the price and no better than one-tenth the graphics performance.
That said, AMD’s future is in no way secure, but at the current price, the stock is an intriguing speculative play. Looking at the chart and the trading statistics using techniques that I outline in my book, The Big Trade: Simple Strategies for Maximum Market Returns,
we see that for the week ending April 26, AMD put in a strong enough move to put the stock in an interesting position and to create an opportunity for an upside breakout from the current trading range.
My trading system focuses squarely on assessing the probability of a previous bar’s high or low price being violated, and making decisions based on the odds generated. Looking at AMD’s situation, it closed on April 26 at $2.64 per share after hitting a high of $2.72. If we assume the stock opens flat to that close, then the probabilities of besting each of the peaks labeled on the chart above are summarized in the table below.
These probabilities are calculated by looking at past behavior of AMD’s stock over the past 162 weeks of trading. Each of these moves is simply asking the question: If the stock moves to this price, what is the probability it will reach the next price?
When we take each of these potential moves and match them up with some more general behavioral statistics for AMD, we get a stronger picture of how likely each of these targets are to be achieved.
The above table shows quite clearly that during an average week AMD will move $0.27 above its open price and $0.34 below it. It is slightly more likely to break its previous low than its high, and when it breaks either one, there is a 10% chance of a reversal to the other extreme. So, given the generally bullish stance currently in technology buoyed by stronger than expected earnings by Microsoft and Intel, the general market conditions say a slightly bullish posture is warranted.
A weekly close above $2.94 would be a very strong signal that sentiment in AMD has turned a corner. It may not happen this week, but the odds are in its favor.
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