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Intel Corporation (INTC), Advanced Micro Devices, Inc. (AMD): 50% Upside on This Semiconductor Giant

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The PC semiconductor industry has suffered due to declining PC shipments. Industry giants such as Intel Corporation (NASDAQ:INTC) and Advanced Micro Devices, Inc. (NYSE:AMD) have struggled to cope with the rising trend of handhelds. This decline has forced the leading PC industry players to diversify or develop more energy efficient chips, to target handheld devices.

Late last year, Advanced Micro Devices, Inc. (NYSE:AMD) was trading at under $2 due to continuous losses and the bleak outlook of the PC industry. The shares have rallied since then due to AMD’s penetration of the gaming console industry. In the last six months, AMD’s value has appreciated more than 60%, but I believe it will continue to climb due to the factors discussed below.

Gaming Consoles

Intel Corporation (NASDAQ:INTC)Advanced Micro Devices, Inc. (NYSE:AMD) has always been a force in the gaming segment due to its superior graphics. The company has now embarked on venture that will lead to total domination of the gaming console industry. According to recent reports, AMD will be present in new models of both Microsoft Corporation (NASDAQ:MSFT)’s Xbox and Sony’s PlayStation. In the recent past, International Business Machines Corp. (NYSE:IBM) and NVIDIA Corporation (NASDAQ:NVDA) have been leading chip suppliers for the gaming console industry. All leading consoles used to contain IBM CPUs, and NVIDIA manufactured GPUs were present in the bestselling PS3.

Now, Advanced Micro Devices, Inc. (NYSE:AMD) will provide custom APUs to both PS4 and Xbox one. The company will also provide the GPUs for Wii U. With these contracts, AMD has emerged as the leading semiconductor for the gaming console industry. The market expects Sony alone to sell around 16 million units, and Xbox One sales could also be pretty high.

Microsoft Corporation (NASDAQ:MSFT) has made a lot of changes in its new Xbox offerings that might dissuade customers from purchasing the device. Users will no longer be able to exchange games or continuously use the device online. This will give PS4 an edge over Xbox in the initial device sales. However, in the long run developers will be more attracted to the Xbox platform. This is because the new changes in Xbox will destroy the secondhand gaming market, in turn benefiting the developers more.

Handheld

Advanced Micro Devices, Inc. (NYSE:AMD) has made some massive changes to its hardware, in order to make it more competitive with other leading handheld players. The company launched the Temash and Kabini APUs in January. The Temash APU is designed for ultra-low power and small form factor markets. The Kabini targets low-power, netbook, ultra-thin and small form factor markets. These APUs are based on the Jaguar architecture and are superior to current offerings by Intel Corporation (NASDAQ:INTC), i.e. Clover Trail. Research shows that AMD’s Temash is superior to Clover trail in almost every test. Intel will not launch its updated Bay Trail chips until the end of the year. This has been a blessing in disguise for AMD because its chips have an opportunity to cement a place in this highly competitive tablet space.

With a superior APU in the bag, the real challenge for Advanced Micro Devices, Inc. (NYSE:AMD) is to find OEM partners willing to use their hardware. These new APUs are already featured in a number of exciting products. The semiconductor giant is advertising AMD APU-loaded tablets from Quanta, MSI and Gigabyte. Acer and Hewlett-Packard Company (NYSE:HPQ) are also launching new products loaded with the new Jaguar APUs. If the company manages to get more OEMs onboard, it can lead to a significant revenue recovery for AMD and significantly improve its valuations.

Valuations

Advanced Micro Devices, Inc. (NYSE:AMD)’s valuation has suffered due to declining sales and the increasingly bleak outlook of the PC industry, its primary breadwinner. The company’s recent incursion into gaming consoles has improved the valuation somewhat. The capitalization has almost doubled compared to valuations late last year. The shares should appreciate further due to improving handheld APU sales and revenues from gaming consoles.

The recent rally has been based on optimism around Advanced Micro Devices, Inc. (NYSE:AMD)’s gaming incursions, which are already priced in with AMD trading around $4. However, the market is still not realizing the enormous potential of the Jaguar architecture. The company has an opportunity to cement itself as a major player in the handheld arena before Intel Corporation (NASDAQ:INTC) launches Bay Trail at the end of the year.

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