FBR Comments on AMD (AMD) and Its Future Beyond PC

FBR Capital analyst Christopher Rolland is positive on Advanced Micro Devices' (NASDAQ: AMD) decision to turn focus away from the core PC market, though he noted limited visibility on "meaningful peak earnings." He also touched on the AMD's R7 and R9 300 GPU cards and the company's efforts in virtual reality.

"Overall, in our view, Advanced Micro Devices has wisely directed its strategic focus away from the core PC market and toward gaming APUs, microservers, and custom-embedded processors, areas on which its larger competitor is less focused. However, we now believe much of this transition has already played out, with visibility into meaningful peak earnings elusive. Therefore, we maintain our Market Perform rating and price target of $3.50, based on a 2015E EV/sales multiple of 0.9x," said Rolland.

Commenting on AMD's next-gen Radeon series cards, Rolland said, "Yesterday at E3 in Los Angeles, AMD announced its new R7 and R9 300 GPU cards with support for high bandwidth memory (HBM). We found pricing to be reasonable with the R7 starting at ~$150, accessible for entry-level gamers. The pricier R9 version is capable of addressing 4K quality displays and is better suited for virtual reality devices. While we wait for a competitive HBM response from NVIDIA, we suspect the company is 12 months behind, a positive for AMD as it looks to recapture market share in 2015."

On AMD's efforts in virtual reality, the analyst said, "Oculus Rift recently released the minimum PC specifications for the second generation of its VR headsets. GPUs must support 2160x1200 display resolutions, with a 90 Hz refresh, requiring an R9 290 class GPU, with pricing starting at ~$300. With the second-generation Oculus Rift to be released in 1Q16, we forecast approximately 5 million total VR units to be sold in 2018, drivinga large potential GPU upgrade cycle. Assuming 50% of the 5 million VR consumers upgrade their GPUs at an average ASP of ~ $400, we believe the VR market could drive $1 billion in incremental GPU sales. If AMD captures a third of these sales, it would imply well over $300 million in incremental revenue."

For an analyst ratings summary and ratings history on AMD click here. For more ratings news on AMD click here.

Shares of AMD closed at $2.35 yesterday.

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