Could AMD (AMD) Use IP Licensing to Stem its Losses? Northland Capital Thinks So
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Gus Richard from Northland Capital Markets published a note describing how AMD (NYSE: AMD) could leverage its IP portfolio to build a high margin licensing business that could focus on server chips or virtual reality.
On its earnings call last week, AMD highlighted the breadth of its patent portfolio stating that they're open to several different avenues, including licensing technology, forging partnerships, or sales of certain pieces of the portfolio. Since AMD does not have a substantial server business, it is possible that a third party looking to be vertically integrated could partner with AMD to try and chip away at Intel's market share.
Richard believes that companies looking to become vertically integrated may want to designing their own chips for virtual reality applications or server infrastructure. Contenders include Apple, Facebook, Google, Microsoft and Sony. If successful, IP revenue could be as much as $100M with gross margins in the 90's and incremental R&D costs hidden away in non recurring engineering charges.
In this scenario, the high margin profit stream would help bring AMD closer to profitability even if it isn't large enough to get all the way to the black.
The analyst reiterated an Outperform rating and $5 price target on AMD.
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 $2.21 yesterday.
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