Will Video Game Consoles Really Save AMD?

Advanced Micro Devices Inc. (NYSE: AMD) is seeing some short-term profit taking so far on Tuesday, which frankly is of very little surprise. AMD shares rose a sharp 13% after a Bloomberg report that AMD was going to get the processor order for the newest Xbox from Microsoft Corp. (NASDAQ: MSFT). The news is obviously good news, but we genuinely question whether or not this saves AMD.

To say that AMD has been challenged would be the understatement of the decade. It is so far behind Intel Corp. (NASDAQ: INTC) in PC processors and behind ARM Holdings Inc. (NASDAQ: ARMH) in mobile, and even Nvidia Corp. (NASDAQ: NVDA) is deemed to be ahead of AMD’s ATI graphics unit. The win for AMD would be a loss for IBM, and it might make AMD the vendor of choice for video game consoles as Sony has also slated the AMD processor to run the upcoming PS4 console.

While we wound consider the gaming console win as a welcoming sign, we would stress that game system processors have historically been using processors which would be slow if considered for new computers. In short, the size of the orders might not move the needle by enough when you consider that just last week a report from Gartner shows lower and lower shipments of desktop and notebook PCs from 2013 out to 2017.

One positive came out when Wells Fargo’s technology team predicted that AMD shares could double from current levels. That seemed like a stretch at the time, but Monday’s move makes that call look much more insightful now.

We have always warned that we may just have ridden the negative wagon on AMD for so long that we don’t know how to recognize a severe turning point. That seems doubtful as an admission, but it has to at least be thrown out there.