Standing on a stage at Austin’s Long Center for the Performing Arts, Lisa Su beamed down at the invite-only audience as she announced the long-awaited news that Advanced Micro Devices was elbowing its way back into the profitable server business.
Su, CEO of Advanced Micro Devices, called it a “huge moment for AMD and a huge moment for our industry.” And she wasn’t exaggerating.
At its Tuesday afternoon Austin event, AMD unveiled its newest generation of processors for servers, called “Epyc,” which AMD says offer better performance and a lower price than rival Intel Corp.
The announcement, and new details about companies that had already committed to using AMD’s processors, sent AMD’s stock soaring nearly 10 percent on Wednesday, closing at $13.98 a share.
The California-based chipmaker employs 1,500 people at its campus in Southwest Austin. Most of its senior executives work and live in Austin.
Advanced Micro Devices primarily makes computing and graphics processors that are used in computers and video game consoles. But after years of declining revenue and losses, AMD’s fortunes are looking up thanks to a new generation of processor technology.
Re-entering the server market is a key part of AMD’s turnaround strategy.
Intel Corp. currently has a near-monopoly of the market for the most popular type of server processors, according to data from tech research firm IDC. Servers are used to power data centers that run tasks like storing files, sorting data or sending and receiving email.
A decade ago, AMD had about a quarter of the market for server processors, but lost market share as its technology lagged behind Intel and the company dealt with a cash crunch.
Without significant competitors, Intel has been able to raise prices and enjoy healthy profit margins. But AMD’s Epyc line of processors will give Intel some much-needed competition, analysts say.
“AMD does have a chance to compete here,” said Austin-based industry analyst Patrick Moorhead, adding that it had been “almost a decade” since Intel has faced serious competition from any processor rivals.
|Worldwide ARM-based and x86-based Microprocessor Unit Shipment Share
Moorhead said one sign that AMD could be poised to gain market share is the announcement at Tuesday’s event that AMD has already received commitments from at least two companies to use their processors.
A company called Baidu which offers the Chinese equivalent of Google, said it plans to use AMD’s chips. And Microsoft Azure, a cloud computing service, said it plans to deploy AMD chips to help power data centers.
“That was big,” Moorhead said.
Intel will deliver its own announcement in a few weeks about its next generation of server processors, and is expected to narrow the performance gap with AMD.
Still, financial analysts are mostly enthusiastic about AMD’s prospects.
Matt Ramsay with Canaccord Genuity wrote in a note to clients that even with Intel’s upcoming launch of its new server processors, “we believe AMD has built the foundation to re-emerge as a solid competitor in the enterprise, cloud and storage tiers of the server market.” He is urging clients to buy AMD’s stock and has set a price target of $20 per share.
Another edge AMD has over Intel is expertise in graphics processors, which is a market that Intel doesn’t participate in.
Graphics processors, or GPUs, are now becoming an important part of data centers, according to Forrest Norrod, a senior vice president at AMD, using the example of auto-tagging photos on Facebook to explain how graphics processors are used in data centers.
“The demand for GPUs is taking off,” he said, and AMD has optimized its computing and graphics processors to work together.
Advanced Micro Devices has been working on Epyc for about five years. The processors are part of AMD’s much-praised “Zen” architecture. The chipmaker is rolling out various products that use the Zen architecture this year, starting with a computer processor called Ryzen.
Norrod, who is in charge of AMD’s server and video game console business, said the company always had its eye on the lucrative server market when it began developing Zen back in 2012.
“It was designed from day one to be a server processor,” he said, and could be “scaled down” to work with computers or mobile devices.
The server market is an attractive one for AMD for a couple of reasons. First, it’s profitable. Intel’s gross margins, which are a key measure of profitability, were 61 percent in 2016 in part due to its dominance in servers, according to the Wall Street Journal.
It’s also a fast-growing market thanks to the emergence of cloud computing and the ever-increasing appetite for more data.
“It’s a huge market, highly profitable and customers want an alternative,” Norrod said. “As daunting as it is to compete with Intel, that’s a prescription for success.”