Microprocessor manufacturer Advanced Micro Devices (NYSE:AMD) is poised for a product expansion. The company held a financial analyst meeting last week and announced plans to include integrated technologies utilizing third-party intellectual property. AMD stopped just short of naming ARM Holdings (NASDAQ:ARMH), a specialist in semiconductor intellectual-property, as the main third party, but the announcement naturally bolstered rumors that that was the case.
Integration of ARM’s technology is seen as a necessary step for AMD, which is beginning to climb out of a 2011 slump, and the collaboration may allow AMD to move out from behind Intel’s formidable shadow.
The software programs on a computer are operated through a hardware component called the central processing unit (CPU). The CPU exists on an integrated circuit called the microprocessor. Computer manufacturers such as Dell (NASDAQ:DELL) and Apple (NASDAQ:AAPL) rely on outside companies to create the microprocessors used in their computers. Modern desktop PCs and laptops most often feature a microprocessor architecture known as x86. This architecture requires quite a bit of power to function, which is fine in a PC but makes for a bad match when it comes to mobile devices. AMD and Intel have traditionally made x86 their focus.
ARM produces an eponymous lower-powered microprocessor alternative that has allowed manufacturers such as Qualcomm (NASDAQ:QCOM), an ARM licensee, a chance to leap ahead in the mobile market. AMD would attempt to bridge the divide between chip requirements for PCs and mobile devices while remaining adaptable to device trends. It’s a strategy already embraced by Microsoft (NASDAQ:MSFT). The forthcoming Windows 8 operating system, which is designed to run on PCs and mobile devices, blends x86 architecture and ARM products for integrated performance. A leaked research paper from a former Apple intern reveals that Apple also recently experimented with ARM in recent years.
While Intel has traditionally dominated AMD in the microprocessor arena, competition between the two may become more balanced if ARM becomes an AMD collaborator. Consumer demand, meanwhile, is nearing an even split between PCs and mobile, requiring chip companies to not forsake either market if they want to achieve maximum revenue.
AMD is currently well poised for transition. A bumpy 2011 began to level off with the appointment of a new CEO, Rory Read, formerly of Lenovo. Notebook processor shipments alone increased 48% between the first and fourth quarter of the year. The rebound motivated Longbow Research to upgrade AMD’s rating from hold to buy on Tuesday, affixing a $10 price target that exceeds the stock’s 52-week high of $9.58. Shares were up 3% by the close, to $7.13. Analysts estimate that AMD chip production will increase 50% this year. A large portion of that increase could end up being credited to third-party integration as the company expands in the mobile market.