Advanced Micro Devices (NASDAQ: AMD) fired yet another salvo last month in its battle for market share with Intel (NASDAQ: INTC) in the central processing unit (CPU) market. The graphics chip specialist has been expanding its presence in this space, first by launching its Ryzen line of desktop CPUs aimed at the consumer market and then following that up with its EPYC family of server processors.
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The company has now trained its sights on the enterprise CPU market with its Ryzen PRO CPU line-up that was revealed in late June and offers significant improvements over previous generation offerings. But will this newest release help AMD gain more ground against Intel? Let's find out.
AMD could replicate its tried-and-tested strategy
AMD Ryzen PRO CPUs are aimed at satisfying the needs of professional workstation users by giving them more computing power. In fact, the company claims that the new CPUs can perform 52% faster than the older generation chips.
What's more, internal company tests also indicate that the Ryzen PRO 1700 is 62% faster than the competing Intel i7-7700 chip in multi-threaded performance. Additionally, the chipmaker claims that its Ryzen 5 PRO 1500 CPU can easily beat Intel's Core i5-7500 chip in various benchmarks including 3D rendering and video creation.
This indicates that AMD will try to replicate its tested strategy of marketing the performance gains delivered by its chips over Intel with the PRO line-up.
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That same strategy has worked wonders so far as the Ryzen consumer offerings have helped AMD eat into Intel's market share by a significant margin -- as much as 10 pecentage points -- thanks to their strong performance at competitive prices. Therefore, AMD can be expected to price its new Ryzen PRO CPUs competitively when compared to Intel, which could set the stage for more market share gains once the new product hits the market later this year.
Moving into a lucrative market segment
The Ryzen PRO CPUs should help AMD curry favor with professionals engaged in digital content creation, 3D designing, and other compute-intensive applications, setting the company up to tap into a high-margin segment. As it turns out, the mainstream client computing segment that AMD was tapping before the Ryzen launch accounted for 45% of unit shipments but only 21% of revenue.
The PRO line-up shifts the target market, so it is now geared more toward the premium segment that accounts for 55% of CPU unit shipments but a massive 79% of sales. If AMD can gain traction in the high-end workstation market after the launch of its new products, margins should continue to get better.
More importantly, the workstation market is growing at a terrific pace. Jon Peddie Research points out that this segment expanded 22.5% year over year during the first quarter of 2017, and that pace is likely to hold over the next few years due to the rising demand for mobile workstations. The IDC also reported that as demand for mobile workstations exceeds their desktop counterparts, they also carry a higher average selling price. AMD does not want to miss out on this opportunity, so its mobile Ryzen PRO chips should come out in the first half of 2018.
With these dynamics in play, AMD forecasts that its gross margin could jump from approximately 31% in 2016 to more than 40% in 2020, as it continues to move into high-growth, profitable markets. However, all of this depends on the company's ability to win over customers and poach market share from Intel. The company has demonstrated that it can fight the industry Goliath in its stronghold so far, and it can maintain its progress by launching powerful chips at affordable prices.
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