Intel Corporation (NASDAQ: INTC) and Advanced Micro Devices (NASDAQ: AMD) both operate in the semiconductor industry and compete in the microprocessor market. While Intel dominates this market, AMD continues to be a major rival and is rapidly gaining market share.
In 2018, Intel announced the delay in volume release of CPUs based on their 10nm production process. Originally intended for a market launch by the end of 2018, delivery problems have moved back to the end of 2019. Intel also announced that the H310 chipset should be discontinued because it could not produce enough 14nm silicon for demand. Because of these bottlenecks, Intel has dramatically increased the prices of its CPUs. As a result, Intel's CPU market share dropped sharply in areas that were heavily impacted by low supply and huge price increases. Although this was for the purpose of increasing profits, Intel's AMD was able to gain a huge share of the market share in units.
Source: AMD 2018 10-Q
When the results for 2018 were published by AMD and Intel, we finally got confirmation that AMD has significantly increased its market share. The company won server, desktop and notebook shares on all three CPU segments. AMD gained 2.8% of the desktop share and achieved a market share of 15.8%. In terms of the server market, AMD has a market share of 3.2%, an increase of 2.4% year-on-year. Finally, AMD was able to achieve a plus of 5.1% to 12.1% in the notebook market.
Intel: The Leader
Despite significant progress by AMD, Intel is the undisputed leader in the microprocessor market. If you look at the CPU revenue segments, the sheer size of Intel compared to AMD becomes clear.
|Platform CPU Segment Breakdown||Intel||AMD|
|Desktop||$ 12,220||] $ 946|
|Notebook||$ 20,930||$ 1,218|
|Server||$ 21,155||$ 312|
|Total CPU Turnover||$ 4401 Total Company Turnover||70,800 USD||6,475 USD|
|CPU% of Total||77%||38%|
Source: Intel 2018 10-K
Although the earlier results of units sold by AMD were impressive, they are easily misleading. The data showed a market share in% of units sold. Looking at market share as a percentage of sales, Intel's dominance looks even stronger.
|% Units Intel||84.20%||96.90%%||90,41 %|
|% Units AMD||15.80%||12.10%||3.20%||9.59%|
|% Revenue Intel||92.82%||94.50%||98.55%||95.64%|
|% Sales AMD||7.18%||5.50%  1.45%||4.45%|
Source: Intel 2018 10-K
As mentioned earlier, Intel's market share of 95.64% of revenue is well above its market share of 90.41% units sold. This is possible due to their pricing power. Although AMD has lost market share of the units, its revenue growth has been sustained by a rise in CPU prices. In fact, the volume of desktop PCs sold declined 6% yoy, but was offset by 11% price increases.
One of the reasons for Intel's dominance despite the high prices are the focus on delivering high performance products through continuous innovation. That does not mean that AMD is a long way off. AMD's products are among the most powerful in the industry. Among other things, it has been awarded the coveted CES 2018 Best of Innovation Award. Its graphics cards and processors, including Ryzen, Radeon, EPYC, have all been named one of the fastest and most powerful in the industry.
Nevertheless, Intel spent the entire 2018 on the production of products. Finally, the Intel Core i9-9980XE and i9-9900K surpassed the Ryzen chips from AMD along with many second-generation thread ripper chips. Although their performance only surpasses that of AMD's Ryzen generation of chips, Intel's focus on delivering the best chips has maintained its position as industry leader.
AMD: The Challenger
As mentioned above, Intel is leading the performance of AMD chips are close behind. In addition, AMD brings chips on the market, which are significantly cheaper than Intel.
This was demonstrated by one of Europe's leading retailers, Mindfactory, which has AMD's share of Over 70% of Mindfactory's revenue in the third quarter of 2013 increased compared to Intel's 30%. The Ryzen 7 2700X and the Ryzen 5 2600 were the most popular retail AMD CPUs, while the Intel Core i7-8700K was the most popular 8th generation Intel processor. For the first time, AMD's Ryzen CPUs had a higher market share than Intel's most popular high-end processor selection.
Look At The price trend, it is easy to see that AMD has gained market share through Intel's price increase. Consumers simply do not value Intel's low-performance processors as much as the company. To determine the exact price difference, I analyzed a list of 137 processors from Intel and AMD and determined the average selling price ("ASP") of both companies.
|Average price of Intel||Average price of AMD|
|$ 735.65||$ 322.20|
As mentioned above, Intel's products sell on average 228% more. Although the low price of AMD began as a requirement for entry into the Intel-controlled CPU market, it is now a competitive advantage for the company and the main reason for the significant gain in unit market shares. The price differences also explain how Intel still manages to retain a large proportion of its revenue share, despite the loss of its sales volume.
The numbers show strong growth for AMD in several markets, indicating that the company's financial improvement was not simply due to crypto related sales. Obviously, Intel is still the dominant player in the industry, but the market is clearly responding to Ryzen's value proposition across the computer lab. Increasing competition and better product options are always a good thing for consumers, and AMD could potentially continue to expand its market share, considering that processor speed is only 8% lower than Intel's, while the average selling price is 228% lower , 19659079] ARM: The Disrupter
The current CPU market is based on x86 microarchitecture processors produced only by Intel and AMD. The ARM-based microarchitecture, on the other hand, is common in lightweight, portable, battery-powered devices such as smartphones and tablets.
The ARM-based processor company is ARM Holdings, a private company owned by SoftBank (OTCPK: SFTBY). ARM does not design or make chips. It designs the cores of the CPU and licenses the IP to other companies to design and manufacture the actual chips. Revenues are mainly generated through licensing and licensing agreements.
The model of ARM-based chips is considered an advantage for most consumers as the chips can be adapted to the user. This model is also much cheaper for the customer. That's why ARM-based chips have made a significant impact over the last 10 years, with over 130 billion units on the market.
Source: ARM 10-Ks and 10-Qs
ARM estimates that 44% of all non-CPU chips are based on the ARM microarchitecture. Their rapid introduction and dominance in the market for non-CPU processors makes their inhibition a major threat.
In the second half of 2018, ARM announced that it would storm the CPU market in 2019 and that its processor generation would perform better on Intel's laptop chips. Although this claim is a stretch, since Intel has now delivered three processors, the previous performance records have broken, but the overall value does not sound trivial.
The world's largest company, Amazon (AMZN), announced this in November by running ARM-based processors for its servers. It is said that ARM chips cut user costs for parallel workloads by 45%. In January, Huawei, the world's largest telecommunications equipment manufacturer, also launched a new ARM-based data center chipset.
Laptop manufacturers such as Lenova, Asus and HP have also launched ARM-based notebooks that offer longer battery life and longer life comparable to x86 processors at significantly lower prices. The latest blow came just last week from insiders at Intel, who reported that Apple (NASDAQ: AAPL) will begin transitioning to ARM-based processors in early 2020.
The entry of ARM was not too impressive. Already at the beginning of this year, we see that ARM is gaining a foothold in the CPU market. It has become clear that they could conquer a significant part of the CPU market and possibly end the dominance of the x86 CPU.
Market Share Forecast
First, let's look at current prices and processor performance. It is clear that ARM will not compete in terms of performance. The latest Cortex-A76 ARM chip is at the same level as Intel's 2.6 GHz Core i5-7300U. That's still about 20% less than the latest chips from Intel's 8th generation.
What they will compete for is the price and chip area. ARM prices are 250% cheaper than Intel. Its chip area (mm) is about half of Intel and AMD. This is why they have had much success with data servers with Amazon and Huawei. These companies are able to pack twice as many ARM chips in the same area, which is still cheaper than using Intel chips.
Compared to AMD chips ARM is only about 27% cheaper. Given the small difference in AMD's superior performance, I do not see it can replace AMD. In addition, AMD has been developing its own ARM-based chips since 2012. The following presentation is from AMD's Investor Presentation 2012:
The 2016 server-released Opteron A1100 series from AMD based on the ARM microarchitecture. The reason that these product lines are not rolled out massively may simply be that ARM has not yet been adopted by many third-party vendors and the current x86 production lines are simply more profitable. The point is that AMD has over 6 years of research and development with ARM-based processors and could easily go over, given its similar price to ARM if needed.
- I predicted that ARM processors could do this The market share of microprocessors in the market for microprocessors is 15% in 2022, which is more than adequate.
- The microprocessor market had a CAGR of 3.4% between 2012 and 2017, and market research firm Gartner estimates CAGR at 2.2% -2022 for 2018.
- While Intel raised prices due to supply issues, I do not see it lowering prices even when production normalizes and there is a risk of losing sales.
- AMD's prize would be the best defense against ARM and I see no loss of market share in ARM.
- The penetration of ARM into the market is mainly due to the new demand and the existing market share of Intel.
- I do not expect Intel's AMD will gain so much market share It was in 2018, I still expect AMD aw ay Intel's market share, albeit to a lesser extent than ARM.
|Unit market share (%)||2018||2019F||2020F||2021F||] 2022F|
|ARM-based 0.00%||2.00%||5.00%||9.00%||15 , 00% share of sales (%)|
|share of sales (%)||2018||2019F||2020F||2021F||2022F|
|Intel||95.64%||94, 00%||92.27%||92.07%||90.0940; 19659118] AMD||4.36%||5.09%||5.45%||5.82%||6.18%|
The rise of ARM would be devastating for Intel's market share. As we have already seen, the share of Intel units in the market will decline by 20% in the next 4 years to only 71.40%. This is somewhat misleading due to Intel's higher prices. In the corresponding sales market share Intel remains with 87% market share. However, this is still a significant decline, and the growth in CPU revenue is being adversely affected.
|Total market turnover|
|19659162] $ 56,781.||$ 58,030||$ 59,307||$ 60,612||$ 61,945|
|Intel CPU Turnover||$ 54,305||545448 ||$ 53,892|
|Change in revenue||+ 11,74%||+ 0,45% +195650||-0,22%||-1.31%|
|AMD CPU Turnover||$ 2,476||$ 3,235||$ 3,23590] $ 3,526||$ 3,829  Yield change||+ 28.09%||+ 19.32%   + 9.50%||+ 9.01%||+ 8.59%|
In 2019, we can expect a sales increase of 0.45%. This is far from the 11.74% in 2018, bearing in mind that most of their increase in 2018 is due to price increases. As of 2021, Intel's CPU platform sales will actually decline as ARM-based processors gain momentum. On the other hand, AMD can expect double-digit growth in platform CPU next year, followed by high single-digit growth in the following years.
Intel: Intel announced that the dollar would be $ 1 billion Billions were invested to boost 14nm production to solve supply problems. Still, I think the damage was already broken with AMD and now ARM. Sales of the CPU platform, which accounts for 77% of total revenue, are expected to remain unchanged. However, the company has taken the step to diversify its revenue streams with the 3D XPoint technology, Internet of Things and strategic acquisitions such as Altera (contribution to the network segment) and Mobileye (positioning for entry into the Autonomous Region) signaled market for automotive technology). The potential revenue from non-platform CPU markets and strong cash flows almost justify the current share price. It has a rating of hold with a consensus price target of $ 54.00.
AMD: While AMD seeks to diversify its portfolio by investing in embedded business, its strategy of aggressively penetrating markets is penetrating With cheap and powerful products, it has become a major player in the two main markets, in which it operates (CPU and GPU). While platform CPU revenue accounts for only 38% of total revenue, I expect it to be the key revenue driver in the coming years. Its cost advantage should not only consume Intel's market share, but also defend itself against the rise of ARM. Despite its already high valuation, double-digit earnings growth justifies a higher share price. It carries a buy rating with a consensus price target of $ 26.44.
SoftBank: The parent company of ARM Holdings is by no means a dormant player. In addition to its 100% interest in ARM, the company also holds shares in some of the world's largest companies, including Fortress Investment Group (100%), Boston Dynamics (100%), Sprint (85%), Alibaba (29.5%), Yahoo Japan (48.17%), Brightstar (87.1%), Uber (15%), (20%), Ola (30%), Grab (10%), Renren (42.9%), InMobi ( 45%), hike (25.8%), Snapdeal (30%) and fanatics (22%). The ability to attract scalable, high-growth companies such as ARM shareholdings before they are publicly listed has earned her a reputation as one of the world's leading investors. The current stock price is trading at a strong discount and is undervalued by more than 25%. It carries a rating of Buy with a consensus price target of $ 60.00.
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Disclosure: I am AMD for a long time. I wrote this article myself, and it expresses my own opinion. I can not get any compensation for it (except from Seeking Alpha). I have no business relationship with a company whose shares are mentioned in this article.
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