AMD. A big bagrain or a big fraud?Yesterday we´ve probably seen one of the best daily performance from AMD shares in company history. Why is that? Licensing agreement with the chinese. The chinese will be able to develop their own server SoC with a cooperation and based on AMD technologies. Means, they will develop their very own version ot the latest "Opteron" generation and pay to AMD for it.
It is not huge only for AMD, it can be huge for the whole sector. There is someone who´s talking about start licensing the GPU technology as well and, based on ARM Holding experience, that wouldn´t be a bad idea at all.
If happens, this will bring the chip makers to a new stage of competence for market share: the fight for the ending client would lay on the shoulders of license aquirees while a hypotetical AMD, Intel and else may surely leave all or big part of manufactoring operations and concentrate on high value-added R&D. AMD is not the first one to do it and not the biggest, and not the most advanced. But it is the chance for AMD itself to escape from a deadly trap while others haven´t followed the path. Capturing a solid piece of this market will be more than enought for AMD to come back to a solid profitability, recovering strong business model and availability to design a long-term strategy.
Which are the bad points? If AMDs experiment with the chinese show the path is good, Intel is bigger than AMD. AMD arrived first but remember what happened with K8 CPUs when Intel took the Core2Duo family out of the hat. If I were AMD, I´d start securing as much long-term contracts as possible before the others will realise the idea is good. If they secure at least 3-4 more licensing contracts all over the world, it is a strong, solid beginning. Tune your Twitter to news from AMD and Intel, it can be busy.
Second point. Not far away from now, we´ve already seen some ineficcient chinese enterprise to bankrupt. The main question here is: what is THATIC? I recognize, I googled it for 10 minutes and could only find some unconfirmed relationship to China Academy of Sciences (CAS) or Dawning Information Industry. If that´s the case, AMD is in good hands. But for now, the whole licensing agreement looks rather a desperate move. At 2.60 per share you can take a risk. But at 4 per share.... And also that number, 293 million USD in cash. Not trully enough for the whole bunch and complete support on AMD server technologies, right?
Third question, what the US Government will think? There was no reaction for now, probably, because of the second point. But if the deal starts becoming a crude reality and the Gov will find itself in a situation when the rest of manufactorers, specially, Intel, will want to follow the path, AMD may face serious problems which will require quick and severe actions.
Technical analysis confirms: 4-5 figures per share has been a massive frontier and critical level for AMD shares since always. Yesterday, it got rid of weekly 200 MA and WMA (on chart) but stopped at 3.99 and I don´t think that´s coincidence. AMD still has a lot to deliver.
As said before, tune your Twitter to AMD, follow the evolution of the company and check Q2, Q3 and Q4 reports. If the shares start climbing little by little, go over and secure 5 figures per share, and the results are solid, and we get more information about the chinese partner, jump in. If the quote gets stuck somewhere in 3-5 range, this is a patience zone and good option for these who bought at 1.90-2.50 to secure partial profits.
