AMD is gunning for Intel's market share, as the company recently signed a licensing deal with a Chinese company for its top-of-the-line server processor.
The OEM wants to license its x86 processor and system-on-chip technology to a group of public and private Chinese companies dubbed Tianjin Haiguang Advanced Technology Investment Co. Ltd. (THATIC), hoping to increase revenue and expand its market presence.
After the media found out about the arrangement, AMD's shares spiked 21 percent on April 21, followed by an impressive 41 percent on April 22.
As AMD has a significantly lower production capacity than Intel, licensing its hardware offers a quick way to reach and convince more clients that AMD technology is as good as the rival's.
The deal signals AMD's increasing interest in monetizing its bank of intellectual property.
"I would expect [such] arrangements not just for their CPU technology but also their GPU technology," says Patrick Moorhead, president and principal analyst at Moor Insights and Strategy, a tech research firm.
AMD does have an ace up its sleeve when compared to Intel in the form of Radeon and FirePro GPU division. It remains to be seen whether or not the company will consider licensing GPU chips, but should the CPU arrangement prove lucrative, anything is possible.
We can estimate that Intel will not look upon AMD's move with kind eyes. This is because with additional manufacturers being able to build AMD technology-based chipsets, Intel's market share is threatened.
Intel is the dominant force in both the PC and server markets, but AMD's licensing could pack x86 chips into more computers, be it for the customer or enterprise sector.
Meanwhile, AMD pedals on its own to catch up with Intel.
AMD worked hard to come up with its novel Zen architecture for servers, which is believed to be the company's best CPU in the last 10 years. Seeing how the preliminary tests show a spike of 40 percent per clock cycle, we look forward to seeing it go live. The first Zen chip should be running in systems at the start of 2017.
In the arrangement with THATIC, AMD will only bring its proprietary technology, without investing directly in the manufacturing process. The company expects to see revenue from the deal in the sum of about $293 million. The Chinese Academy of Sciences will be at the helm of THATIC's operations.
"Our strategy to build a strong business foundation and improve financial performance through delivering great products is beginning to show benefits," said AMD's leader and CEO, Lisa Su at the latest earnings statement.
Reports from AMD indicate that for the first quarter of 2016, the company topped its target cash flow of $600 million.
The deal between AMD and THATIC should also open some door in the Chinese technology market. Seeing how potent companies such as Tencent, Alibaba and Baidu require massive data centers to keep their operations ongoing, AMD could be their go-to solution.
It should be mentioned that Intel does have a slight edge over AMD when looking at the relations with the Chinese government. Due to its heavy investments in the country, Intel could probably negotiate more favorable terms than AMD.
