Shares of AMD (AMD) are on the rise on Monday after the company and Samsung (SSNLF) announced a multi-year strategic partnership in ultra low power, high performance mobile graphics IP based on AMD Radeon graphics technologies. Calling it a "surprising" strategic announcement, Rosenblatt analyst Hans Mosesmann noted that "clearly" Samsung has "bigger aspirations" for its multitude of roadmaps and it likely required a scalable solution, suggesting its own efforts, ARM, and perhaps even Nvidia (NVDA) were "not up to the task." Also commenting on the deal, his peer at KeyBanc added that it could represent hundreds of millions of dollars in incremental revenue for AMD over the life of the agreement.
MULTI-YEAR PARTNERSHIP: AMD and Samsung have announced a multi-year strategic partnership in ultra low power, high performance mobile graphics IP based on AMD Radeon graphics technologies. As part of the partnership, Samsung will license AMD graphics IP and will focus on advanced graphics technologies and solutions that are critical for enhancing innovation across mobile applications, including smartphones, the companies said in a statement. AMD will license custom graphics IP based on the recently announced RDNA graphics architecture to Samsung for use in mobile devices, including smartphones, and other products that complement AMD product offerings. Samsung will pay AMD technology license fees and royalties. "As we prepare for disruptive changes in technology and discover new opportunities, our partnership with AMD will allow us to bring groundbreaking graphics products and solutions to market for tomorrow's mobile applications," said Inyup Kang, president of Samsung Electronics' S.LSI Business.
'SURPRISING' PARTNERSHIP: Rosenblatt analyst Hans Mosesmann noted that a "surprising" strategic AMD/Samsung announcement provides a strong and secular thrust into mobile/consumer devices with AMD's new RDNA scalable graphics technology. The analyst would have expected Samsung to continue to use its own GPU roadmap and/or ARM-based graphics IP, and sees P/E multiple expansion off of new growth and profit vectors. Further, Mosesmann also pointed out that "clearly" Samsung has "bigger aspirations" for its multitude of roadmaps and it likely required a scalable solution, suggesting its own efforts, ARM, and perhaps even Nvidia were "not up to the task." Samsung sells about 300M smartphones per year so AMD could do around $300M in royalty payments from Samsung for the duration of the deal, which he pegs starting in 2021, Mosesmann contended, adding that earnings per share contribution for AMD would be over 20c per share per year just on the smartphones.
HUNDREDS OF MILLIONS IN SALES: Commenting on the deal, KeyBanc analyst Weston Twigg noted that AMD's agreement with Samsung could represent hundreds of millions of dollars in incremental revenue over the life of the agreement. The analyst, who does not have any revenue from the agreement in his model, views the news as another sign that AMD is positioned to continue to gain market share and expand its total addressable market. Twigg has a Sector Weight rating on AMD stock.
PRICE ACTION: In afternoon trading, shares of AMD has gained about 2% to $27.84 amid a broader backdrop of weakness for many technology companies and their suppliers.