AMD stock soars after news of license agreement with China

Andvanced Micro Devices Inc. (AMD) saw its largest increase in 35 years after making a deal to license its technology to produce server processors to a state-backed joint venture in China.

The company's shares rose by 52 per cent to $3.99 last Friday after the deal was announced. This is the highest AMD's shares have jumped since July 1980.

For the use of its technology, the company will receive $293 million from Tianjin Haiguang Advanced Technology Investment Co. and the Chinese Academy of Sciences will oversee the deal in China. AMD will be providing processor and system on a chip technology along with designing server chips specifically for the Chinese market.

This move is a part of CEO Lisa Su's strategy to help turn the company around by finding new markets for its graphics chips and processors along with licensing out its current technology for use by third parties. By helping AMD break away from the areas in which it struggles to compete against Intel and Nvidia, it may be able to capture areas of the market that its competitors have not delved into yet.

The company is also predicting strong growth in Q2 2016 and forecasts its revenue increasing by 15 per cent with a give or take of 3 per cent. With this level of growth, AMD could achieve sales anywhere between $931.8 million to $981.8 million which is much higher than the $890.8 million that analysts had previously been estimating.

This new licensing deal may help the company turn around its streak of successive losses each quarter. In Q1 2015, AMD lost $102 million and in Q1 2016 the company lost $109 million.

China is world's largest market for semiconductors and if AMD can help it develop its own local supply of chips for PCs, smartphones and servers it may finally be able to catch up with Nvidia and Intel.

Image Credit: majestic b / Shutterstock