When it comes to microprocessors, the discussion often begins and ends with Intel (Nasdaq: INTC), the $115 billion colossus (in market value) that has dominated the industry since it began. Following in Intel’s wake is lowly Advanced Micro Devices (NYSE: AMD), which has had innumerable brushes with death as it fights for a small piece of market share. Yet a few analysts now think AMD will be the name to own in 2011, with some anticipating 40% or even 60% upside.

A technology leapfrog
For most of its existence, AMD has simply been unable to keep up with Intel, thanks in large part to Intel’s massive R&D efforts. Back in 2003, that dynamic finally appeared to change. AMD rolled out a new set of chips, dubbed “Opteron,” which actually outperformed Intel’s offerings. That led to impressive market share gains for AMD and sales more than doubled from 2002 to 2005.

By 2006, though, Intel was back on its game and AMD’s sales have been stuck in a tight $5.5- $5.8 billion range ever since. And Intel’s aggressive pricing moves made it nearly impossible for AMD to garner full pricing and gross margins, ultimately leading AMD to sharply slash its R&D efforts to conserve cash. For many industry watchers, Intel developed such a robust technology lead that AMD would never be able to catch up again.

Not dead yet
In early November, AMD held a day-long meeting with analysts and investors that left most attendees underwhelmed: Shares spent the next few weeks treading water. The tepid reaction is a bit surprising, as management actually laid out a fairly bullish roadmap for 2011. Investors now seem to be belatedly warming to that outlook, as shares have begun to rebound in recent weeks. And according to some, the gains look set to continue.

AMD is rolling out two separate technology platforms this year. The first, dubbed “Brazos,” puts both a central processor and a graphics processor on one chip and promises speeds that are on par with Intel’s SandyBridge platform, with lower prices and lower power consumption. And right now, power is the key theme. The new wave of tablet computers, along with notebooks and netbooks, are also focused on minimizing power consumption that helps extend battery life. Computer manufacturers have taken note, with firms such as Dell (Nasdaq: DELL), Sony (NYSE: SNE) and Lenovo planning to use the new AMD chip in upcoming offerings.

AMD counts 100 different design wins for the Brazos chip, which should yield a steady sales ramp throughout 2011 as those design wins translate into actual production. Notably, AMD has yet to crack the fast-growing tablet market, but hopes that a 9-watt version of the Brazos chips can lead to design wins in this space as well. Right now, ARM Holdings (Nasdaq: ARMH) has captured much of the market share for tablet computer processing chips thus far.

AMD is also rolling out a new line of chips that could help boost market share in the server market. Its Bulldozer chips are optimized to efficiently utilize virtualization servers, which power the whole new era of “cloud computing.” It was only a half decade ago that AMD saw real momentum in the server space with its Opteron chips, and the company is pinning hopes that the new Bulldozer chips will deliver a repeat performance.

Lonely bulls
Most analysts tend to downplay any potential rebound for AMD in 2011. The consensus forecast calls for sales to grow just 0.6% in 2011. Yet Citigroup’s Glen Yeung thinks the consensus is flat wrong. While most see AMD losing yet more market share to Intel this year, Yeung predicts that AMD will actually take share and boost sales by 7%. That would be the company’s best performance since 2005.

Yeung acknowledges that 2010 finished on a notably stronger note for Intel, “but from this low starting point, we believe that odds favor market share gain; design momentum suggests this to be true,” he wrote in a note to clients this week. If AMD can boost sales at a level that he foresees, Yeung also thinks AMD will be far more profitable than most expect in 2011. He anticipates earnings per share (EPS) of $0.91 this year, more than double the current consensus forecast. And he eyes another sharp gain in per share profits in 2012 to $1.34. Despite a recent upward move, shares trade for just 6.5 times that forecast. He ultimately sees shares rising to $12.50, roughly 40% higher than current levels.

Analysts at Morningstar are even more bullish on AMD, predicting an upward move to $15. They’re especially bullish on the outlook for those Bulldozer server chips, predicting a rebound in market share. They question why so many think of Intel as so far ahead of AMD. “Despite falling behind recently, AMD is still much closer to Intel’s technology lead than it was in the past,” they wrote in late October.
 
Action to Take –> It will take at least several quarters for these investment views to play out. And a move into the low teens would only come with a healthy spending environment for technology in 2011, which many anticipate, but is not yet a sure thing. One thing is clear: AMD has been largely forgotten by many tech watchers, but the company’s two-pronged approach to the chip upgrade cycle should make the company much more competitive in 2011 and worth considering for your portfolio.