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Advanced Micro Devices (AMD - Analyst Report) recently signed a licensing agreement with ARM Holdings plc (ARMH - Snapshot Report) that will enable it to use ARM architecture to manufacture custom chips.

The chipmaker currently relies on Intel’s (INTC - Analyst Report) x86 architecture to design most of its chips, but this year will see some chips based on standard ARM cores as well.

The crux of this agreement is to blend both x86 and ARM designs to create products that are significantly distinct from what the other sellers offer. Therefore, per the license, Advanced Micro will employ ARMS’ 64-bit technology for creating customized high-performance chips for markets with good growth potential.  

Moreover, with the current move, Advanced Micro intends to venture into markets outside the sluggish personal computer business. PC shipments have declined for eight consecutive quarters primarily due to a shift in demand towards tablets and smartphones. Thus, Advanced Micro plans to generate half of its returns from emerging, fast-growing non-PC businesses including game consoles and microservers by the end of 2015.

ARM Holdings is a UK-based semiconductor intellectual property (IP) provider. ARM engages in the designing and licensing of IP instead of developing and vending semiconductor chips. ARM's power-efficient chip architecture is broadly used in smartphones, tablets and servers. Technology companies like Qualcomm (QCOM - Analyst Report), Apple (AAPL - Analyst Report), Samsung and Applied Micro use ARM technology to design their own chips.

The technology amalgamation for the creation of chips marks the beginning of Advanced Micro’s “ambidextrous computing” roadmap. Ambidextrous computing is basically the roadmap of future computing solutions that connect the finest characteristics of both the x86 and ARM ecosystems. Project SkyBridge (pin-compatible x86 and ARM processors) and K12 (AMD’s own design based on ARM architecture) are the first two products in the category, with expected launches in 2015 and 2016, respectively.

Furthermore, Advanced Micro also aims to spread its foothold in the chip market by creating chips for manufacturing equipment and health devices.

Advanced Micro currently holds a Zacks Rank #3 (Hold).

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