Shares of Advanced Micro Devices (AMD -5.78%) have sold off massively over the past three months, as investors have been taken aback by the degree to which the drop-off in sales of graphics cards for cryptocurrency mining has impacted its performance. The chipmaker expects a drop in annual sales for the December quarter, which is a far cry from the terrific year-over-year growth that it was delivering just a couple of quarters ago.
But that hasn't discouraged AMD from coming out strongly at the recently concluded CES 2019. The company looks all set to take the game to its archrival NVIDIA (NVDA -3.87%) thanks to its solid product development moves, which should eventually pave the way for a turnaround.
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What went wrong?
AMD's Vega graphics cards have helped it take the game to NVIDIA in the GPU market. According to Jon Peddie Research, AMD held 36% of the discrete graphics cards market at the end of the second quarter of 2018, a sharp increase from the 21% market share it was sitting on back in 2015.
However, cryptocurrency-driven sales played a key role in AMD's rise in the GPU market. That's evident from the fact that the company's market share dropped suddenly to just 25.7% in the third quarter of 2018, coinciding with the tail-off of crypto-driven GPU demand. This indicates that AMD's cards weren't in great demand from PC gaming enthusiasts, which isn't very surprising considering that the Vega lineup wasn't as good as its NVIDIA counterpart for gaming purposes.
Check out the latest AMD earnings call transcript.
In fact, the Vega cards weren't able to match the performance of one-year-old NVIDIA cards when they were launched. In the meantime, NVIDIA took its game a notch higher with the latest-generation Turing GPUs, some of which pack futuristic tech such as ray tracing. That created a gap between the GPU technologies of the two companies, as AMD's Vega cards were launched back in August 2017, while NVIDIA's Turing lineup went on sale in September 2018.
AMD plays offense
AMD is looking to bridge the gap with its latest Radeon VII graphics card that's based on a 7-nanometer manufacturing process. The company claims to deliver a 29% bump in gaming performance with this new card over the previous Vega 64 flagship without any additional power consumption. That's because the previous generation Vega cards were based on a 14nm node.
A smaller manufacturing node means that the transistors on the chip are placed closer to each other, allowing it to conjure more processing power and consume less energy. What's more, the Radeon VII can go head to head in terms of performance with NVIDIA's flagship RTX 2080, as per official benchmarks, and costs $100 less.
As such, AMD could replicate its tried and tested strategy of offering an almost identically performing chip at a lower price to eat into NVIDIA's market and probably make a dent in the high-end PC hardware space. But NVIDIA CEO Jensen Huang believes that is an unlikely proposition.
According to Huang, the Radeon VII is "underwhelming," and NVIDIA's RTX 2080 GPU can "crush it" thanks to advanced technologies such as ray tracing. But one shouldn't forget that ray tracing isn't supported by a ton of games right now, so AMD isn't at a huge disadvantage. Additionally, AMD claims that its own ray tracing technology is in "deep development," and successful implementation of that technology could give it a leg up over NVIDIA because of its competitive pricing.
So, AMD can curry favor with gamers by matching the performance of NVIDIA's cards and undercut them on pricing at the same time. That should allow the company to take advantage of NVIDIA's price-boosting strategy, cut into the latter's market share to boost sales, and hopefully turn its business around as more 7nm GPUs hit the shelves later this year.
