After two years of strong pandemic-fueled demand, the PC market has fallen into shambles. Global unit shipments tumbled 19.5% year over year in the third quarter, with weakness in both the consumer and business markets. Supply chain constraints have given way to bloated inventories. On the consumer side, so many new PCs were purchased recently that there's little appetite for upgrades. On the business side, a tumultuous economy has likely led to some caution on spending.

Advanced Micro Devices (AMD 1.14%), the No. 2 player in both the PC and server CPU markets behind Intel (INTC -0.62%), has not escaped the pain. When delivering its preliminary third-quarter financials on Oct. 6, AMD warned that its results would come in far below prior expectations. At the time, it kicked the can down the road in terms of its Q4 outlook, saying that it will be discussed on the third-quarter earnings call on Nov. 1.

Given the state of the PC market, Intel's weak outlook, and the fact that AMD's new Ryzen desktop chips have a pricing problem, the end of the year is going to be rough for AMD.

Organic growth has already ground to a halt

On the surface, AMD's preliminary results may not seem all that bad. The company cut its revenue outlook from $6.7 billion to $5.6 billion, but that new figure still represents 29% growth year over year. There's one problem, though. That growth is entirely due to AMD's acquisition of Xilinx. Back out the Xilinx purchase, and its revenue will be roughly flat.

AMD expects sales in its client segment, which includes PC chips, to crash by 40% year over year in the third quarter. That's much worse than end-market demand because AMD's customers are slashing inventories.

Its customers will eventually finish knocking down their inventory levels, bringing AMD's sales more in line with end-market demand. But even so, there's not much reason to believe the PC market is going to bounce back anytime soon. If AMD is going to grow, it will have to do so by winning market share, and that's going to be tougher than it has been over the past few years.

Intel's aggressive pricing

Intel cut its own full-year guidance when it reported results on Oct. 27, and it announced plans for significant cost-cutting measures as it looks to navigate the current storm. Intel's client computing segment revenue slumped 17% in the third quarter, and overall adjusted revenue is set to dip more than 25% in the fourth quarter.

This outlook doesn't bode well for AMD, especially since the pricing on its latest Ryzen 7000 desktop CPUs isn't very competitive. Intel's Raptor Lake chips win out when it comes to gaming, according to tech-focused news and reviews site Tom's Hardware, and they offer much better price-to-performance for multithreaded workloads. "AMD will need to reduce pricing on its Ryzen 7000 models now to stay competitive with Raptor Lake," concluded Tom's Hardware.

With the broader PC market in freefall, and with Intel's Raptor Lake holding an edge in both the gaming and productivity portions of the market, AMD is just not in a great position.

The data center market might be a silver lining

AMD still expects its data center segment to grow by 45% year over year in the third quarter. Even if demand softens for server chips among enterprise and cloud customers, AMD has plenty of room to win additional market share. Intel has faced delays in its effort to bring its Sapphire Rapids server chips to volume production, leaving its data center lineup in a weakened state.

But just like in the PC market, Intel is not going to sit idly by as it loses market share. The company expects Sapphire Rapids to reach 1 million units faster than any Xeon server chip ever has, and Intel will likely be pretty aggressive as it tries to hit that target. Winning market share in the data center segment will likely get harder for AMD as time goes on.

AMD is going to cut its full-year guidance when it reports its results. The only question is by how much. And while the company probably won't share much detail on its expectations for 2023, the potential for a global recession and continued turmoil in the PC market represent some serious headwinds. AMD enjoyed incredible growth and profits during the first two years of the pandemic. That chapter is almost certainly closed.