Few things went right for chip giant Intel (INTC 1.77%) in the fourth quarter.

In the PC market, a dramatic tumble in demand that played out in the second half of 2022 transformed component shortages into gluts. Intel shipped PC central processing units (CPUs) at a rate that was about 10% below consumption throughout 2022, with that gap expanding in Q4 and expected to further widen in Q1 2023. The first quarter will mark "the most significant inventory digestion in our data set," according to CEO Pat Gelsinger.

The market for server CPUs isn't in as bad a shape, but it's deteriorating. Inventory corrections are playing out there as well, with Intel seeing server CPU shipments dropping by a mid-single-digit rate in 2022. On top of weakening demand in a tough economy, Intel is losing share in the data center to rival Advanced Micro Devices (AMD 1.33%) and its powerful Genoa chips.

One piece of good news

The PC market went through a renaissance during the first two years of the pandemic as unit shipments soared. The industry shipped nearly 340 million PCs in 2021, the best annual performance in a very long time. Shortages of components drove up prices, and the increase in remote work provided a reason to believe that PCs would remain in high demand.

Shortages often lead to gluts, and it turns out that the PC market is no exception. Global PC shipments plunged 19.5% year over year in Q3 2022, according to Gartner, with that decline accelerating to 28.5% in Q4. Throughout the PC supply chain, companies are working down inventories of everything.

While Intel saw revenue in its client-computing group crash 36% year over year in Q4, there was a small silver lining: The company claimed to increase its PC CPU market share in the second half of the year, and it expects that trend to continue in 2023. On top of market-share gains, Intel noted that average selling prices were at a record high in Q4 thanks to a strong set of high-end products.

This shouldn't be a huge surprise. Intel launched its Alder Lake desktop chips at the tail end of 2021, following it up with the launch of Raptor Lake in October of 2022. With a hybrid architecture that pairs powerful cores with efficiency cores, Raptor Lake represented a strong comeback for Intel in the PC chip market.

A combination of good performance for its Raptor Lake chips across all types of workloads, aggressive pricing, and a lackluster Ryzen 7000 launch from AMD drove Intel's market-share gains. AMD's Ryzen 7000 chips have been selling well below suggested prices at retail for months. Those suggested prices were just too high, and coupled with the fact that motherboards for AMD's new chips tend to be expensive, a de facto price cut was necessary to make building a Ryzen 7000-based system more attractive.

Expect a PC catastrophe for AMD

If Intel is winning share in the PC CPU market, enjoying record high application service providers (ASPs), and still seeing a 36% crash in PC chip revenue, AMD investors should brace themselves for a tough earnings report next week. While AMD's server chip business is outperforming Intel's, the PC chip business may be in deeper trouble.

AMD's client segment suffered a 40% year-over-year revenue decline in Q3 2022, even worse than Intel's abysmal Q4 performance. With the PC market deteriorating since then, an even bigger decline is likely for AMD in Q4. And while Intel isn't having pricing issues, AMD certainly is. The company's last-gen Ryzen 5000 chips are heavily discounted at retail, and it's latest Ryzen 7000 chips can be had at double-digit percentage discounts to list price.

AMD does have the launch of its latest 3D V-Cache CPUs in February to look forward to, which may allow the company to claim gaming superiority over Intel. But Raptor Lake clearly has the advantage overall, and that's going to make life difficult for AMD in 2023.