2017 was a pivotal year for Advanced Micro Devices (AMD +5.15%). After years of shipping inferior CPUs and losing badly to rival Intel (INTC 0.35%), the company launched the first iteration of its blockbuster Ryzen chips. Multiple generations of Ryzen chips later, and AMD is highly competitive in the PC CPU market.
Unfortunately for AMD, the PC market is going through a historic downturn at the exact same time that Intel is aggressively pursuing a comeback of its own. The result has been a collapse in AMD's PC business to levels not seen since 2017.
Chart by author. Data source: AMD.
A growth engine sputters
There's one important thing to note about this graph: AMD changed its reporting segments in the second quarter of 2022. Prior to that quarter, what I call the "PC business" included both PC CPUs and PC graphics cards. In the updated reporting structure, the new client segment includes only CPUs. This comparison over time isn't quite apples-to-apples, but that doesn't affect the story it tells.
AMD's client segment generated revenue of $903 million in the fourth quarter of 2022, down 51% year over year. The company cited a weak PC market and inventory corrections rippling through the PC supply chain. Those are certainly the biggest factors, but competition from Intel is another.
AMD's latest Ryzen 7000 desktop chips were not the home run the company was hoping for. Considering the performance and pricing of Intel's competing Raptor Lake chips, as well as higher costs associated with the new platform required for AMD's latest chips, Ryzen 7000 was simply priced too high. Prices at retail have been well below list prices for months.
Intel's PC business also reported a horrendous quarter, but it wasn't as bad as AMD's performance. Intel's client computing group saw sales slump 36% year-over-year to $6.6 billion. Despite a much larger base, Intel suffered a significantly smaller percentage decline.
New chips could help, but only so much
With global shipments of PCs crashing 28.5% in the fourth quarter, according to Gartner, and with a steep decline likely in the cards for 2023, there's little AMD can do to boost demand in the short run. The company is set to launch some new high-end chips aimed at gamers, although these are pricey enough that the pool of potential buyers is likely not that big.
Two of AMD's new 3D V-Cache CPUs will be available at the end of this month, with a third coming in early April. These chips layer on an additional chunk of ultra-fast cache memory, a particularly useful addition for games. Prices will range from $449 to $699, a tough pill to swallow given the beaten-down retail prices of AMD's standard Ryzen 7000 chips and the aggressive prices of Intel's Raptor Lake chips.
NASDAQ: AMD
Key Data Points
Inventory levels across the PC supply chain will eventually be brought down to sustainable levels, perhaps by the end of the first half of the year. Once that happens, AMD's PC chip sales should better reflect end-market consumption, plus or minus market share gains and losses.
However, it's unlikely that AMD's PC chip sales will fully recover to peak levels anytime soon. Market share gains will be tougher to come by with Intel on offense, and the overall addressable market is likely to settle well below pandemic highs, and potentially below pre-pandemic levels.
Thankfully, AMD has a strong data center segment to fall back on as it weathers a brutal PC market. But Ryzen is going to be a major drag on the company's results for the time being.
