Even if the PC market weren't in shambles, Advanced Micro Devices (AMD 0.03%) would likely be having a tough time selling CPUs. While its Ryzen line of CPUs has been a blockbuster success since it first launched in 2017, the company has missed the mark with its latest Ryzen 7000 series. Intel's Raptor Lake processors provide better performance overall, and AMD's decision to require pricey DDR5 memory makes the cost of building a Ryzen-based system higher than it could be.
On top of that competitive disadvantage, demand for PCs is abysmal right now. Global PC shipments dropped 29% in the first quarter from the prior-year period, according to IDC, and it may be a while before inventory levels come down enough for shipments to return to growth.
This conglomeration of factors led AMD to report a stunning 65% year-over-year revenue decline for its client segment in the first quarter. Despite AMD's market share being lower than that of Intel, the company performed much worse than its larger rival. Intel posted a 38% revenue slump for its own client computing segment in the first quarter.
NASDAQ: AMD
Key Data Points
Weak demand and weaker pricing
Part of the steep drop in AMD's Ryzen sales was due to weak demand, and part was undoubtedly due to weak pricing. The retail pricing of AMD's Ryzen CPUs does not tell a pleasant story. There are still plenty of last-gen Ryzen CPUs floating around, and those are selling at enormous discounts to launch prices. You'd expect these prices to be somewhat lower today than at launch, given that AMD has since released new chips, but the discounts are just huge.
AMD's Ryzen 5600X can be bought for $153 on Amazon right now, about 50% lower than the launch price. The higher-end Ryzen 5900X goes for $326, a 40% discount. Intel's last-gen chips are being discounted as well, but not to the same degree. Intel's Core i7-12700K, for example, sells on Amazon for 28% below its launch price. The lower-end Core i5-12600K sells for just 19% below launch price.
This suggests that there's still far too much inventory of AMD chips floating around, and that the situation is worse for AMD than it is for Intel. Pricing for AMD's latest Ryzen 7000 CPUs also sits well below launch pricing. The Ryzen 7600X sells for a 17% discount to launch price, and the higher-end Ryzen 7900X can be had for 24% below launch price.
Meanwhile, Intel's latest Raptor Lake CPUs are not seeing significant discounts. The Core i-5 13600K sells for just a few dollars below launch price, and the higher-end Core i9-13900K sells at a discount of just 3%.
A possible recovery in the second half
AMD expects that the first quarter will mark the bottom for its PC CPU business. Things should get a bit better in Q2 and in the second half of the year. The company has been under-shipping consumption for the past three quarters thanks to elevated inventory levels, and it expects that situation to normalize by the end of the year.
However, even once the oversupply issue is resolved, AMD will still have a weaker product portfolio than Intel. The company does have some areas of strength within the Ryzen 7000 lineup, particularly in gaming with its 3D V-Cache chips. But those chips are aimed at a narrow set of customers.
AMD's server chip segment is still doing fine, albeit with lower profits compared to last year, and the embedded segment is highly profitable thanks to Xilinx. The gaming business -- which includes chips that power the major game consoles, as well as graphics cards -- is also holding up reasonably well. But the PC chip segment is enough of a disaster to overwhelm all those positives. While things may improve this year, investors shouldn't expect a meaningful recovery until sometime in 2024.
