The PC market is finally starting to stabilize after a brutal post-pandemic correction. Global PC shipments were down 13.4% year over year in the second quarter, according to IDC, a vast improvement over the 29% decline suffered in the first quarter.
Weak demand for PCs after a pandemic-era buying spree was compounded over the past year by excess inventories of systems and components. While demand remains subdued, the inventory situation is now largely resolved, at least according to Intel (INTC 3.51%).
Advanced Micro Devices (AMD +2.69%) saw sales of its own PC CPUs fall off a cliff in the first quarter. Sales were down a whopping 65% year over year in the client segment, a far worse result than Intel. Client revenue dropped 53% year over year in the second quarter, still a terrible result when Intel reported a mere 12% decline. But there were a few nuggets of good news.
NASDAQ: AMD
Key Data Points
Bottoming out
While AMD's client sales were down big compared to the prior-year period, the company increased sales significantly from the first quarter. Client revenue was $998 million in the second quarter, up 35% sequentially. Sales of AMD's latest Ryzen 7000 chips led the way, particularly the notebook versions, which likely means that inventories of systems using AMD's last-gen chips have been reduced to healthier levels.
There's likely still some work to do on the desktop side of the client business. The top 10 best-selling CPUs on Amazon are littered with heavily discounted last-gen AMD models. The latest Ryzen 7000 chips are not only competing with chips from Intel, but also with attractively priced Ryzen 5000 chips.
AMD's client segment posted an operating loss in both the first and second quarters, but the situation is improving. AMD expects the client segment to return to profitability in the third quarter, driven by an improving demand environment. The company sees a path back to a 20%+ operating margin, but that will require revenue to rebound significantly.
Tough competition
AMD's Ryzen CPUs have been a success story since they first launched in 2017. Rival Intel was caught flat-footed, ceding meaningful market share to its smaller competitor. Prior to the downturn in the PC market, AMD held nearly 22% of the market for x86 desktop and notebook CPUs. That was up from about 11% in 2020.
But Intel is now fighting back aggressively. It has regained much of its lost market share during this downturn, and its latest Raptor Lake CPUs are partly responsible.
Intel adopted a hybrid architecture for its Raptor Lake chips, allowing the company to greatly increase the core count and hand AMD a drubbing in multithreaded workloads. Intel's chips also generally win out in other types of workloads. AMD's Ryzen 7000 desktop chips have been consistently selling well below MSRP (manufacturer's suggested retail price) since they launched -- and for good reason.
AMD uses TSMC to manufacture its chips, so it currently has a manufacturing advantage over Intel. But the latter is investing heavily in its manufacturing operations and plans to overtake TSMC by the end of 2024. Intel's success isn't a guarantee, but if the company pulls it off, AMD will lose its manufacturing edge.
AMD has some tricks up its sleeve. Its 3D V-Cache chips are far and away the best CPUs for gaming, for example, although they suffer in other areas. But overall, AMD's competitive position in the PC CPU market has slipped. Intel has an aggressive roadmap of new manufacturing processes and PC CPU families through the end of 2024. Barring a major misstep on Intel's part, clawing back market share is going to be an uphill battle for AMD.
The worst is over for AMD's PC business. That's the good news. The bad news is that the company is going to have to fight tooth and nail for market share as Intel sets its sights on PC dominance.
