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AMD is “undershipping” chips to maintain high CPU and GPU prices

Intel’s revenues collapsed so badly over the past quarter that the company is now cutting salaries and taking other drastic action in response to the PC industry’s downfall. Client PC sales for AMD were down by a stunning 51% year-over-year, although the business still made a little profit. But why haven’t the costs of central processing units and graphics processing units also decreased? AMD’s “undershipping” of chips in order to maintain a steady supply and meet current demand was confirmed by CEO Lisa Su in a teleconference with investors on Tuesday night (read: keep prices up).

For the last two quarters, “we have been undershipping the sell-through or consumption,” Su told PC Gamer. It’s the third consecutive quarter that we’ve undershipped. However, we expect to undership somewhat in the first quarter.

Fewer people are purchasing central processing units, graphics processing units, and personal computers now that the epidemic is dying down and inflation is rising. Just a few short months ago, firms like Nvidia and AMD were cranking out graphic cards at an unprecedented rate to meet the surging demand from bitcoin miners and PC gamers. Because GPU mining is no longer profitable, there are a lot of unused chips sitting around.

Even if the costs of newer generation graphics processing units (GPUs) are exorbitant, graphics cards from the previous generation, such as Nvidia’s GeForce RTX 30-series and AMD’s Radeon RX 6000-series, are still fetching exorbitant prices despite being two years old. Companies may keep product costs high by strategically under-shipping.

Nvidia’s CFO Colette Kress told investors in November, “We’re continuing to monitor each and every day in terms of the sell-through that we’re experiencing.” As a result, we have been under-delivering. Currently, we are under-shipping games in order to adjust stock in the channel.

Since then, Nvidia has produced two absurdly costly graphics cards, the $1,200 GeForce RTX 4080 and the $800 RTX 4070 Ti, which it has attempted to market as enthusiast-grade upsells over the RTX 30-series. In a recent blog post, AMD positioned their new GPUs as enthusiast-grade upsells, and the $900 Radeon RX 7900 XT delivers equally unsatisfactory value.

Companies in the semiconductor industry spend a lot of money on research and development and cutting-edge technical procedures, making overall gross margin a crucial measure for these businesses. Intel has predicted a terrifyingly low 34.1 percent gross margin for the forthcoming quarter, whereas AMD’s market trickery allowed it earn a 51 percent non-GAAP gross margin in the previous quarter (hence its belt-tightening moves).

Because of this, it’s easier to see why desktop and laptop discounts have begun to increase while street costs for standalone GPUs have remained relatively stable. As supplies diminish and competition heats up, we anticipate (hope?) that graphics card prices will revert to more reasonable levels, much like AMD’s and Intel’s recent CPU pricing reductions. Intel’s Arc A750 graphics card has saw a price drop below $250, making it an extremely uncommon appealing target for budget PC gamers.