Amid all the confusion surrounding Advanced Micro Devices (NASDAQ:AMD), there are some reporting AMD has gained significant market share from Intel (INTC), and all is now well with this perennial money loser.
In fact, AMD's Ryzen release shows the company is currently struggling with these processors, and it is not selling well. With the company also losing share to Nvidia (NVDA) in the GPU market, and having shot its bolt in 2016 and 2017 with new GPU and CPU architectures, respectively, how bad is this really?
Well, we should first establish the failure of AMD's Ryzen so far. While PassMark has shown an uptick in AMD processor submissions, this means next to nothing. For one, very, very few people send these in, and those will tend to be hobbyists who tend to skew results towards newer processors. In fact, it is meaningless.
The opposite side of that is Steam, which shows Intel belaboring AMD each month, and leaving less and less share for AMD. Steam measures users of their service, which is gaming related. To give a snapshot of their data, we can take a quick look at the Windows market presented by Steam. In February, before the Ryzen was released, AMD held 21.89% share of the market. Every month since then, despite the release of Ryzen, AMD has lost share and is now down to 19.01%. We should keep in mind, this is the installed base, not new sales, so AMD has been doing quite poorly.
So what does this really mean? It is going to be pretty representative of the gaming market, as Steam is a major player, but it is not a full picture of it. The really difficult part for AMD is, it shows a continuous decline every month, so there is something in that. Steam is not in a situation where it would favor one more than the other, so this does not unduly paint a bad picture for AMD. Even if it were so, we are talking about a trend, and nothing Steam did would show AMD struggling more than it did in February. But why would releasing a processor like Ryzen hurt AMD when it is largely superior to its predecessor?
That is hard to say, but many were waiting for AMD's release to see its performance. After seeing this dog can't hunt, particularly in games, many who would have delayed their purchases would have gone to Intel and performance. Intel is just a better gaming processor, in the vast majority of scenarios. It's also worth noting that Intel's Kaby Lake processors are very attractive, having essentially the same winning architecture as Skylake, but use the 14nm+ process which allows for higher clock speeds and lower voltages. To give a quick comparison, the former top of the line i7-6700K (Skylake) ran at 4 GHz to 4.2 GHz, whereas the i7-7700K (Kaby Lake) runs at 4.2 GHz to 4.5 GHz. The cost is the same. Many Kaby Lakes processors were released in Q1 of this year, with similar improvements. At the other shore of Kaby Lake is the Pentium G4560, which, oddly for a Pentium, allows hyper-threading while selling for $64. As Anandtech puts it, "Intel's Pentium is hard to beat in so many ways, and AMD does not particularly have an answer". As they continue to sell better than AMD's processors, the installed base will continue to skew in their direction.
But, also, it is very important to remember that some people using Steam do use IGPs (Integrated Graphics Processors), and there are none for Ryzen, yet.
To be honest, when I saw the Steam results, I did not pay them much mind, as they were just showing a segment, and hardly the whole picture. Where I got hit by a brick was when I saw AMD's pricing. This was where all the red flags went off in my head, when I kept asking myself why AMD is discounting so much, so soon. I will mention that the price a company sells something for is not tied to the cost, but tied to what it can get for the product. Put another way, and considering AMD lost money in Q1 2017, it would attempt to make whatever profits it could from its newly released processors, and try very hard to sell for the retail price. But, it could not. This tells you very clearly that the value the market places on AMD processors is not very high, or at least not as high as AMD originally thought. Meanwhile, Intel's CEO Brian Krzanich has mentioned that the company has not noticed any market changes for Intel, with the release of Ryzen from AMD.
I will include a brief listing for Ryzen processors' prices as I write this. Currently, R7 1800X sells for $429, down from a list of $499. R7 1700x sells for $329, down from a list of $399. R7 1700 sells for $297, down from $329. R5 1600x is $229, down from $249, and R5 1600 $209, down from $220. By contrast, Intel's new processors, the i7 7740K and i7 7800x, are selling right at list ($349 and $399, respectively), whereas the processor I feel was the "high-end" Ryzen killer, the i7 7820x, is selling at $679, significantly higher than the list of $599. Even with that inflation, the R7 1800x can't stay at $499.
All of these are Amazon prices, for consistency.
The i7 7820x also gives you the best measurement to gauge how the market values the technology of each company. They are both 8 core processors, with 16 threads, running at the highest clock speeds each company offers in this segment for 8-core processors. Neither have IGPs. Intel motherboards sell for more money, so one would think this would help AMD. We see the very significant price differences, but let us not be blind to the fact that Intel's is a newer release, extremely attractive, and thus in short supply. It would be more accurate to see the i7 7820x at $600, because it will settle there soon, I believe. But even with that, AMD at $430 is getting about 72% of the price of the i7 7820x, despite being very equal products in the companies' lineups.
So how bad is this for AMD, a company that is addicted to failure, yet still survives? Let us also consider that those buying AMD processors will have a higher attach rate for AMD GPUs compared to Nvidia. Considering these processors don't have an integrated GPU, this is vector into boosting GPU sales, if it worked. Considering AMD's GPU share dropped last quarter, and the market shrunk, AMD can use all the help it can get in the GPU market. Sadly, this is not doing so.
But it's really not a big deal. It does represent a failure to open new opportunities for AMD, but these were never particularly significant anyway. Did anyone think AMD was going to make a better gaming processor than Intel? Or one with better single-threaded performance? Or even pass them with multiple threads, ignoring cost? Not anyone sane did.
To be clear, AMD released the least competitive products it will with the Ryzen line, in the least advantageous market. When you're looking at $499 processors, you're not looking at a particularly price sensitive segment. And AMD was not competitive there before, and not particularly competitive now.
Where AMD leverages its strong points is in lower cost segments, and particularly with APUs. There is no reason to believe the company cannot do well there this year as well. Having used Intel and AMD integrated solutions, anecdotally, Intel solutions are just more problematic, and I'm currently using a Skylake processor, so it's not old news. But again, that's an anecdote, but it is accepted as common knowledge that AMD integrated GPUs are better at virtually all price points, even the previous generation. Will this change? Yes, but moreso in favor of AMD. Prior generation AMD APUs were hamstrung by a poor memory controller, which limited the performance in larger GPU products. The new memory controller is substantially improved, and it is entirely realistic to expect APUs to expand upwards when Ryzen based versions are available. At that time, I'd expect to see Steam's numbers show market share gains for AMD, not before.
Another very important thing to consider is, we have not seen Ryzen mobile parts yet. We have seen power use on desktop parts though, and performance per watt has substantially improved over the prior generation, and it clearly can reach performance areas previous generation products could not. Considering the GPU will also be 14nm FinFet, instead of 28nm planar, there should be a very substantial improvement in power/performance for mobile parts.
So, yes, Ryzen has not done well trying to take Intel on in the higher mid-range. You will have AMD backers rather foolishly denying this, despite the significantly lower prices AMD is charging to move products. Just ignore them, they are just yapping poodles. AMD's eroding prices, verified by the Steam numbers, makes it very clear it cannot sell products very well above $200 or so. But this was never really a significant market opportunity anyway, although it is naturally disappointing.
Lower cost processors without a GPU have appeal only to a limited market, but AMD can be successful here. But the APUs will tell the real story of how AMD does with Ryzen. With the significant CPU improvements to go with far better power characteristics, and the extra transistors AMD will have for the GPU, APUs should offer AMD the most significant market opportunity, although doing so will cannabalize discrete GPU sales a bit. But, with Nvidia taking about 75% of the market, a powerhouse APU from AMD, that moves further into what was formerly discrete GPU territory, will be very profitable for the company. And, it is also very likely the mobile APUs will be attractive.
The main battle has yet to be fought. I still think AMD is overpriced (it's $13.36 as of this writing) because it's trying to grow in shrinking markets, against larger opponents, one of which offers clearly better technology. At this price, I see the downside more significant than the upside, so keep this article in context; I do not see the CPU issues so far as significant. The bigger battle will come later, and should be more favorable. How much more favorable, we'll have to see.
This article was written by
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.