Advanced micro devices (NASDAQ: AMD) has taken away market share from Intel (NASDAQ: INTC) in the space of the central processing unit (CPU) for some time, thanks to its superior technology.
The good news for AMD investors is that it is not ready yet. The latest sales report from a major third-party retailer tells us that AMD is making progress in a critical area against Chipzilla: pricing power.
AMD eases its pricing power
According to data from German e-commerce retailer Mindfactory.de (reported by Reddit Ingebor user), AMD is completely crushing Intel. December 2020 sales figures show that Mindfactory is shipping 40,000 AMD processor units, accounting for 83% of the retailer’s CPU unit sales.
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AMD’s share in the unit fell by 85% in November. However, the chip maker grabbed 86% of Mindfactory’s processor revenue in December, an increase of one percentage point from the November level. In simpler words, AMD’s share of Mindfactory’s revenue increased in December, despite a drop in the unit’s share thanks to an increase in average selling price.
Mindfactory data compiled by Ingebor and reported by ExtremeTech reveals that the average selling price (ASP) of AMD’s four main CPUs in December was 318.20 euros (about $ 386.45 at the current exchange rate) – an increase 14.9% compared to November and a further 32.2% since September 2019. Intel, on the other hand, has lost its pricing power. The average selling price of its four main processors in December 2020 was € 249.50, down 10.5% from November 2020 and down 21.7% from September 2019 levels .
AMD has seen a sharp increase in its average selling price since October 2020. Its latest Ryzen 5000 processors were launched at premium prices in the last quarter of 2020, compared to their predecessors. Therefore, AMD’s higher ASP is proof that consumers are willing to pay a higher price for the improved performance that the new Ryzen 5000 processors offer. Meanwhile, Intel has witnessed a steady decline in its pricing power since April 2020, with AMD overtaking Chipzilla ahead of ASP in December 2020.
Now, there is a limitation for Mindfactory data, as it represents the sales of only one retailer based in Germany. But it does give us an idea of how things are going in the CPU market, as Mindfactory is a well-established seller who has been operating since 1998 and had over $ 362 million in sales in 2019. There are additional reports that point to the rise from AMD CPU dominance, so Mindfactory data can be treated as an additional parameter to get an idea of the chip maker’s enhanced pricing power.
Stronger prices and greater market share will be the engines of shares
AMD abandoned its previous strategy of offering competitive chips at aggressive prices, and this seems to be paying off. A closer look at the prices of Intel and AMD CPUs indicates that the latter is trying to profit from its process advantage and obtain the best performance that its chips offer.
AMD’s latest Ryzen 5000 CPUs are based on a 7 nanometer (nm) process, while Intel is stuck in the 14 nm process. A smaller process node allows AMD to make chips that are more powerful and consume less power, as the transistors are compressed together. Competitive Intel desktop parts based on the 10 nm process are expected only in the second half of 2021, indicating that AMD may continue to charge more for its advanced process.
Combine the market share gains that AMD is consistently making and it won’t be surprising to see the chip maker sustain the incredible growth of its computing and graphics segment, which produces almost 60% of total revenue. Segment revenue increased 31% year-over-year in the third quarter of 2020, and AMD also noted that its processors’ ASP increased quarter on quarter thanks to the higher price.
Rosenblatt Securities analyst Hans Mosesmann expects AMD’s CPU market share to jump to 50% in 2021. That would be a big increase over the 22.4% market share that was at the end of the third quarter of 2020, according to Mercury Research. And since the company seems interested in improving its ASP, greater market share will ideally result in stronger revenue and revenue growth in 2021.
Analysts estimate that AMD’s revenue may increase 27% this year, along with a 47% increase in earnings per share. Therefore, AMD looks like a growing stock worth buying, as it can continue its run on the market in the new year, thanks to its growing dominance in CPUs.