The chip shortage that started during the pandemic is almost over. Chip producing factories are no longer operating at 100% capacity, and manufacturers no longer have supply chain issues. However, despite these positive developments, some products are still not readily available in the market. You may wonder why. It turns out that there wasn’t a serious supply problem after all. AMD CEO, Dr. Lisa Su, confirmed that the company has been “undershipping,” meaning it was shipping less than actual demand. Here are the details…
AMD is ‘undershipping’ chips to balance CPU, GPU supply
According to CEO Lisa Su, AMD “undershipping” its products to balance supply and demand. As you know, the PC industry has experienced a great rise during the pandemic. Consumption has reached an unbelievable level and technology companies in particular have experienced their golden age. Unfortunately, things changed a bit after the pandemic. Leading to a drop in sales for both AMD and Intel
However, AMD managed to maintain a small profit despite the 51% YoY drop in client PC sales. It turns out that is because AMD’s under-shipping strategy helps the company maintain higher prices for its products. The company, which deliberately puts few products on the market, has control over all stages from production to consumption.
Unfortunately, this method, while diabolical, is quite popular and is not unique to AMD. Nvidia, another major chip maker, has also been under-shipping its gaming products to correct the inventory that is in the market. Gross margin is a key metric for chip companies, and AMD’s market tricks helped it achieve a 51% non-GAAP gross margin last quarter.
The under-shipping practice is one of the reasons why GPU prices haven’t plummeted despite the decrease in demand. It is unknown how long this so-called sales strategy will last. However, as long as it continues, the price increase in PC parts does not seem to end.
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