Friday June 24, 2016

AMD Gets An "F" On Pricing

Adele McLean, Vice President of Holden Advisers, explains why she gave AMD an F on pricing. While we expect the RX 480 to be the best performing GPU at the $200 price point, the author of the article outlines her reasons for AMD getting an F on pricing:

Why do I give them an F in pricing? Well for four reasons:

  • There are limited PC makers in the market who make VR PCs and these PC makers will open the markets by deciding on the value they deliver to the end customer and their end user pricing not by the reduction in the price of the chip; this is called derived demand, which means it’s not actually the price of the graphics chip that can grow the market but the overall price of the VR ready PC.

  • AMD’s products are ‘me too’ with no mentioned competitive differentiation. This article and other articles on the subject suggest that AMD is behind the market. Thus, AMD is simply signaling the rest of the market to lower their pricing and inciting a price war that we all know is futile. The real winners of the price war will be the PC makers and ‘maybe’ the consumer. We call this the ‘death spiral’ of pricing;

  • The VR market is just emerging and early adopters are going to be the least price sensitive. I believe AMD is misreading or mishandling the lifecycle of the VR market.

  • AMD is in no financial position to start a price war! The article mentions they are losing money and ‘expect to return to profitability in the second half of the year.’