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Advanced micro-systems (NASDAQ: AMD) took market share to Intel (NASDAQ: INTC) in the central processing unit (CPU) space for quite some time now thanks to its superior technology.
The good news for AMD investors is that it hasn’t been done yet. The latest sales report from a key third-party retailer tells us that AMD is making progress in a critical area against Chipzilla: pricing power.
AMD changes its pricing power
According to data from German e-commerce retailer Mindfactory.de (reported by Reddit user Ingebor), AMD is absolutely crushing Intel. Sales figures for December 2020 show Mindfactory shipped 40,000 AMD processor units, accounting for 83% of the retailer’s processor unit sales.
Image source: Getty Images.
AMD’s unit share was down from 85% in November. However, the chipmaker grabbed 86% of Mindfactory’s processor revenue in December, an increase of one percentage point from November’s level. Put simply, AMD’s revenue share at Mindfactory increased in December despite a drop in unit share thanks to an increase in the average selling price.
Mindfactory data compiled by Ingebor and reported by ExtremeTech reveals that the average selling price (ASP) of AMD’s four best processors in December was 318.20 euros (around $ 386.45 at the current exchange rate) – an increase by 14.9% from November and up 32.2% since September 2019. Intel, on the other hand, has lost its pricing power. The average selling price of its four best processors for December 2020 stood at 249.50 euros, 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 launched at high prices in the last quarter of 2020 compared to their predecessors. So AMD’s higher ASP is proof that consumers are willing to pay a higher price for the improved performance offered by the new Ryzen 5000 processors. Meanwhile, Intel has seen a steady decline in its power. pricing since April 2020, with AMD overtaking Chipzilla on the ASP front in December 2020.
Mindfactory’s data is now limited as it represents the sales of a single retailer based in Germany. But it does give us an idea of how things are going in the processor market as Mindfactory is a well-established seller that has been operating since 1998 and had over $ 362 million in sales in 2019. There are additional reports. which indicate the rise in AMD CPU Dominance, so the data from Mindfactory can be treated as an additional yardstick to get a sense of the chipmaker’s enhanced pricing power.
Stronger prices and greater market share will be favorable winds for the action
AMD has abandoned its earlier strategy of offering competitive chips at aggressive prices, and it seems to be paying off. A closer look at processor prices from Intel and AMD indicates that the latter is trying to capitalize on its process advantage and take advantage of the higher performance its chips offer.
AMD’s latest Ryzen 5000 processors are based on a 7 nanometer (nm) process while Intel is stuck on the 14 nm process. A smaller process node allows AMD to make chips that are more powerful and consume less power because the transistors are tightly clustered. Intel’s competing desktop parts based on the 10nm process are not expected until the second half of 2021, indicating that AMD may continue to charge a premium for its advanced process.
Add in the market share gains that AMD consistently records, and it won’t be surprising to see the chipmaker supporting the formidable growth of its IT and graphics segment which produces nearly 60% of total revenue. Segment revenue grew 31% year-over-year in the third quarter of 2020, and AMD also pointed out that the ASP of its processors increased quarter-over-quarter thanks to higher prices.
Rosenblatt Securities analyst Hans Mosesmann expects AMD’s processor market share to grow to 50% in 2021. That would be a big increase from the 22.4% market share on which he was sitting at at the end of the third quarter of 2020, according to Mercury Research. And as the company appears keen to improve its ASP, a higher market share will ideally translate into stronger revenue and bottom line growth in 2021.
Analysts estimate AMD’s revenue could grow 27% this year with a 47% increase in earnings per share. So, AMD looks like a growth stock worth buying as it can continue its hot run in the market into the new year thanks to its growing dominance in processors.
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