Advanced Micro Devices (NASDAQ: AMD) reentered the high-end graphics card market earlier this year when it launched Vega, its highly anticipated attack on NVIDIA's (NASDAQ: NVDA) dominance. The RX Vega 64 and RX Vega 56 caught up to NVIDIA in terms of performance, but they used far more power than comparable NVIDIA products, which had been on the market for over a year. Vega was a catch-up play from AMD, not the home run that investors were hoping for.
According to Jon Peddie Research, Vega failed to provide a boost to AMD's market share. In fact, AMD lost discrete GPU unit market share in the third quarter, compared to both the previous quarter and the prior-year quarter. The market for graphics cards grew by more than 20% year over year, so AMD still managed to grow its GPU sales. But its position weakened relative to NVIDIA.
As recently as 2014, AMD enjoyed a discrete GPU unit market share of roughly 40%. NVIDIA accounted for the remaining 60%, but AMD was a strong No. 2 player. This dynamic ended in the latter half of 2014 when NVIDIA launched the GeForce 900 series. The GTX 970 and GTX 980 came in September of that year, with the mainstream GTX 960 following in January. The rest of the lineup was filled in throughout 2015.
These products were disruptive, dramatically undercutting AMD's own products on price. A look at the market share data shows the upheaval.
AMD's unit market share was essentially cut in half between the second quarter of 2014 and the second quarter of 2015. At its lowest, it fell below 20%.
AMD regained some ground in mid-2016, aided by the launch of its mainstream Polaris GPUs. Polaris targeted the $200-and-under portion of the market, leaving the high end uncontested. AMD's unit market share rose to around 30% and stayed there. That move marked progress, but with no competitive high-end products, the most lucrative portion of the market was out of reach.
Vega is the latest step in AMD's plan to regain its former position in the graphics card industry. NVIDIA's GTX 1070 and GTX 1080 were in AMD's crosshairs when Vega launched in August.
But Vega failed to live up to the hype. Instead of leapfrogging NVIDIA's year-old products, Vega provided similar performance and much worse power efficiency. AMD's unit market share in the third quarter slumped to 27.2%, down from 30.3% in the second quarter and 29.8% in the third quarter of 2016.
More trouble ahead
Things will get even tougher for AMD's graphics business in 2018 and beyond. NVIDIA is expected to launch graphics cards based on its next-generation Volta architecture sometime next year. Volta is already shipping for data center products, but NVIDIA hasn't yet brought the architecture over to the gaming market. When Volta-based graphics cards do launch, AMD's Vega will fall even further behind.
A longer-term problem for AMD is Intel (NASDAQ: INTC). The PC CPU giant announced in November that it was developing its own discrete graphics solutions, with the new core and visual computing group led by Raja Koduri. Koduri was poached from AMD, where he led the Radeon Technologies Group responsible for bringing Vega to market.
The GPU duopoly that has allowed AMD to retain a sizable market share despite its floundering performance in recent years is getting a third player. Intel's first discrete graphics product probably isn't coming anytime soon, but it has the potential to shake up the industry. That shake-up is unlikely to be in AMD's favor.
AMD's graphics business looks stuck. Growth in the overall market, partially driven by demand related to cryptocurrency mining, helped the company post solid third-quarter results in October. But Vega hasn't provided a market share boost. With NVIDIA's Volta on the horizon, and with Intel set to join the fray, AMD's market share may never fully recover.
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