The chip shortage that began during the pandemic is almost over, but some products are still not readily available in the market.
AMD Undershipping Helps Maintain Higher Prices
AMD CEO, Dr. Lisa Su, confirmed that the company has been “undershipping,” shipping less than actual demand, to balance supply and demand.
Due to the rise in PC consumption during the pandemic, technology companies, including AMD and Intel, experienced their golden age. However, after the pandemic, there was a drop in sales for both companies. Despite a 51% YoY drop in client PC sales, AMD managed to maintain a small profit, thanks to its undershipping strategy.
This method, while uncommon, is used by major chip makers like Nvidia to correct the inventory in the market. It helps the company maintain a high gross margin, which is a key metric for chip companies.
Under-shipping to Avoid GPU Price Decrease
The undershipping practice is one reason why GPU prices haven’t plummeted despite the decrease in demand. It’s unclear how long this strategy will continue, but as long as it does, the price increase in PC parts doesn’t seem to end.
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Frequently Asked Questions
❓ What is AMD's undershipping strategy?
AMD's undershipping strategy is when the company ships fewer products than actual demand, to balance supply and demand. The goal of this strategy is to improve supply chain control and maintain higher prices for its products.
✔️ Why did AMD implement undershipping?
AMD implemented undershipping due to a drop in sales after the pandemic, despite a rise in PC consumption during the pandemic. This strategy helped the company maintain a small profit despite the decrease in sales.
🚀 Is undershipping a common practice among chip makers?
Undershipping is not a common practice among chip makers, but it is not unique to AMD. Another major chip maker, Nvidia, has also been under-shipping its gaming products to correct the inventory in the market.
👉 What is the impact of undershipping on GPU prices?
The undershipping practice has prevented GPU prices from plummeting despite the decrease in demand. It's one of the reasons why GPU prices have not decreased.
🤠 How long will the undershipping strategy continue?
It's unclear how long AMD's undershipping strategy will continue. However, as long as it does, the price increase in PC parts does not seem to end.