Advanced Micro Devices (NASDAQ:AMD) has some public relations work to do. The company claimed a MSRP on the Vega graphics cards that no longer exists. The higher retail price will put a sting on initial sales and, perhaps, AMD stock later down the road.
While the gaming community may look at Nvidia Corporation’s (NASDAQ:NVDA) GTX 1070/1080 cards instead, crypto currency miners will continue snapping up Vega GPUs.
One reviewer is up in arms about AMD’s Vega price increase. He tweeted about the Vega price increase and said that he could not recommend AMD’s graphics cards:
@JayzTwoCents: "I’ve been thinking about this AMD Vega price increase and the position they put us reviewers in… I no longer recommend Radeon", "I will no longer accept any Radeon product for review and will purchase my review samples" from Amd
Trouble Ahead for Advanced Micro Devices and Vega?
AMD’s initial MSRP for the GPU (graphics card) started at $399, but that price does not exist anymore. AMD had offered a one-day-only rebate on the MSRP. This has a negative impact on the accuracy of the reviews posted on the Vega cards. The Vega 56 looked like a strong competitor to the Nvidia GTX 1070 at the $399 price level. At $599 and above, the card’s price-to-performance numbers are no longer correct.
Advanced Micro Devices’ vague response to the pricing issue is not enough to contain the potetnail customer relations damage. The company wrote:
“Radeon RX Vega64 demand continues to exceed expectations. AMD is working closely with its partners to address this demand. Our initial launch quantities included standalone Radeon RX Vega64 at SEP of $499, Radeon RX Vega64 Black Packs at SEP of $599, and Radeon RX Vega64 Aqua Packs at SEP of $699. We are working with our partners to restock all SKUs of Radeon RX Vega64 including the standalone cards and Gamer Packs over the next few weeks, and you should expect quantities of Vega to start arriving in the coming days.”
Websites that post reviews are in a tough spot. They were bound by a NDA that placed them in an embargo and forced them to trust the materials that AMD gave them. However, market forces will come into play as the public starts to purchase Vega cards. Upward pricing pressure on the GPU, due to crypto currency miners, will dissuade gamers from buying the card. Instead of buying Vega cards, most gamers will likely purchase Nvidia GTX cards because they offer better price-to-performance ratios.
The mediocre performance of Vega is another glaring issue that could put a dent in sales. Already two years late, Advanced Micro Devices may not have allocated enough engineering resources to ensure a product that will compete effectively against Nvidia. But part of this lack in competitiveness could be due to the company’s need to balance the costs of its GPU development with Ryzen’s Threadripper and its EPYC release.
In hindsight, the changes to AMD’s embargo date foretold the problems it would face after placing further strain on GPU card reviewers. When Advanced Micro Devices finally settled on a date, sites only had a weekend to prepare, edit and publish reviews on Vega cards.
The reviews that are available show that the card performs somewhere between an Nvidia 1060 and a 1070. Depending on the game test, RX Vega 56 narrowly beat the GTX 1070. But industry sources reported AMD would release only 16,000 units in the months following the launch. Investors should expect a minimal contribution to AMD’s total revenue in the near-term.
Bottom Line for AMD Stock
Vega’s awkward launch and the confusion that is ensuing is a departure from management’s otherwise flawless release of Ryzen 7, 5, Polaris, Epyc and Threadripper.
Given the reviews and increased price, one may speculate that Vega is not competitive enough in the marketplace and it will not help the company win market share in the high-end GPU market.
Advanced Micro Devices’ Radeon unit needs to compete for limited company resources in developing the product, while the CPU division also places a strain on operating costs. Both the processor and graphics markets must turn around before AMD declares its business fully recovered. And the troubles with Vega’s launch could distract management and harm the Ryzen launch.
But regardless of its recent GPU woes, AMD stock has other issues looming in the shadows. The company cannot spend too much time focusing on Vega, as Intel Corporation (NASDAQ:INTC) is launching an offensive and it will do whatever it takes to limit Advanced Micro Devices’ success in the CPU market.
As of this writing, Chirs Lau did not hold a position in any of the aforementioned securities.
