If you thought the decline in PC sales that AMD is predicting will continue through 2023 meant falling prices for CPUs and especially GPUs, we have some bad news: it turns out that AMD is intentionally limiting chip supply and plans to continue doing so.

As we reported earlier today (opens in new tab), AMD is profitable as of the end of 2022 thanks to strong server chip sales; according to AMD's own figures, PC processor and GPU sales are badly depressed.

Normally, one might think that the drop in demand would drive down prices. Unfortunately, CEO Lisa Su has stated that AMD is doing its best to limit the supply side of the supply-demand equation.

During AMD's most recent earnings call, CEO Su explained (open in new tab) that AMD is adjusting its production of CPUs and GPUs for PCs to account for declining demand. We've been under-shipping sell-through or consumption for the last two quarters. The first quarter will be undershipped, if not by much."

In other words, there is no oversupply to help drive prices down, not only because of the demise of cryptocurrency mining, but also despite the recent significant drop in demand for GPUs, AMD is trying not to. Instead, AMD is carefully supplying the market with slightly fewer GPUs than it needs.

Of course, one cannot blame AMD for doing the right thing to maintain profitability. Major chipmakers often employ this type of inventory management technique to maintain an optimal balance between supply and demand. Also, in the long run, a healthy AMD is essential to maintaining choice and competition in the graphics market. No matter how bad the situation is now with regard to graphics card prices, the situation would be even worse if AMD's main rival, Nvidia, had the entire market to itself.

However, even if one were to assume that a significant drop in PC sales and a much lower demand for GPUs would rapidly bring prices back to pre-pandemic levels, this seems unlikely, given what AMD and Nvidia are doing to ensure that supply does not outstrip demand.

Moreover, this fact, as revealed by AMD's CEO, is the reason why graphics card prices have remained stubbornly high despite the global economy plunging into recession, the overall PC market slumping, the disappearance of demand from crypto miners, and all the other factors that have significantly reduced the demand for GPUs help explain exactly how and why.

We expect graphics card pricing to gradually become less painful over time. However, we now know why pricing will not, and almost certainly will not, return to "normal." Disappointing.