Ever since Nvidia launched the GTX 980 and 970, it’s been clear that AMD would have to make some kind of response. While the company’s Hawaii-class GPUs were top-line performers a year ago, Nvidia’s Maxwell delivered an excellent price/performance ratio and undercut AMD badly. Today, AMD is solving that problem with deep price cuts to multiple top end products — though the move could hurt the company’s margins in the process.

AMD’s price plunge

AMD’s R9 290X is dropping from an MSRP of $549 to $399, the R9 290 is falling to $299, the R9 280X from $299 to $269, and the R9 285 is now down to $229. This gives AMD a solid edge in the important midrange market where the R9 285 will significantly outperform the GTX 760 that its positioned against. Similarly, the GTX 770 is mostly hitting around the $299 mark, where the R9 290 is going to win past it.

These are smart cuts for AMD, more or less across the board. The R9 290X is being positioned between the GTX 970 and the GTX 980, which is where its performance would put it. While we did not test an R9 290 in our initial GTX 980 review due to lack of time, other websites put that card just below the GTX 970 — making its price cut a similar strong point. Whether these cuts will lead to lower prices on the R9 295X2 is still unclear; historically AMD and Nvidia have typically sold their dual-GPU cards for around the same price as two of the same card put together.

The larger question is what impact these cuts are going to have on AMD’s GPU margins. Given that the company combines GPU and console revenue into a single statistic, we’re not likely to see those numbers broken out separately, but AMD’s consumer GPU business historically ran very low net profits with margins often in the 3-7% range. Cuts this deep to its high-end products will sting, particularly given that the all-important Christmas buying season is upon us — and AMD doesn’t yet have a high-end competitor ready to fly against Nvidia’s GTX 970 or 980.

The good news is that AMD saw these price cuts coming a full year ago. The following roadmap slide was released last November:

The old Radeon 8900 was an R9 280X-equivalent part, while the Radeon HD 8800 matched the R9 270X. With these price cuts, AMD has brought its current product stack in line with what it previously predicted — the R9 290 takes over the R9 280X’s price point and market position, while the R9 285 roughly matches the HD 8800. No, AMD doesn’t have a complete counter to Maxwell, which still draws less power and runs at lower temperatures — but the GPU market is one place where we still see genuine product cycles with first one company, than the other claiming a regular advantage.

AMD’s margins may take a hit with these latest cuts, but strong sales of Sony and Microsoft consoles will help boost the segment’s total revenue. The company’s workstation market share has continued to climb thanks to the Apple Mac Pro win and stronger professional launches – -according to Jon Peddie Research, AMD held a 25% market share in Q2 2014, up several percentage points from the previous year.

For now, assuming no cataclysmic drops in either PC market share or console sales, the to our headline is “Yes.” AMD is much more protected from market cycles than it once was, and while Maxwell gives Nvidia an advantage, a revised GPU architecture from AMD (most likely on TSMC’s 20nm node) could serve as an effective counter early in 2015. AMD is mum on its future GPU plans, but that’s typically been the cycle — the two companies tend to leapfrog each other, and AMD has a history of pushing to lower nodes faster, with smaller, less complicated GPUs.

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