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PC gaming surges, while the rest of the PC market declines

Over the last few years, PC manufacturers have debuted a wide variety of system designs in an increasingly desperate attempt to reverse dwindling sales. With the PC market now in its sixth straight year of decline, it’s obvious these efforts have met with minimal success. At best, they’ve blunted the impact of an unprecedented downturn. PC gaming, however, is a distinct reversal of this trend.

The total market for PC gaming hardware (including gaming accessories) broke $30 billion for the first time in 2016. Jon Peddie Research (hereafter referred to as JPR) predicts a six percent compound annual growth rate (CAGR). Growth between segments isn’t split exactly evenly, but it’s too far off. The strongest market for PC gaming in terms of year-on-year growth was the Asia-Pacific region, where PC gaming has relatively little competitive threat, thanks to long-term restrictions on console sales in certain countries (some of those restrictions have lifted recently, but PC gaming remains dominant in some Asia Pacific markets).

Demand for high-end systems that cost multiple thousands of dollars is strongest in the West and European markets, while the Asian markets prefer lower-end to midrange hardware. This likely explains why AMD has launched several Radeon SKUs specifically for the Chinese market — it makes good sense to do so, given spending patterns.

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Comparing 2015’s market splits against 2016’s, we see the following changes: Low-end spending increased 5.7% (from $6.31B to $6.68B), mid-range gaming increased by 39% (from 7.64B to $10.61B) and high-end spending jumped 22% (from $10.7B to $13.05B). Most of the high-end gain was picked up by Nvidia, but AMD’s targeted strategy of refreshing its midrange products first should have given the company its own pick-up. We’ll know more when AMD reports its Q4 results.

AMD is undoubtedly hoping to give the market a further goose once its Ryzen CPUs arrive later this quarter. We wouldn’t be surprised to see some movement on that front, but the CPU market is quite different from GPU or accessory spending. The general hope from enthusiasts, whether pro-AMD or not, is that AMD’s new CPU will give Intel some serious competition and force Chipzilla to cut prices on its mainstream Core i7 and HEDT (High-End DeskTop) platform. This could well happen, but 4-6 year-old CPUs are still more than capable of serving as high-end gaming platforms. Your frame rates might be better with a Core i7-7700K than a Core i7-2600K, but every game I’m aware of still runs just fine on a high-end CPU core that just turned six. That’s not the case with GPUs and it definitely wasn’t the case 14 years ago, when AMD launched the Athlon 64 and gave enthusiast gaming a serious shot in the arm.

The sales leap from 2015 to 2016 suggests that markets responded well to pent-up demand for 14nm hardware. AMD’s new Ryzen and its upcoming Vega GPU could trigger a similar release in 2017, but we’ll have to see how the macroeconomic conditions evolve worldwide as the year progresses to make much comment on the situation. Nvidia’s profits got a huge boost from its 14nm refresh, but it also enjoyed first-mover advantage, since AMD didn’t have any GPUs that could compete at the upper market price points.

Expect more OEMs and companies to pay attention to this market as time goes on. If gaming is one of the few areas where customers are actually buying hardware, even mainstream companies are going to want part of that pie. We agree with JPR’s hypothesis that the PC market is basically splitting between basic office and minimal Internet machines for most customers, and desktops for advanced power users. Since workstation and power users are the profit centers of the desktop space, you can bet plenty of companies will want to bring upmarket capabilities to these products — even if they don’t normally care much about gaming.

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