A drastic, sudden drop in graphic chip prices could lead to an unexpectedly quick end to the global crunch that affected manufacturing of smartphones to cars. The issue is expected to be central for companies reporting results this week.
Intel Corp., and Qualcomm are just two of the companies scheduled to report, and investors will decide how China’s Covid lockdown, reduced consumer spending due to inflation, and Russia’s war on Ukraine, will balance supply chain blockages for processors.
The unexpected trigger is a sharp drop in prices of Graphic Processing Units (GPUs), which lie at the heart of gaming machines and also have other uses.
GPUs are still being sold at a premium, but a lesser one than before. An analyst at Susquehanna, Christopher Rolland, said that the mark-up from the Manufacturer Suggested Retail Price (MSRP) had fallen to 41 percent to 77 percent.
Hardware news and graphic processor news website 3DCenter, which tracks prices in Europe, said that both AMDs Radeon RX6000 and Nvidia’s GeForce RTX30, which are used for gaming, dropped to less than 20 percent above MSRP, down from 80 percent at the start of the year.
However, recent checks by observers discovered that Nvidia’s graphic cards were largely out of stock at most retailers.
Giving a different spin to this development, senior analyst at Baird, Tristan Gerra, said that if companies expect prices to drop further, they would cut fat inventories, which would further cut purchases, and pressure prices.
Demand for graphics chips may drop
Analysts have also said that demand for GPUs may also drop because crypto currency Ethereum is expected to change the way it operates late this summer, reducing the demand for graphics chips that power systems used to mine the cryptocurrency today.
Whether the chip prices will drop all across the sector is still debatable, said sources.
Softening demand from smartphone and PC markets is also resulting in price drops of other chips such as cutting edge processors like CPUs and certain memory chips, according to Summit Insights Group analyst Kinngai Chan. Chan also expects the supply of some other chips made on older machines to face over-capacity in the second half of this year.
A Bank of America report, which reaffirmed it’s ‘buy’ rating for Nvidia said that the weakness in demand from gaming and cryptocurrency sectors would be balanced out by higher demand from data centres for graphics chips.
Meanwhile major chip manufacturers, including Intel and TSMC, plan multibillion-dollar expansions.
Dan Hutcheson from TechInsights, said that through all the hype of the shortage not ending until 2023 or 2024, his company could see a glut coming, which extended beyond graphics chips. Hutcheson has been following supply and demand of chips for forty years.