For Jane Lanhee Lee and Chavi Mehta and Noel Randewich
BENGALURU, India (Reuters) – A sharp drop in graphics chip prices could herald an unexpectedly quick end to a global semiconductor crisis that has crippled production of electronic components used in everything from smartphones to cars.
Intel, Qualcomm and other chipmakers report quarterly results this week and investors will seek information on how inflation, China’s lockdown and Ukraine war have hit the microprocessor industry’s supply chain.
Analysts at Baird recently downgraded the recommendation on graphics chip (GPU) maker Nvidia’s stock to “neutral” after microprocessor prices fell. This year, the company’s shares are down about 31% and rival AMD is down 37% compared with a 22% decline in the Philadelphia SE Semiconductor index.
GPU prices still carry a premium, but lower than they were a few months ago. Susquehanna analyst Christopher Rolland said earlier this month that the margin over the manufacturer’s suggested retail price or MSRP has dropped from 77% to 41%.
Graphics hardware and chips news site 3DCenter, which tracks graphics chip prices in Europe, reported that AMD’s Radeon RX6000; and Nvidia’s GeForce RTX30; fell to less than 20% above the MSRP from 80% at the start of the year.
Despite this, graphics cards from Nvidia remained out of stock at retailers like BestBuy, according to recent Reuters checks.
Demand for GPUs could also drop as the Ethereum blockchain is expected to change the way it operates in the middle of this year, reducing demand for graphics chips that power cryptocurrency mining systems, analysts say.
Declining demand from the PC and smartphone markets is also resulting in price drops for other chips, such as central processors (CPUs) and some memory chips, according to Kinngai Chan, an analyst at Summit Insights Group. He expects the supply of some other chips produced on older machines will face excess capacity in the second half of this year.
But Bank of America said weakness in the video game and cryptocurrency mining segments could be balanced by strength in data center demand for graphics chips and reaffirmed its “buy” rating for Nvidia.
Meanwhile, major chipmakers including Intel and TSMC are planning billion-dollar expansions of production capacity.
“Among all the investments in capacity and all the comments in the industry that the chip shortage isn’t going to last until 2023 or 2024, we said we could see overcapacity coming” that goes beyond graphics chips, said Dan Hutcheson of TechInsights.
