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As
Intel, Qualcomm and others report, investors will weigh how
dampened consumer spending from inflation, China’s COVID
lockdown and Russia's invasion of Ukraine balance out supply
chain blockages for microchips.
The trigger is a drop in prices of GPUs, or graphics processing
units, which are the brains of gaming machines and are spreading
to other uses.
Analysts at Baird recently downgraded GPU maker Nvidia to
“neutral” after prices dropped. So far this year, Nvidia stock
is down roughly 31% and rival Advanced Micro Devices has fallen
about 37% compared with a roughly 22% drop on the Philadelphia
SE Semiconductor Index. Both companies declined to comment.
GPU prices are still being sold at a premium, but a smaller one.
Susquehanna analyst Christopher Rolland earlier this month said
that the markup over manufacturer suggested retail price or MSRP
has fallen to 41% from 77%.
Graphics chips and hardware news site 3DCenter, which tracks
graphic chip prices in Europe, reported that the price of AMD’s
Radeon RX6000 and Nvidia's GeForce RTX30, both used for gaming,
dropped steadily to less than 20% above MSRP from 80% at the
start of the year.
Still, recent Reuters checks found that Nvidia’s GeForce
graphics cards remained largely out of stock at retailers like
BestBuy and Newegg Commerce.
Baird senior analyst Tristan Gerra told Reuters that if
electronic companies that buy chips expect prices to drop
further, they will cut fat inventories, further cutting
purchases -- and pressuring prices.
“It's a vicious cycle.” Gerra said.
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, analysts say.
There is a debate over whether the lower prices will spread
throughout the chip sector.
Softening demand from PC and smartphone markets is also
resulting in price drops of other chips such as leading edge
processors like CPUs and some memory chips, according to Summit
Insights Group analyst Kinngai Chan, who expects the supply of
some other chips made on older machines to face over-capacity in
the second half of this year.
But Bank of America said the weakness in the gaming or crypto
currency mining segments could be balanced by strength in data
center demand for graphic chips and has reaffirmed its “buy”
rating for Nvidia.
Meanwhile major chip manufacturers, including Intel and TSMC,
plan multibillion-dollar expansions.
“Between all the fab investments and then all the bullishness
that the shortage wasn't going to end until 2023, 2024, we said
we could see a glut coming,” that extends beyond graphics chips,
said TechInsights’ Dan Hutcheson, who has been following chip
supply and demand for over 40 years.
(Reporting by Jane Lanhee Lee in Oakland, Calif., Chavi Mehta in
Bengaluru, and Noel Randewich; Editing by Peter Henderson and
Mark Porter)
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