Mining Isn’t the Primary Supply Limiter
Despite popular belief that cryptomining is solely to blame for GPU pricing and availability, it’s actually a denser subject than that: In speaking with numerous board partners, we’ve learned that the average cost of 8GB GDDR5 has increased by $20-$30 lately, which coincides with rising DRAM prices. DRAM, Flash memory, and GDDR5 all come from the same three manufacturers (SK Hynix, Samsung, and Micron), and so it makes sense that memory price has risen in the GPU space, too. The big thing here is that we’re talking a $20-$30 increase in manufacturer cost, not the cost passed-on to consumers. This instantly eliminates any ability to offer rebates and other buying incentives (discounts, promotional codes, free games, et cetera), as the significant increase in cost-to-build impacts ability to decrease prices for consumers.
Couple this with insatiable demand from three key sources (gamers, miners, and researchers), and there is absolutely no reason to incentivize sales.
Manufacturers further pointed-out that typical end of year and holiday sales have cleared shelves of stock, and that the high prices are largely derived from third-party sellers on Newegg and Amazon marketplaces. Double-checking this, we’ve found that they’re mostly correct – those $2000 Vega 64 cards weren’t priced as such by Newegg, they were priced by third-party sellers. Even more mercenary than retailers, in that regard.
Supply has also tightened on GDDR5, as mainstream devices (phones that sell in the hundreds of millions) are now chewing away at wafer supply from the big three memory manufacturers.
About the Mining
As for mining, most AIB partners feel the same as they did six months ago: Miners are not long-term customers, provide no long-term value to the brand, and do not contribute to brand sales of other gamer-targeted products in the ecosystem. This would include things like gaming monitors, e.g. a 144Hz display, or gaming peripherals, mice, and high-end motherboards. Miners don’t need any of those, and so the ratio of cards-to-accessories or cards-to-core components is tipped. Considering that some of these other items are significantly higher margin than just a GPU, which can be as low as 4% margins, in some cases, manufacturers may end up losing more revenue potential (by losing gamer sales) than they’re making from GPU inventory clearing.
When asked about increasing card production, we were given a few primary answers:
- Betting on cryptocurrency is a big bet, because the mining market has not proven stable, and has proven unpredictable. To order on current demand doesn’t mean those cards show up tomorrow – they show up in a few months, and if cryptomining dies down in that time, that’s a big bag to be left holding. The manufacturers are forecasting months ahead (quarterly, actually), not weeks ahead.
- NVIDIA and AMD could likely produce more GPUs, but board partners need to actually place an order for them. We’ve seen some uninformed content creators online accuse nVidia and/or AMD of undersupplying the market. Well, nVidia and AMD need a customer to sell those GPUs to – that’d be the board partners. If they’re not ordering more, nVidia and AMD aren’t going to make more. Simple as that.
- New supply is showing up weekly, but it’s selling out fast. The best bet is to show up at a local retailer and ask when the next shipment comes in, then go there that day.
- There is concern about over-production, especially if mining falls enough that the second-hand market becomes flooded, outstripping the ability of first-parties to make money.
Speaking from personal experience with manufacturing (our modmats), we’ve learned that shipping via boat can easily take upwards of 60 days. Air shipping is prohibitively expensive. If manufacturers saw the rising demand and shrinking supply in December, those cards would still be in production and/or in transit today, which means relief is still a ways out. Some vendors are air shipping product to meet demand, but those shipments are more limited in quantity.
The primary concern from AIB partners is that they’ll be left with overstock, and with new architectures looming – no Turing test needed for that – it’s likely that those cards would remain on shelves if cryptomining wanes in demand. And even still, that doesn’t fix the memory price problem.
Some vendors pointed-out that low-end cards are in higher demand than previously due to the new alt-coin mining explosion, but this concern seemed minor when compared to the others.
As for nVidia and AMD, nVidia’s biggest concern is a reduction in perceived size of the gaming market. Despite the company’s tremendous reach into automotive, AI, and deep learning, nVidia still derives ~58% of its revenue from the gaming market. This alone stands as reason for the company to ensure continued growth in the gaming and DIY enthusiast sector. Desktop PC sales have declined almost in diseased fashion, with only enthusiast DIY and high-end workstation propping-up an otherwise diminishing market (consumers just don’t buy desktops anymore). If nVidia’s investors see a slump in enthusiast DIY PC building, it could be that investment confidence evaporates, and that money goes elsewhere.
For AMD, the company seems more split: AMD had no shame in rebranding its now-dead Vega: Frontier Edition as a “blockchain pioneer” card, and has also released special mining drivers for its GPUs. These show at least some level of support for what is potentially an emerging market; however, the company has also spent the last year investing considerable resources recouping RTG and the gaming market, and that’s going to waste if people can’t buy Radeon GPUs for gaming. Drivers have received more updates than ever, according to AMD, alongside more “game-ready” or zero-day drivers than ever. The company has also invested significantly in its ancillary features, like Radeon Chill and other frame-pacing technology. Again, those efforts go to waste if Radeon GPUs aren’t found in gaming PCs. AMD is further fighting a marketshare problem, like nVidia above, but compounded: AMD needs developer support and optimization, and if developers see lowered marketshare in the gaming market, there’s less time that will be devoted to Radeon optimization.
It’d seem that the “easy” solution would be increasing supply, but again, nVidia and AMD need customers for that, which means board partners would need to feel confident in betting on crypto mining. We know a few are, but not many. No one wants to get burned with thousands of cards stuck on shelves.
As for the upshot of all of this, board partners have noted that mining users require no customer acquisition: There’s no marketing cost, no advertising cost, and outside of potentially abused RMAs, there is no real customer support cost. Customer acquisition cost is essentially zero – but they also show no loyalty, so brand growth is non-existent outside of immediate, short-term sales and gains. A gamer who buys a card and has a good experience with Brand A will likely buy Brand A again in a few years – there’s no reason not to, after all, if the experience was good. A miner who buys cards has one requirement: They’re in stock today, and ROI is feasible in a reasonable time. The brand is largely irrelevant, and that brand’s ecosystem products are irrelevant.
Then, of course, there’s the fact that fabrication groups like TSMC are suddenly facing demand from mining companies, like Bitmain, to produce mining-dedicated GPUs for dedicated mining devices. This should be less of an issue, assuming TSMC is not tapped at maximum capacity. Board partners seem to think that, if the partners placed more orders for cards, nVidia (at least) could sustain more orders.
PSU vendors seem to care the least: They've never sold more high-wattage power supplies, a product which was on a downtrend due to reductions in power consumption by AMD, Intel, and nVidia. That said, the same concern exists: Over-purchasing could leave to a lot of units on shelves. Fortunately, new power demands by Skylake-X and Coffee Lake, alongside Vega, should mean there is still a market for high-wattage PSUs.
Retailers, meanwhile, are the mercenaries in all of this. Unless the additional GPU sales significantly reduce sales of other components (motherboards, CPUs, RAM, peripherals), there is no reason retailers should feel strain in this time.
It’s an interesting time. We’d recommend checking out the video above for more thoughts on this.
Editorial: Steve Burke
Video: Andrew Coleman