For a couple of years, the world has been facing a lack of semiconductors, which are the substances that conduct electricity between metals and insulators. The most famous semiconductor is silicon.
If we correlate this concept with electronic devices, the key semiconductors are the processors and other microcircuits that are present in almost all the devices that people use every day, from smartphones to cars.
In 2021, semiconductors reached a world sales record. Electronics production also skyrocketed, with hundreds of millions of complex semiconductors gobbled up by video game consoles. The number of GPUs produced grew to unprecedented levels, with major manufacturers like Nvidia posting all-time highs in terms of production.
Despite all this, electronics prices soared and manufacturers of related goods struggled to find semiconductors.
Cryptocurrency miners: Guilty or innocent?
It has become customary to not only mention, but blame cryptocurrency miners for the global shortage of GPU cards and semiconductors. To their credit, miners buy large amounts of graphics processing units, sometimes emptying entire stores at once.
Some countries that are feeling the card shortage acutely are already fighting cryptocurrency mining.
At the same time, the manufacturers themselves do not take such a clear-cut position. AMD CEO Lisa Su said in June 2021 that miners are far from to blame for the lack and even complete absence of certain GPU cards. She said that their influence on the market is generally minimal and does not exceed 5%-10% of the total demand.
Andy Long, CEO of White Rock Management, a Swiss-based digital asset technology company, agreed with Su that mining is not entirely to blame:
“GPUs continue to be in high demand to fuel Ethereum and other altcoin mining. Nvidia’s published estimate of the percentage of traditional GPUs going to miners is in the single digits, but the actual figure is likely higher than that.” around 20%”.
Another major factor behind the shortage of GPU cards is the COVID-19 pandemic. The supply chain showed that as many employees began working at home, the number of buyers increased so much that graphics processors – a crucial component in home computers – simply disappeared from sale.
However, the situation of miners’ appetite for GPU cards began to noticeably change earlier this year.
First of all, the change is due to the fact that Ethereum (ETH) has moved to the proof-of-stake (PoS) protocol, which is scheduled to take place in the summer of 2022.
Currently, the Ethereum blockchain is maintained by miners who solve crypto puzzles and subsequently receive a reward, the value of which is calculated based on the hash rate of each individual GPU.
This is called proof of work (PoW). As soon as Ethereum switches to the new protocol, miners will no longer be necessary, as crypto holders will validate block transactions based on the number of tokens they stake.
Since GPU cards will no longer be required for Ether mining, once Ethereum 2.0 comes into effect, the demand for them will drop dramatically.
This change in demand is already very noticeable. In the first two months of 2022, Nvidia’s GPU card sales are down 75% compared to 2021, as the big mining companies that used to buy such cards have stopped doing so. This also means that Nvidia will be forced to redirect GPU cards to the gaming sector and reduce prices.
There are other reasons that explain the drop in prices. Since April this year, the United States has reduced import tariffs on products from China by 25%. The North American country is one of the main players in the GPU market, in which companies such as Nvidia, AMD and Intel operate, so the reduction in tariffs has caused a drop in the prices of GPU cards.
Buyers’ interest in cards is also waning amid people’s gradual return to offices after two years of remote work and the need to have a modern computer at home to comfortably carry out work tasks.
“Dedicated mining cards are also a bigger part of the picture now,” Long said. “These are cards with no video output that are solely for data processing. We first saw them in 2017 with the release of dedicated Pascal architecture cards like the P106 and P104. Now Nvidia’s CMP range is explicitly targeting to miners, with some high-end dedicated SKUs only available to those willing to place orders in the tens of millions of dollars.” The shortage of dedicated gaming cards has to do with both simple supply and demand for the main purpose of gaming, and also with “HPC” type applications, where people use game cards to rendering tasks and artificial intelligence.”
The deficit is not over
The solution to the GPU card shortage problem seems simple: Manufacturers must make more cards to meet demand. However, in practice this is not the case. One of the problems is the supply of silicon wafers, which are used to produce the chips. In 2019, the demand for wafers was quite low, but in 2020, after the whole world went into lockdown, the demand for computers, tablets, TVs, and other equipment that require chips increased sharply. Wafer demand has increased so much that Sumco Corp, the second-largest wafer maker, said its production is booked through 2026.
However, the production of processors, GPU cards and memory cards requires more than just silicon wafers. After the start of the war actions in Ukraine, the world’s semiconductor manufacturers faced a shortage of neon, necessary for the operation of the laser systems used to create the chips. The problem is that the two Russian companies, Ingas and Krion, produce between 45% and 54% of the world’s supply of gas mixtures with neon. It is not yet clear how global manufacturers will find a way out of this situation.
In March 2022, some experts believed that the shortage of semiconductors could end in 2023. Specifically, the director of Micron Technology, one of the largest producers of memory and computer data storage, believes that from this year manufacturers will be able to accumulate a significant stock of chips, as well as organize the supply. In 2023, there will be no such problems and global companies will be able to largely reach the level of production that they had before the pandemic.
But the situation in Ukraine may slow down this recovery and redouble the chip deficit, forcing the price to rise with renewed vigor. Recently, Intel has stated that it has built up stocks and continues to monitor supply disruptions as it tries to find alternative sources of neon. Samsung stated that some factories could face shortages, the Dutch ASML, which produces scanners for printing chips that are used by TSMC and Samsung, did not hide its concern, saying that in the next two years, producers could face a shortage of the main machinery equipment.
So what will happen to semiconductors in the near future and thus to computers? The GPU market is likely to recover from the COVID-19 pandemic and declining demand from miners, but global events are once again testing manufacturers with a lack of components for equipment production. Of course, it is conceivable that the business will find the raw materials and build new supply chains, but no one can predict how soon this will happen. In any case, the shortage of semiconductors seems to continue, and the prices of GPU cards will rise again, but in this case, the miners will have had nothing to do with it.
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