Here, he takes a a deep look at a worrying trend in the costs of PC technology increasingly starkly in relation to a hitherto unthinkable use: using games graphics cards for serious number crunching rather than processing images. And the prime suspects in this massive pricing hike? Cryptocurrency. Here, Andy explains why.
No doubt you’ve seen, or at least heard or read about, cryptocurrencies, most notable of which is of course, the infamous Bitcoin. While the astronomical highs of the somewhat perplexing bubble with its value are seemingly on the decline as of writing this, the computer hardware used to ‘mine’ this currency is still in extremely high demand, to the point that a while back many serious miners had begun buying up all the enthusiast grade, high performance PC gaming hardware they could get their hands on.
Typically the kinds of hardware these individuals or companies focus on purchasing are the high end offerings of graphics card from AMD or Nvidia, such as the 1080 and 1080 Ti. These cards are already the flagships of the current generation of Nvidia’s lineup and thus were already expensive beasts to begin with. The 1080, for example, would cost you somewhere in the region of £650 – £800, based on manufacturer versions and availability at its launch back in May 2016. The cards have barely dropped in value since then, maybe you would be lucky picking one up for £550 – £600 in a sale. The 1080 Ti, the more powerful and more recent card based on the same architecture, performs even better than the 1080 but also comes with a hefty price bump, which has propelled it well into the £750+ price range.
The key thing to remember about these cards is that they were already incredibly resilient to price drops, holding their value for quite a long time, typically until a newer card comes out and bests it in performance, or the next line from the same company is released, superseding its predecessor in the top spot.
These prices are usually fairly stable, varying to some degree between retailers but not by a large amount. However, since cryptocurrency has been given even more prominence in the news and in the investment world, recently things have escalated to the point that all of these high end graphics cards are being snapped up faster than they can be manufactured and released to retailers, resulting in vastly inflated prices due to the lack of availability versus overwhelming demand.
Recently, in Techspot’s continuing series of articles on why it’s currently a bad time to be building a new PC, they present a table of data, giving the average prices in US Dollars of the currently most popular graphics cards and their differences between launch and a few dates in between then and now. The results are staggering, showing some of these cards over doubling in price in the past year, such as the GTX 1070, a card that has an MSRP (Manufacturer’s Suggested Retail Price) of $380, its prices climbed from that steadily to $420 by April 2017, a further $50 to $470 by last November, and now here we are in mid January 2018, and it has skyrocketed to an astronomical $890!
The same thing has been happening to AMD cards. The increasingly popular 500 series and Vega series of cards have seen similar attention, with the Vega 56 and Vega 64 cards even being completely sold out and roughly becoming $300 more expensive than their launch prices. The RX 580 has also nearly TRIPLED in price since its launch, going from $230 to a staggering $660.
It’s interesting to note that despite the overall steady climb of prices over the past year, the really steep rise has only occurred in the last couple of months, largely in part due to the media coverage and attention cryptocurrencies have been receiving as of late, as well as the overall surge in profitability and widespread public interest.
The problem has gotten so out of hand recently that Nvidia themselves have been requesting that retailers prioritize gamers buying graphics cards for their gaming setups over miners. An article on computerbase.de, reached out to Nvidia for comment on the issue, and received this response from spokesman Boris Böhles (here translated from German by Google).
“Gamers come first for NVIDIA. All activities related to our GeForce product line are targeted at our main audience. To ensure that GeForce gamers continue to have good GeForce graphics card availability in the current situation, we recommend that our trading partners make the appropriate arrangements to meet gamers’ needs as usual.”
Böhles also stresses that this is more of a request, a ‘recommendation’ or ‘guideline’ as it were, not something that must be adhered to by said retailers, stating that Nvidia would not interfere in the “freedom and independence of trade”.
Nvidia is curtailing sales on its own website, limiting customer purchases to a maximum of two, however it cannot and will not dictate the same for retailers. If a retailer sees it can make the most, or at least equivalent, money by not inhibiting a customer to just two cards at a time then it will likely continue to do so.
How much of an effect will this move by Nvidia have overall? It’s hard to say, but if nothing else at least the company is attempting to get graphics cards in the hands of the customers that have likely been with them for many years. Of course, it would be remiss of me to state that cryptocurrency mining was the only reason for the hike in prices. Though it is likely the main reason for the prolific sharp spikes that we’ve been witnessing, there are other factors at play here.
One such factor is the currently wildly inflated prices of RAM, though these prices have much less to do with cryptocurrency and far more to do with the general computer hardware business and where the market has gone over the last few years.
Data accumulated by pcpartpicker.com shows the steady, and hefty, increase in prices of RAM over roughly the past year and a half. While DDR4 is the largest offender, for reasons we will get into shortly, it’s inescapable to see that these prices are affected across the board. Of course, this spills over into the RAM on graphics cards too, such as the GDDR5, used in most modern cards.
The DDR4 specific price increases can be somewhat attributed to a disparity in the current state of supply and demand. Not long after DDR4 was initially released, it was noted that there were fairly tight margins to be made due to production costs, which were compounded by the fact that the desktop PC market growth had been slow the past few years, and consumers’ unwillingness to pay a premium for the seemingly small performance gap.
This low demand was then easily met by the equally low production volume due to manufacturer disinterest, with Intel still pushing DDR4 in its chipsets from 2014 onwards. Then, in 2017 the market suddenly decided that desktop PCs were great again and sales picked up massively the last year. With both Intel and AMD offering DDR4 compatible processors, the demand suddenly shot up, well past what manufacturers had predicted.
Another facet to this is the smartphone market. Typically, LP (Low Powered) DDR4, which incidentally has more favourable margins, is used in a significant portion of modern smartphones, and due to these margins has likely been more of a focus for manufacturers such as Samsung.
Market research has indicated that all of the major DDR4 suppliers have slowed their production capacity in order to maintain pricing through 2018. This reluctance to ramp up production is probably related to the profit margins mentioned previously.
It’s also a possibility that these prices could plummet quite significantly within the next year. China has been increasing its own production, with a large amount of semiconductor fabrication plants in the process of being constructed, the construction of which began between 2016 and 2017. The country is predicted to be the second largest investor in semiconductors this year.
The main takeaway from all of this however, is that the pricing in its relation to GDDR5 and graphics cards is probably only an increase of between £5 and £30 to market prices, not quite the significant increases we’ve been seeing.
However, it isn’t a case of an intentional lowering of production either. Neither Nvidia or AMD own the fabrication facilities where their products are manufactured, instead outsourcing, typically to TSMC (the Taiwanese Semiconductor Manufacturing Company), or in AMD’s case some production is also provided by Global Foundries.
These production facilities are running at the same capacities they have been, and while some may want to accuse Nvidia or AMD of creating artificial scarcity to raise prices, it simply is not the case. The extra demand has meant supply is low, but in order to ramp up this production higher than the current capacity, the manufacturing plants involved would require significant further investment.
These new fabrication facilities (known colloquially as ‘fabs’), due to their requirements for a multitude of expensive equipment, would require investments estimated to exceed $1 billion USD, perhaps somewhere up to $3 – 4 billion, not outside the region of possibility and far from uncommon. For example, TSMC recently invested an astounding $9.3 billion to build a fabrication facility for 300mm wafers, and estimates by the company of further investments into future fabs might reach highs of $20 billion.
As you can see, it is not such an easy task to simply ramp up production, and it is in practice a route that is incredibly costly. The shortage began in earnest in December 2017, when a sudden surge in interest of Bitcoin led to a similarly inverse effect to the levels of stock for the top graphics cards for crunching the numbers necessary to mine the currency. With graphics cards being out of stock in many places for numerous weeks now, and those that do come in stock immediately flying off the shelves at breakneck pace, you have to ask how long will this continue?