For more than two years now, the entire computer industry has been affected by sharply increased prices for end consumers. The main reason for this is the shortage of microchips, or more precisely of the semiconductors they contain.
So anyone who works online or likes to spend their free time with video games, streaming services or exciting gambling probably hasn’t bought any new hardware lately. If you bought a new computer in the last 2 or 3 years, it has to be admitted that there weren’t that high increases in performance that would make it worth buying a new one.
It is, therefore, advisable to wait a little longer before making a new purchase. Experts believe that we will soon be able to look forward to falling hardware prices. We would like to shed some light on whether this could be the case.
Do you always need the newest technology?
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The reason is obvious why gaming computers, as well as game consoles, smartphones, smart TVs and other consumer electronics, have become so extremely much more expensive. It’s because they all cannot work without microchips, especially in the form of graphics cards.
But for those who aren’t extensive gamers, the equipment should be performant enough even after years. If you use your computer just for some browsing through the web, you don’t need a top-notch product.
Also, many games don’t demand huge resources. Browser-based games like online casinos have quite low requirements. Even the best slot machines run on computers that can’t meet the standards of really expensive hardware these days. It gets very common that game developers try to release games that are suitable for smartphones or laptops, which don’t have those performant hardware components equipped for them.
Especially when it comes to gambling or if you want to pass some time while playing a simple game, the focus is not on the highest graphic standards. It is the concept of the game and the simplicity that provides fun. And it opens up the market for developing firms as they can reach a bigger target audience.
Where do powerful microchips play an important role?
Even if a powerful processor is already built into a device, the so-called GPU (Graphics Processing Unit) still plays a decisive role. It carries out the necessary mathematical calculations for image reproduction at lightning speed and ensures a smooth display.
On the one hand, this is, of course, crucial for high-end video games, but on the other hand it is also indispensable for cryptocurrency mining. And this is precisely the reason for the drastic increase in demand in recent years. Due to the proverbial crypto boom, graphics cards that had already been produced were out of stock unexpectedly quickly and it was difficult to produce them in a timely manner.
At the same time, however, the demand for consumer electronics increased significantly, as gaming and streaming opened up an ever larger target group. Long waiting lists for certain products such as the Playstation 5 were the result. Some phone manufacturers even had to postpone the market launch of their latest smartphone models to a later date.
Why prices were so high until recently
Basically, the culprit is pent-up order processing. Since 2020, many processes that are essential for the production and distribution of the hardware have stalled. In addition, the sharp rise in energy prices, among other things, has had a huge impact on the production costs for microchips.
This is because the element silicon is quite fundamental to the production of semiconductors. However, the extraction of silicon from quartz sand requires a lot of energy. To make matters worse, only about 10 percent of the silicon extracted has the necessary purity to be useful at all for fine electronics or solar cells.
Furthermore, there are all the problems that have arisen in relation to the global economy during the pandemic. These include, for example, months of delays in the import and export of products. Huge amounts of freight containers piled up in the most important trade ports, which were then missing for transport elsewhere. Increased customs duties, the already slumped economy and more complicated trade relations also contributed to the difficult situation.
What other influencing factors play a role
Furthermore, one must not forget that developments in global financial policy are not without consequences when it comes to such a market worth billions. For example, the development of the US dollar as one of the most important reserve currencies is of importance and not uninvolved in the price increase. Transport costs, which have risen sharply due to the energy crisis, naturally also account for part of the mark-up. Because fuel has become very expensive, production costs, in general, are rising, including those for other materials such as plastics or displays, without which computer hardware simply cannot do.
And finally, the development of inflation should not be neglected – it also has an impact on prices. Moreover, hardly any semiconductors are produced here in Europe. In this respect, we are extremely dependent on trade relations abroad and, as end consumers, can hardly influence the prices.
How globally active manufacturers react to the difficult conditions
The large semiconductor manufacturers such as Samsung, Intel or TSMC (Taiwan Semiconductor Manufacturing Company) have already increased their capacities as much as possible. In addition, they are all planning huge investments to be able to produce even more with additional factories.
Like this, they want to better equip themselves for the requirements of the future, because demand is likely to continue to rise steadily in the coming years and decades as digitalisation continues to advance.
Where the decline in demand comes from and what consequences it will have
Due to the crypto crash that has occurred since the beginning of this year, first of all the number of cryptominer has collapsed. The demand for graphics cards has thus fallen somewhat and this has certainly had an impact on the price system. Since around August 2022, one can, therefore, now see a drop in prices for graphics cards, while this does not yet apply to other hardware components. However, both the manufacturers themselves and business analysts expect a gradual drop in prices in the coming months.
So those who want to invest in new hardware could find good conditions at the beginning of 2023. In any case, it is worth keeping an eye on the competition. The competition among the well-known brand-name hardware manufacturers is fierce and as soon as demand drops, they often enter into a price war for customers.
It has to be said, however, that one should probably not hesitate too long, as the market changes quickly and production costs depend on numerous factors. In addition, how fuel and energy prices develop both in the producing countries and worldwide will be of enormous importance in the future.
Ongoing political tensions, which could lead to a trade embargo and similar consequences, must always be kept in mind. In addition, the pandemic has shown us that so many economic developments are completely unpredictable, despite numerous analyses, and one should therefore expect anything at any time.
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