Are Bitcoin and Litecoin ASICS Putting a Squeeze on AMDs GPU Card Profits?

Benefitting from the rise in bitcoin prices and demand for mining the digital currency have been GPU video card markers.

Benefitting from the rise in bitcoin prices and demand for mining the digital currency have been GPU video card markers.  Specifically, AMD’s Radeon line of video cards have become a hot commodity, followed somewhat by Nvidia’s graphics products.  Considered superior to Nvidia’s products for mining, AMD video cards were in short supply during Q4 2013, selling out at major computer hardware suppliers such as TigerDirect and Newegg.

Even as bitcoin mining evolving from computer chips to single function Application Specific Integrated Circuit (ASIC) cards from manufactures such as Bitfury and KNC Miner, GPU cards continued to find demand from miners of scrypt based cryptocurrencies such as litecoins and dogecoins.  However, as prices of litecoins have remained well above where they traded at the same time last year, it has led to litecoin mining ASICs entering the market.  The result is that GPU cards used in the past are now finding it less profitable to mine litecoins.

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In an interesting post on SeekingAlpha, independent analyst, Alex Cho analyzes whether the move towards ASIC will affect AMD and Nvidia’s bottom line as they may sell fewer graphic cards.  Within his analysis, Cho points out that year over year Q1 2014 revenues in AMDs Graphics and Visual Solutions segment rose to $734M from $337M in 2013.  Cho attributed the increase to demand for mining related GPU purchases as well as console demand of the PlayStation 4 and Xbox One.  As such, without producing an ASIC equivalent to continue to cater to miners, Cho theorized that AMD was vulnerable to see a sharp falloff in graphics related revenue.  He also pointed out that:

Awkwardly enough, AMD mentions in every shareholder meeting that the company can develop custom semiconductor solutions in unique growth markets to sustain sales growth. What leaves me flabbergasted is that AMD didn’t capitalize on the opportunity of bitcoin mining by developing an ASIC. Furthermore, NVIDIA did not design a custom solution for crypto-currency miners either. I’m sure the wizardry within these companies could have come up with a more competent solution. Instead, AMD quickly lets go of the market opportunity presented.

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Overall, Cho’s analysis pointed to AMD possibly posting Q2 figures below expectations or warning for the future.  However, he was less worried about a decline in mining demand affecting Nvidia due to their chips never being as interesting to miners as those of AMD.

It could be argued that although demand is declining, AMD may not see much on an impact on its revenues due to back orders being fulfilled during the quarter, as well as purchases of their cards by optimized mining pools.  While bitcoin mining, and to a lesser extent that of litecoin grab much of the headlines, a large pool of network processing power is going towards lesser known cryptocurrencies.  Using algorithms to calculate changes in prices and mining difficulty, mining pools will redirect their power throughout the day to focus on only the most profitable coins to mine.  As they migrate from coin to coin, ASIC chips aren’t relevant for their mining models, thereby still putting a demand on high end GPU cards.

Cho’s analysis though does point to what appears to be little regard from AMD and Nvidia towards cryptocurrencies.  Even as they have benefitted from demand for their chips, Cho correctly points out that neither firm has created ASICs for the industry or focused much of their efforts on expanding their mining related mining.  This may be attributed to the firms viewing crypto mining as either being only a short term play.  Alternatively, due to the dynamic changes of mining, and short shelf life of product, they may have decided it’s not worth the risk of devoting resources to develop their presence in the market.  Either, the analysis does shed light on the impact of bitcoins and cryptocurrencies on the bottom lines of some of the largest semiconductor firms in the world.



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