I was right.
And it's terrible. At the start of last year, I predicted computer hardware
prices would rise and that they would be sold out everywhere. And yep, over a
year later, that has basically come true. But no, no, don't congratulate me.
Because while everything I said was true, I wasn't even close to being
correct about why there is still a shortage of PC parts and a broader
global shortage of semiconductor products. But now I've talked to some
people high up in the industry off the record of course. You know how it is.
And I finally got the real reasons why it is so hard for gamers to find the
CPUs and GPUs they need to get them FPS.
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For those of you living under a rock, currently there is a massive global
shortage of semiconductors and everything that they're used to make.
So, CPUs, graphics cards, cars, even fridges. Last February, when I predicted
there would be a global shortage of PC components, my reasoning was that COVID
and the restrictions it caused would interrupt manufacturing facilities and
the logistics companies that they rely on. It was a fair guess and lots of
smart people made the same guess with companies like Apple lowering their
projected revenues. But then in reality,
supply of semiconductors was only briefly disrupted. And for almost all of
2020, they have been pumping out more CPUs and GPUs than ever. So, uh, why are
the Ryzen 5900X and RTX 3080 weapons
grade unobtanium then? The real honest to goodness truth, guys, is because you
keep buying them all. When people got stuck working from home, that old e-
machines that they hadn't used in years suddenly didn't cut it. I mean, it's
reasonable to think that in one household, Junior could be attending a
lecture, the MS could be keeping her elderly parents company on Zoom, and
Pops could have suddenly gotten into day trading or NFTTS or whatever, all at the
same time. This has led to a trend
reversal that I don't think anyone saw coming. 2020 was the biggest growth year
in the PC market in a decade with a whopping 20.6% increase in US PC sales
in Q4. And fun fact, Chromebooks are
actually tracked separately. And those reported a staggering 200% increase in
shipments year-over-year. To add even more fuel to this fire, enterprises have
had to heavily invest in their cloud services with providers like Zoom,
Microsoft with Teams, and Slack needing to seriously beef up their data centers
to keep up with everyone all of a sudden working and meeting from home. That's a
lot of video data. And while you might think, oh well, okay, Microsoft needs a
new server. How does that affect me? The truth is that your Ryzen desktop chip is
made of the same chiplets as an Epic. It's just down to how AMD glued them
together. The two hardest hit sectors, though, are automotive and graphics
cards. And we'll start with automotive because it's simpler and because it's
the better example of how I was kind of right. Automakers currently are being
very vocal about having to stop their assembly lines because they can't get
enough computer chips to go in their cars. But this is actually largely a
problem of their own making. Back at the start of the pandemic, most automakers
cut their forecasts and reduced their orders, assuming that demand for new
cars would drop. And it did temporarily
until all of a sudden, no one liked riding the bus with an infectious
disease on the loose, and demand came roaring back. By the time they realized
this, though, the fabrication capacity that they had released had already been
sold to someone else. So, okay, I wasn't
right. I was just wrong with the automakers. Now for GPUs. Well, it's the
miners, right? Let's all say it together, guys. You miners. you
miners. You minor. No. No. Okay, hold on. Actually, nobody that we talked to
actually agreed that miners were the underlying problem. Like to be clear,
they're not helping the situation. And no one could say for sure if their GPUs
are going to gamers or not. But everyone
we talked to is pretty sure that the majority of GPUs are currently ending up
in gamers hands. It's just that way more
people want GPUs than usual. And there is some data to back this up. Valve
generously makes their concurrent Steam user count public. And if we look Whoa.
If we look at this, it absolutely explodes at the start of the pandemic
and then just as suddenly jumps again
after the summer when the second wave forced everyone indoors. Then at the
same time, a new generation of GPUs that was finally a solid upgrade from
NVIDIA's 10 series along with a new generation of consoles showed up after
seven long years. And we shouldn't be surprised. In fact, we should actually
be grateful that the new consoles didn't have a ton of compelling launch titles.
This could have been even worse, David. Now, you might not realize this, but
NVIDIA and AMD have to guess how many GPUs that they'll be selling months or
even a year before the first one hits a consumer's hands. And while they were
able to assume that demand for Aier and Big Navi would be a bit higher than
previous launches, you know, based on prototype testing data being very
promising and historical sales numbers for premium cards, they got it wrong.
Way wrong. I mean, you might even remember Jensen's saying in the leadup
to the launch of the RTX 3070, the 3080 and 3090 have a demand issue, not a
supply issue. The demand issue is that well it's much greater than we expected
and we expected really a lot. So uh okay
you might say why don't they just make more? Well because again I'm kind of
right. Demand issues cause supply issues
and there are only two companies in the world that can make this kind of
bleeding edge tech. Samsung Foundaries and Taiwan Semiconductor Manufacturing
Company or TSMC. Under normal circumstances, they would be operating
at roughly 80 to 90% of their capacity,
which strikes a nice balance between making enough semiconductors to stay
profitable while offering enough downtime to perform maintenance, and
extend the life of their equipment. If AMD or NVIDIA had higher demand for
their GPUs, they would just buy up some of that 10 to 20% idle time, pump out a
couple million more chips, and everything's hunky dory. But the current
situation means that the fabs are already running at 100% capacity. So
companies are getting exactly what they pre-booked and not away from more. This
is why you're seeing some parts of the industry that are fairing much better
stock-wise than others. Finding an iPhone, for example, no problem, even
though it uses TSMC silicon. But that's
not because Apple has some kind of extra pull because of their size. They've just
been selling fewer iPhones for a couple of years now. And the pandemic didn't
change that. Same thing for Intel. You can buy their CPUs at MSRP, no problem.
But they've also seen less growth over the last year. So, their demand ended up
more in line with their forecasts. Now, obviously then, given the choice, I'd
rather be in NVIDIA or AMD's shoes, even if it does mean that gamers are mad at
me. Which raises the question then, is
there even a strong motivation to fix this problem? I mean, high prices are
good for Texas Energy suppliers, right? Well, NVIDIA, AMD, and TSMC may have all
reported record-breaking revenues, but if capitalism has taught me anything,
it's that leaving any amount of potential sales on the table is straight
up unacceptable. I'm sure TSMC would love to sell 20% more wafers this year.
So, why is it taking so long? It's because they're trying actually, but it
takes a lot of money. Like tens of billions of dollars, lot of money. TSMC
has plans to build a $ 35 billion plant
in Arizona, upping their spend from 12 billion after Joe Biden called for a $
37 billion in federal funding to address the global chip shortage. As for
Samsung, well, they've also got plans for a 17 billion fab in the US by late
2023. 2023.
So yeah, these plants obviously won't be done anywhere near soon enough to stop
the shortage of chips today. But then even if they came online tomorrow,
they're only one part of the chain. After AMD or NVIDIA get the wafers from
TSMC or from Samsung, a lot still needs to be done to turn those into a graphics
card you can plug into your system. They need to be tested and sorted for their
capabilities. They need to be forwarded to board partners who need to
manufacture PCBs, assemble the cards, QC
them, package them. You guys get the idea. And the thing is all of those
factories are also at capacity. So every
single part of this entire supply chain, I mean even the guys who make the
capacitors that go on the boards needs to be upgraded, which means that these
shortages will continue for quite some time. How long? Well, we tried to find
out, but unfortunately, there seems to be a crystal ball shortage as well, and
no one, even off the record, was willing to make a solid prediction. One good
gauge that you can use at home, though, is the used market. Right now, if you
were to use only retailers as an indication, getting a fifth gen AMD CPU
looks pretty difficult. But the thing is, the prices on eBay are only a touch
more than MSRP. What that indicates is that supply and demand for these have
nearly equalized, so it's likely we'll be seeing them in stock regularly pretty
soon. As for RTX 3000 series GPUs,
big yikes. It's estimated that graphics cards are being shipped anywhere from 10
to 30% below demand. And it's estimated
that it will take 3 to four quarters for the supply of semiconductors to catch up
and an additional 1 to two quarters until inventories are back to normal
levels. So yeah, you might be lucky to
get a GPU at MSRP this time next year.
That is unless maybe big crypto crash
leads to big sell-off. Of course, there's another burning
question in all of this. I mean, didn't basically the entire tourism industry
get laid off? Aren't we in the middle of a huge recession? Why is there this
unprecedented demand for $800 graphics cards?
Well, here's the thing. Normally during a recession, the heaviest hit sectors
are goods producing industries and construction. People make less money.
They can't buy as much stuff. Pretty simple. But the pandemic recession, it's
totally different. Here in Canada, our economy has already returned to about
95% of where it was pre- pandemic, which
sounds pretty good and explains why people have all this disposable income
to buy graphics cards. But it's got a dirty secret. Economists are calling it
a K-shaped recovery. And what that means is that high earners and those who are
able to conduct their business remotely have done great. And we've been
fortunate enough to be part of this group. But because restaurants,
hospitality, and entertainment have had to remain closed, that last 5% of the
economy has been absolutely destroyed.
So, in a nutshell, this means that Johnny Big Bucks is now making more than
ever, but can't go out and blow it on Puagra and a $100 cocktail that includes
a story about the bartender getting inspired by the forest in Tofino.
Instead, Johnny is patting his savings account while the bartender is moving
into his or her parents' basement. So,
if your biggest problem right now then is, is that you can't buy a GPU at MSRP,
maybe consider just waiting, buying it later when it's MSRP, and spending some
money with a local business in the meantime. We've got a couple down below that we think are great and are local to
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Bang. Bang. Okay, everyone's way off. We should
practice that then. Okay, we got this. Okay.