Chip Makers Blame Slow Profits on Mining Slump, Phone Sales Also Down

Taiwanese chip manufacturer United Microelectronics Corporation (UMC) has blamed its 10% drop in revenue for the last quarter of 2018 on a downturn in mining.

Mining hardware sales are always affected when the demand for cryptocurrency is slow, due to reduced levels of mining activity, but there are some who feel mining is too often the scapegoat for a drop in chip sales. TSMC, the manufacturer responsible for supplying chips to Bitmain, were also quick to attribute their losses to a downturn in the crypto market. The company’s co-president Jason Wang commented:

“Looking into the first quarter of 2019, we anticipate further deceleration in customers’ wafer demand, due to a softer than expected outlook in entry-level and mid-end smartphones as well as falling cryptocurrency valuations.”

Some observers have commented that this drop in smartphones sales is more significant than some companies like to indicate as profits from mining hardware have recently outperformed smartphone sales. For example, as mining demand drove up profits significantly in 2017, new smartphone shipments only increased by 2%.

The argument is, given that smartphones are the greatest driver of chip sales, a declining market in mobiles has more impact on chip sales than a decline in the crypto mining sector. Some argue that the makers of cellphones need to address this and develop new markets, particularly in developing areas such as Africa and South America where smartphone ownership is still relatively low.

Companies manufacturing hardware need to diversify, given that cryptocurrency is still in its youth, in order to ride out lean periods. The cryptocurrency market will fluctuate, as clearly illustrated by the last two years. The crypto winter “blame game” will run out of steam very quickly when cryptocurrencies become a fact of life and demand for hardware will be overtaken by demand.

 

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