Why are graphics card sales collapsing?

A year ago, we were talking about a shortage of graphics cards. But today, it’s quite the opposite. This week, Nvidia released its latest quarterly results. And the least we can say is that society is not spared by the crisis.

Nvidia’s revenue was down 17% from the same period a year earlier and was $5.9 billion. And while the company’s data center activity has experienced a 31% growth in revenue, the gaming part (graphics cards) has seen its revenue drop considerably.

Compared to last year, this part of Nvidia’s business saw a 51% drop in revenue. Compared to the previous quarter, the decrease was 23%.

But what happened?

First, there is the drop in PC sales. According to Nvidia, these declines reflect the drop in sales of its partners, who had to adapt to demand. Among the factors that affected this demand are macroeconomic conditions (inflation), but also the consequences of COVID in China. And the first driver of this drop in graphics card sales would be a drop in demand for laptop components.

But Nvidia also discusses the impact of the Ethereum update on its sales. As a reminder, this update, called The Merge, switched this cryptocurrency, which is one of the most used, from proof of work to proof of stake.

The Consequences of the Ethereum Merge

The new consensus mechanism used to validate transactions on the Ethereum blockchain no longer requires miners who provide computing power (for ETH, this is done with graphics cards) to solve mathematical problems. So, overnight, the graphics cards that were used by these Ethereum miners became almost useless (indeed, the alternatives to Ethereum are not always interesting to mine).

“We believe that the recent transition of Ethereum cryptocurrency transaction verification from proof-of-work to proof-of-stake has reduced the usefulness of GPUs for cryptocurrency mining”comments Nvidia.

In essence, according to the company, the Ethereum update may have increased sales of its graphics cards in the second-hand market, which may impact demand. Furthermore, it should be noted that the end of the shortage of graphics cards had already been “announced” before this Ethereum update, due to the collapse of cryptocurrency values.

For Nvidia, the outlook is not good for the next three-month period, which will end in January. The company is indeed projecting a further decline in revenue year-on-year.