A Taiwanese chip manufacturer United Microelectronics Corporation recently posted a 10 percent decline in revenue for the Q4 of 2018. The company report blamed the “crypto winter” for its losses pointing to the decline in demand of mining hardware for its performance.
It is not surprising that many chip manufacturers are running losses. The surprising issue is that they blame the crypto market downturn for difficulties they’ve encountered in recent month with respect to declining sales.
Jason Wang, the company co-president said,
“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 crypto currency valuations. Although UMC’s ongoing transformation will need time to reach its full synergy and potential, our progress so far has enabled the company to better endure these current headwinds.”
Crypto Boom Hangover
Market watchers are aware that the boom in the chip manufacturing business of 2017 and part of 2018 was due to the appreciable demand in mining hardware, however it seems that most chip manufacturers made their projections based on expectations from crypto mining essentially overlooking other potential customers such as cellphone and computer manufacturers.
This could be as a result of the profit they made from the more expensive mining hardware. They obviously hoped that the good times were permanent for the cryptocurrency industry.
Some market analysts have said that the phone market is far from saturated since many developing countries are still underserved. The suggestion by these experts is that chip manufacturers should indirectly expand into these markets with low-cost terminal equipments.
Foray Into Developing Economy Phone Market
Perhaps chip manufacturers should look in this directions as well and not depend on crypto mining as their focus knowing that the industry is an unstable one as attested to the fluctuating price of Bitcoin and other cryptocurrencies.
United Microelectronics Corporation is not the only chip manufacturer blaming the crypto downturn for its losses. TSMC the chip supplier of Bitmain also announced losses it attributed to low demand in mining equipment.
Crypto Mining Not As Badly Affected By Bear market
Interestingly, the crypto winter that the chip miners are blaming for their losses has barely affected miners as much as crypto traders and other investors who bear the brunt of the bear market. It is a $38 billion industry that barely is impacted by the bear market.
There has been an increase in the mining difficulty of Bitcoin yet the miners are not complaining because they are still in profit. Perhaps the reason for chip manufacturers’ complaints is that new miners are not joining the industry in droves as they did in 2017 and early 2018 when the price of Bitcoin was higher than the $6000 generally considered the breakeven value.
Nevertheless, that value is possibly higher than what is obtainable in places with cheaper electricity such as China. Then factoring in the fact that miners make gains from mining blocks and transaction fees implies that they are not yet running at losses.