The rise of artificial intelligence (AI), Internet of Things (IoT), big data, autonomous driving, and cryptocurrency mining—applications that all require immense processing power—has been fueling a rally in the semiconductor industry.
In 2017, the surge of cryptocurrency prices spurred the cryptomining frenzy worldwide and created explosive demand for cryptomining hardware, like the high-end GPU and ASIC (Application Specific Integrated Circuits) chips used to power the mining machines. This is not only driving growth in foundries and chip manufacturers but also related businesses all the way down the semiconductor industry’s supply chain—design, packaging, assembly, etc.
As the world’s manufacturing backyard, Taiwan’s exports rose by 16.7% to a record US$30 billion in March, which, according to the Ministry of Finance, is “driven by strong demand for high-performance chips, cryptocurrency mining, and artificial intelligence applications.”
Taiwanese companies cashing in on the “crypto gold rush”
TSMC (Taiwan Semiconductor Manufacturing Company) is the world’s largest chip foundry, responsible for over 55% of the world’s chip production and is profiting heftily from the cryptomining boom.
Since the second half of 2017, TSMC has been seeing strong demand from cryptocurrency-related businesses—the company’s fastest-growing segment—which could account for as much as 10% of TSMC’s revenue by the end of 2018.
C. C. Wei, co-chief executive of TSMC, said at the company’s Q1 2018 earnings call that the first quarter revenue of $8.46 billion was “mainly driven by a strong demand from high-performance computing such as cryptocurrency mining and increases from both automotive and IoT.” The company also noted that cryptomining gave a timely boost that offset weaker demand for smartphone sales. In April, the company cut its sales target due to the lackluster performance of Apple’s iPhones.
“TSMC is generating about 6-7% of its sales from the ASICs from customers like Bitmain and also some of the GPUs being used from AMD and NVIDIA,” Randy Abrams, head of Taiwan research and regional semiconductors at Credit Suisse, told TechNode.
Bitmain—the Chinese startup dominating the mining industry—may have made as much as chipmaker Nvidia did last year, according to Bernstein, an investment research firm, estimates.
The foundries are not the only ones reaping profits. The entire semiconductor supply chain—from chip design services to OSAT companies (third-party assembly and test services) to equipment and materials comapanies—have also profited from the rising demand for processing power. Taiwan’s ASE (日月光), the world’s largest OSAT company that handles the back-end packaging and testing orders, has seen strong demand, particularly in high-end GPU and ASIC chips. Abrams says that some of the early chip design companies, despite being China suppliers, still need to do most of their advanced assembly and testing in Taiwan.
Other Taiwanese hardware makers like Gigabyte, MSI, and Asustek—all of which sell graphics boards used in mining machines—have also seen revenue growth. In 2017, Gigabyte sold 4.5 million graphics cards, up one million units on the previous year.
Uncertainties loom over the volatile crypto market
Despite cryptomining-led growth in the semiconductor industry, not many have full faith in it. Crypto is still a nascent market with fluctuating prices and new currencies popping up every week. There is still a lot of speculation about whether the momentum will remain sustainable.
Bitcoin, for example, shows just how much crypto-prices can fluctuate—the price rallied more than 1,400% in 2017 but fell by almost half in early 2018. Collapsing prices could lead to a sudden plunge in graphics cards sales and other collateral damage.
The fluctuating prices of cryptocurrencies are the biggest uncertainties, but other factors could contribute to even more volatility. For example, the demand of mining cards from miners reportedly took a huge plunge in early April because many were waiting for the Ethereum mining machines by Bitmain to come out in the third quarter.
The change in mining technique, reward system (proof of stake) and other speculative demands are all factors that could potentially impact the entire market. Abrams said some companies see the growth continuing, but “we take a discount in our forecasts due to the uncertainty and model it flat, but it could very much swing either way.”
In the first quarter earnings report, TSMC announced that they have modified the forecast for 2018 overall revenue growth from the previously indicated 10% to 15% down to the more conservative 10% in part due to the uncertainty in cryptocurrency mining demand.
“TSMC does not want to invest in much capacity that is unable to be converted to other uses,” Abrams explains. “The market still needs to mature and have more certainty before more suppliers dedicate or invest in specific capacity for mining.”
The shift from GPU to ASICs is another factor that will likely impact the entire crypto market. Unlike the general-purpose GPU chips capable of handling graphics on computers as well as for mining, ASICs are designed to carry out a single task more efficiently: mining cryptocurrency.
Clark Tseng, senior manager for market analysis at the global industry association SEMI, told TechNode that with an array of new cryptocurrencies emerging, the demand will likely shift from GPU to specialized ASIC chips. Tseng said it is hard to tell how quick this transition is going to be, but it is definitely a trend he is seeing. In early 2018, Samsung decided to move into mass production of ASIC chips and claims to have already begun to yield dividends.
The future is larger than crypto
While the impact of cryptomining cannot be underestimated, it would be an overstatement to say that mining is the sole driving force of future semiconductor industry. Applications in AI, IoT, autonomous driving continue to be key drivers of semiconductor revenue. Tseng says that high-performance computing like AI, autonomous driving, and cryptomining will continue to be the key drivers for TSMC and other chip manufacturers for the next 3 to 5 years and companies like Bitmain are likely to foray into other areas other than just cryptomining but AI applications. Bitmain, for example, is moving onto a new trajectory making specialized chips for deep learning and AI applications.
While the crypto market may still be in its infancy, it has already made waves in the global economy. For now, the semiconductor industry is enjoying, perhaps most of all, the soaring profits from the mining craze.