PC Partner Group has issued a profit warning for the first half of 2014, prompted by what it described as a "dramatic" decline in demand for graphics cards.
Cryptocurrency bubble to blame for excess inventory
In its profit warning PC Partner says it wishes to inform shareholders and potential investors that based on the preliminary review of unaudited accounts for the first six months of the year it is expected to record "a significant decline" as compared to the same period last year.
"Such decline is mainly attributable to price cut on video graphics cards which resulted in a trade-off of profit margin in order to reduce the risk of holding excessive inventory as the Group has experienced a dramatic decline in demand of video graphics cards after the Bitcoin bubble burst in the second quarter of 2014," the group said in the statement.
The company says shareholders and potential investors should "exercise caution" when dealing with the shares of the company. The full figures will be disclosed when the group announces its financial results for the six months ended 30 June 2014.
The slump was inevitable
The rise and fall of several cryptocurrencies which could be mined using standard GPUs was more or less inevitable.
Bitcoin is not one of these currencies and the bitcoin reference in PC Partner's warning is misleading. Bitcoin can no longer be mined using GPUs, as it is simply not economical viable. GPUs have been replaced by bitcoin ASICs and the shift occurred months before the "Bitcoin bubble" referenced by the company.
The latest craze was the result of several factors. When bitcoin ASICs took over the bitcoin space, a lot of bitcoin miners simply switched their "obsolete" GPU mining rigs to Scrypt-based "altcoins" such as litecoin and dogecoin. The rush did not last for long, as companies rushed to develop Scrypt ASICs. In the meantime Scrypt-based altcoins tumbled, messing up the ROI.
With no Scrypt altcoins to mine, many miners decided to quit while they were ahead and sell off their mining cards. We wrote about the potential pitfalls of buying mining cards on the second hand market back in April.
More reports hinting at a sharp decline in GPU shipments emerged in June.
PC Partner and other vendors probably saw it coming months ago, but there was little they could do about it. Consumers simply picked up heaps of Radeons hoping to turn a quick profit, causing shortages in numerous market. Nvidia cards were not used for mining, as Radeons offered vastly superior performance.
It is hard to overlook the fact that all three PC Partner brands are Nvidia AIBs, but they are still affected by the mess, as it disrupted the whole market. Gamers who could not get Radeons six months ago simply went for Geforce cards, causing an artificial spike in demand for both camps.
The fact that substantial numbers of fairly modern, high-end Radeons are now changing hands in the second-hand market is another concern for AIBs, as these cards are often sold on the cheap.
AIBs and channel retailers reportedly asked Nvidia and AMD to cut their prices last month in an effort to reheat demand. However, we have not seen any big price shifts in recent weeks. If losses keep mounting, consumers could see price cuts in the weeks ahead, but at this point it is hard to say whether or not GPU makers are willing to budge.