Recently, there was a massive price drop in computer chips. A common question is how these large drops will affect businesses in the surrounding industry. It’s been a bad decade for computer chip makers. That’s not to say there have been no gains – Intel’s profits have steadily climbed during the decade, and AMD has made some money in recent years. But the industry, as a whole, is facing lower prices–leading to a big earnings miss for industry leaders, and slower growth.

What Does It Mean When the Price Falls?

The falling price of computer chips is a sign of the cycle in capital-intensive businesses, as they look to make up for losses by cutting costs and laying off employees. The price of computer chips fell more than 70% over the past decade, and this is happening for a reason.

Continued price drops of computer chips indicate that we are entering a cycle where capital-intensive businesses are becoming increasingly difficult to maintain. This is because technology is changing so quickly, and new players are constantly coming up with new ways to do things better and cheaper.

It is not just computer chips that are showing this trend; it is also happening in other industries, like cars and airplanes, which are seeing similar price drops as they become more automated.

The falling price of the computer chip means that companies in which “capital intensive” processes are important will see their profits decline. That’s bad news for investors.

Why Is the Price Falling and What It Means?

  • The cost of producing chips has dropped steadily, so manufacturers are able to lower their prices without taking a hit on their profits. This means that consumers have more money in their pockets, which they can put toward other purchases. It also means that companies who need to buy new computers are facing lower prices than they would have otherwise.
  • There is more competition in the industry, which means manufacturers are more competitive with each other. In addition, there is more innovation happening in design and production techniques.
  • Lastly, the advancement of technology.

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Written by the digital marketing team at Creative Programs & Systems: