Why Are Computer Parts So Expensive? (Top 10 Reasons)

 

CPUs, GPUs, motherboards, memory… even in the best of times, computer parts like these are not cheap.

Computer components are highly technical and require sophisticated processes for their manufacture and development.

Taking this into account, computer parts today cost more than ever, leading you to wonder one thing: Why is that?

 

Why Are Computer Parts So Expensive? (Top 10 Reasons)

 

Computer parts are so expensive today due to a mixture of supply chain problems, increased demand, lack of availability, governmental issues, and changes in the social landscape.

 

1. The Pandemic

 

In March of 2020, millions of people across the globe entered lockdown to reduce the spread of the COVID-19 pandemic.

While this measure was thought to be a temporary two weeks to reduce the curve, it turned into months of lockdowns, the effects of which are still reverberating through the world today.

The lockdown changed the social landscape, forcing people stuck at home to find new ways to communicate with the outside world.

This new way of communication was through the increased use of technology.

Users turned to tech to shop, work, go to school, and connect.

This increased reliance on technology required more compatible devices, which required more computer components, which required more production of the computer components.

Production of computer components could not keep up with the increased demand due to the very lockdowns which caused the increased demand in the first place.

Production facilities were either shut down completely or ran with highly reduced staff, severely limiting production.

Limited production plus higher demand equals more expensive parts.

 

2. Demand

 

With the global pandemic raging, demand for computers and laptops soared.

The purchase of PCs increased 14.8% from 2020 to the end of 2021, the largest increase since 2012.

Pre-pandemic, users trended towards the purchase of new mobile devices rather than investing in laptops and PCs, leading to a general decline in sales over the last decade.

With the lockdowns caused by the pandemic, this trend shifted completely with the demand for PCs and laptops skyrocketing.

Students were forced to home school and workers were required to remote work.

This meant that each user in the household needed their own device.

This massive increase in demand was quickly felt by the computer industry, and the industry responded by increasing the price of computers and computer components to reflect the increase in demand coupled with the decrease in availability.

Scarcity plus high demand equals more expensive parts.

 

3. Mining

 

Data mining and cryptocurrency mining continues to rise.

Data mining is the process of collecting, analyzing, and utilizing large datasets to influence business decisions.

Every bit of information that flows over the internet travels through a data center.

As more people began to rely on the internet for work and school, the demand for data centers increased.

The more data that is stored in data centers, the more data that is available for data mining, which means that there is more data to be analyzed for insight to increase revenue.

This increase in demand for data mining and, therefore, data centers has led to an increase in the demand for the servers which process and store this abundance of data.

These servers use the same types of computer components as other devices, just on a much larger scale.

Once again, computer parts prices are a victim of supply and demand.

Crypto mining is the process of using computers to solve complex mathematical computations to validate transactions in the blockchain process.

The validating of these transactions is referred to as mining, in part because the computer that completes the validation is rewarded with small bits of the crypto mined, just like a gold miner would be rewarded with small flecks of gold for their mining efforts.

The most famous crypto to mine is Bitcoin.

As the pandemic began, the value of Bitcoin skyrocketed from around $6,000 in March of 2020 to a maximum of $60,000 in November of 2021.

This massive increase in the price of Bitcoin led to a significant spike in the number of people who were attempting to mine the cryptocurrency.

Mining crypto, however, comes at a very high computational price.

The most efficient way to mine cryptocurrencies such as Bitcoin is to use GPUs.

High-quality GPUs can handle the processing strain placed on them by mining crypto.

Increased demand for GPUs by crypto miners plus decreased supply equals increased GPU prices.

 

4. Chip Shortage

 

The chip shortage refers to the lack of semiconductors as a result of the Pandemic.

When the lockdowns caused by the pandemic began, production of chips severely decreased with some semiconductor factories closing entirely while others ran on with very limited staffing, massively decreasing the production of the much-needed semiconductors.

Semiconductors, sometimes referred to as integrated circuits or microchips, are composed of pure elements which are doped to create impurities.

These impurities produce a major change in the conductivity of the base element, allowing a charge to either travel through, or turn on, or not to travel through, or turn off.

This on/off process is the base process that computers use to communicate.

Without semiconductors, the computation process stops completely.

Almost every electrical device produced today contains some type of semiconductor, from an electric toothbrush to an electric car.

A decrease in the number of semiconductors produced and available plus an increase in demand equals an increase in the price of products that contain semiconductors.

 

5. Labor Shortage

 

As the world was attempting to open back up after the lockdowns, a new factor appeared to throw a wrench in computer component prices.

As factories began to encourage employees to come back to work, a shift in the social environment was becoming evident.

Some employees had become used to the freedom pandemic had given them, some employees were afraid of the continued threat of COVID infection, and some employees were able to find new careers in other sectors.

Regardless of the reason, employers began to find it difficult to fill the positions needed to produce the raw materials used in computer components such as aluminum, copper, PVC, plastics, and resins.

On top of the shortage of workers, employees who did come back were enticed by increased wages and perks.

To make up for the increase in wages, the prices of the products they made were increased, eventually being passed all the way up to the consumer.

 

6. Supply Chain Crisis

 

The supply chain is the interconnected process a product must go through to reach consumers.

For example, a semiconductor begins as raw material in one country.

The raw material is shipped to another country to be turned into a useable chip.

This chip is then transported to another country to be placed into a product such as a motherboard.

The motherboard is, in its turn, shipped to yet another country to be placed into a laptop.

Once in the laptop, it is sent to distribution points to be sold to the consumer.

If any step in this chain is broken or delayed, it causes the entire chain to fall apart.

The pandemic caused massive supply chain issues.

Countries were placed on lockdown, effectively halting the production and transport of products from one country to another.

When lockdowns began to lift and production and transport began again, new problems were faced with log jams of shipping barges in ports with reduced functionality.

Loaded barges could wait for weeks just outside of ports to be cleared for entry and unloading.

All these breaks in the supply chain led to a significant decrease in the availability of computer components, which, when added to a significant increase in the demand, resulted in an increase in the price of computer parts.

 

7. Increased Freight Cost

 

Most of the computer parts available in the United States are manufactured in another country in some way, shape, or form.

Parts are transported across the ocean via container freight.

In 2019, container freight rates were stable at approximately $1,300.

By August 2021, the container freight rate topped out at an incredible $10,323.

While the rate did drop a bit after August, it remains exceptionally high at more than $9,000 as of January 2022.

This massive increase in the cost of shipment of computer parts to the US is evident in the increase in the price of computer components.

Container freight is not the only shipping lane to be affected by price increases.

Before the pandemic, many commercial flights also transported manufactured products.

As flights were grounded and travel was shut down and discouraged, the number of planes available for air freight was significantly reduced, increasing the cost of air freight.

 

8. TSMC Price Hike

 

Taiwan Semiconductor Manufacturing Company, or TSMC, is a major producer of semiconductors and provides parts for computer manufacturers like Nvidia, Apple, AMD, and Intel.

In August of 2021, TSMC announced its intention to increase prices by anywhere between 10 and 20 percent in the near future.

This significant increase in price is attributed to the significant increase in demand as well as lingering results of the pandemic including shutdowns, shelter-in-place mandates, and water shortages.

This increase in price spells bad news for the price of computer components.

The more semiconductors a device requires, the more the price will be affected.

For example, products that require relatively few semiconductors, such as vehicles, will not feel this price increase much.

However, products such as CPUs and GPUs will definitely feel the increase in semiconductor prices.

This increase will be passed along to the consumer in the form of higher component part prices.

 

9. Available Parts Going To Computer Companies First

 

As you have most likely discovered by now, there is a significant lack of computer components affecting the cost of parts for consumers.

One thing that may not be as obvious is the notion that available components are typically offered to and purchased by the major tech-producing companies before they are made available to the average consumer.

Large corporations are able to place orders in bulk for the parts they need, leaving smaller entities farther down on the receiving list of available parts.

For the consumer, this means that not as many parts are available and the parts that are will cost more due to their scarcity.

 

10. Scalping

 

Scalping is the process of reselling a product at a higher price to make a profit.

Scalpers have taken advantage of and anticipated all the factors leading to increased computer part prices due to the pandemic.

Armed with this knowledge, scalpers bought and continue to buy highly sought-after computer parts in order to sell them through a third party, such as eBay, for a significant profit.

Some less ethical distributors have also taken advantage of the shortage to increase profit.

These shady distributors have intentionally held back reserves of a product and have rationed the products out slowly at a much steeper price to increase the profitability of the desired part.

Unfortunately, consumers will pay the exorbitant prices demanded by scalpers, further increasing the price of computer parts.

 

When Will Computer Part Prices Decrease?

 

Unfortunately, the projection for the relief of excessively expensive computer parts is not expected until 2023.

This prediction is based mainly on the semiconductor supply returning to a state of normality by that time.

By 2023, it is expected that order backlogs will be filled, and the demand for semiconductors will be close to the output supplied by the semiconductor manufacturers.

Another factor that may affect the price of computer parts in a positive way would be the occurrence of a crypto bear market.

A bear market occurs when there is a steady negative trend in crypto prices resulting in the total value of the crypto market declining.

If this occurs, the demand for mining components such as GPUs will decrease, reducing the demand and increasing the supply of these components.

Reduced demand and increased supply equal lower prices.

The third possibility for the future of computer prices is for the current state of prices to become the new normal.

As more and more consumers are turning to technology for daily activities, computer parts manufacturers are enjoying a significant profit increase.

Products from suppliers such as Nvidia and AMD are in such high demand that anything they release becomes highly sought-after.

With this continued market demand, there is no significant reason for producers to reduce prices when the consumer will pay the higher price.

Additionally, entry into the market of computer components for startup companies is extremely difficult, resulting in very little competition in the market.

A lack of competition means that the main providers are able to set their own prices without threat from other producers.

 

How To Save Money On Computer Parts

 

With the price of computer parts soaring, finding ways to save money on expensive parts can be simpler than you think.

 

1. Think Smaller

While it is easy to fall victim to the fancy jargon thrown around in the computing world, chances are you don’t need the biggest and best parts for daily use.

For example, while an Intel Core i9-12900K clocking in at 192 FPS sounds tempting, it will cost you around $599.

Meanwhile, the Intel Core i5-12400 will only set you back $199 and clocks in at 161 FPS, a highly respectable rate and well suited for most users.

Similarly, in the GPU market, the GeForce RTX 3090 is a beast of a machine with a massive 10,496 GPU cores and a core clock speed of 1.40 GHz.

This GPU will set you back around $2,700.

The more modestly priced GeForce RTX 2060, however, only costs around $599.

While the RTX 2060 has a fraction of the power of the 3090, it still ranked 51st out of 673 tested GPUs.

 

2. Evaluate The Problem

While it may seem tempting to upgrade your entire system when you are facing computer challenges, it is beneficial to evaluate the problem before you rush into an expensive purchase.

For example, if you are suffering from poor image quality on your screen, your first thought may be to upgrade your GPU.

Your GPU, however, may not be the problem.

It could be that the monitor you are using is unable to keep up with the GPU, resulting in poor image quality.

Another example may be that your computer is lagging when connected to the internet.

The issue may not be with the computer, but with a slow internet connection coming from your ISP.

 

3. Forgo Aesthetics

Computer parts, like other products, attempt to boost sales based on aesthetics.

Some parts, especially GPUs, use attractive aesthetics to lure a consumer in.

Cool lights and sleek casings will not increase the performance of the product.

Instead, look for products that offer the most power that fits your needs but may not be as flashy as more expensive versions.

 

4. Shop Around­

While it may be tempting to purchase the first compatible part you find, it pays to shop around.

Look into multiple options that fit your needs and compare price points between products and retailers.

Also, keep large sales discount periods in mind, such as Black Friday or Cyber Monday.

Computer parts are like any other product and do go on sale occasionally during these periods.

Another thing to keep your eye on are rebates.

Parts manufacturers often offer mail-in-rebates with their products.

You just have to take the time to fill them in and submit them.

 

Where Are The Best Places To Buy Computer Parts?

 

When it comes to purchasing computer parts, you should start with the manufacturer of the part you want to buy.

Buying directly from the manufacturer offers numerous advantages such as lower cost.

The manufacturer can offer their products at a lower cost.

Third-party retailers must purchase the product from the manufacturer, ship the product to their stores, and then increase the price to cover these additional costs to make a profit.

Manufacturers do not have this additional overhead since they sell directly to the consumer.

Buying directly from the manufacturer also ensures that warranties are valid and that, when you do have an issue with a product, you can go directly to the manufacturer rather than having to go through a third party to reach a resolution.

Many computer component manufacturers, such as Nvidia, AMD, Intel, Logitech, and Seagate, offer direct sales.

When purchasing from third-party retailers, it is wise to purchase parts through companies dedicated to computer technology.

These types of companies are well versed in the products they offer and are more adept at fielding questions about their products compared to big box stores that sell a bit of everything.

Dedicated computer stores are also more likely to carry a larger variety of products to fit specific needs.

Popular third-party retailers include Best Buy, Newegg, PC Connection, and MicroCenter.com.

 

References:

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Gwennap, Linley. “TSMC’s Price Hike Is A Big Deal For Servers, But Not So Much For Car Buyers.” Forbes, https://www.forbes.com/sites/linleygwennap/2021/08/30/tsmc-chip-price-hike-a-big-deal-for-some-customers/. Accessed 27 Feb. 2022.

Magableh, Ghazi M. “Supply Chains and the COVID‐19 Pandemic: A Comprehensive Framework.” European Management Review, Feb. 2021, p. 10.1111/emre.12449. PubMed Central, https://doi.org/10.1111/emre.12449.

MSN. https://www.msn.com/en-us/money/companies/the-pandemic-pc-boom-gave-personal-computers-their-biggest-year-in-nearly-a-decade/ar-AASIbmC. Accessed 26 Feb. 2022.

“The COVID-19 Crisis and the Data Center Industry.” Data Center Frontier, 21 Apr. 2020, https://datacenterfrontier.com/the-covid-19-crisis-and-the-data-center-industry/.

Witkowski, Wallace. “PC Sales Growth Slows as Supply-Chain Issues Persist.” MarketWatch, https://www.marketwatch.com/story/pc-sales-growth-slows-as-supply-chain-issues-persist-11633987046. Accessed 27 Feb. 2022.