The pandemic sparked a global semiconductor shortage which, among other things, has driven up the price of smart TVs and put potential pressure on platform companies like Roku.
Roku has evolved into primarily a platform business—during the second quarter, the Roku platform generated more than 80% of the company’s total revenues. However, the company still relies on connected devices running its platform to help grow its active user base and generate advertising, distribution and other revenues.
In the first half of the year, the chip shortage has caused the price of larger TV models to rise 30%, according to NPD, and Samsung, a giant in the smart TV space, has warned it may not be able to keep up with demand. Roku’s player revenues stayed mostly flat while margins shrunk to -6% year over year and in a letter to shareholders, the company warned the problems could persist in the near term.
“Within the player segment, we expect global supply chain constraints and component cost increases to worsen in the second half of 2021, leading to increasing negative player gross margin,” the company wrote. “We believe these industry supply chain constraints and cost increases for streaming players and TV OEM partners will continue into 2022.”
Roku CFO Steve Louden said that his company’s player margins may continue to go down in the second half of 2021 as TV OEMs push cost increases into price increases that will “test the elasticity of demand.”
But during this week’s earnings call, Roku CEO Anthony Wood painted a more optimistic picture of his company’s chances at withstanding silicon scarcity. He described the Roku platform as purpose-built for smart TVs—he chased that comment with a shot at Google, which he said “took their phone operating system Android and poured it into TV.” He said one of the advantages this design strategy provides for Roku and its partners is a lowering the cost of building TVs.
“We’ve put a lot of effort into making our software platform run with less memory and smaller chips than our competitors. Right now, for example, although the entire industry is suffering from supply chain issues and the shortage of chips and the related increases in pricing, it’s impacting us less than others because we use less memory than all our competitors’ products,” he said.