Electronic Component Price Hikes
The rising costs of materials, energy, shipping, and labor are increasing the price of semiconductors and heightening the pressures on the semiconductor industry.
Recently, Taiwan Semiconductor Manufacturing Company (TSMC), United Microelectronics Corp. (UMC), and Samsung have notified their customers of upcoming price hikes due to inflation concerns, high interest rates and rising cost of raw material and power.
Joining in have been, Qualcomm, Broadcom, Texas Instruments (TI), Marvell and Intel all announcing upcoming price increases to their customers due to growing concerns over economic volatility and rising costs of commodities.
Intel's comes amid an inflation surge in the U.S. and around the world. The U.S. reported consumer prices rose 9.1% in June, a 40-year record. Intel says the price hikes are required because of the surging costs for production and materials in some cases maybe as high as 20%.
Japanese chemicals supplier Showa Denko K.K. told Bloomberg News in an interview that it will cut back unprofitable product lines and raise prices due to the various economic challenges the semiconductor industry has been facing such as, the surging energy costs from the war in Ukraine and the yen’s dramatic weakening. The situation is unlikely to significantly improve until at least 2023, he added.
Raw material supply was a concern to semiconductor manufacturers prior to the Russian invasion of Ukraine. The situation intensified after the war began due to industry dependencies on critical raw material from Russia and Ukraine.
70% of the world’s semiconductor-grade neon gas, a chemical used in lasers for chipmaking, is supplied by Ukraine. Ukraine also supplies about 40% of the world’s krypton gas used in KrF lasers also used in semiconductor manufacturing. Additionally, Russia is the source of 35% of the palladium used in the U.S., which is used in the making of sensors and memory semiconductors.
Last month, Toyota warned that rising raw materials costs could cut profits by as much as 20% leading to higher costs of cars beyond just semiconductor pricing. This includes metal costs for batteries used in electric vehicles that are largely being inflated in pricing due to the rising costs of lithium, cobalt, and nickel.
The cost of metals has the potential to undermine efforts to transition the automotive market from gasoline- and diesel-powered vehicles to electrified models, said Alice Yu, senior analyst at S&P Global, a market research firm.
In their second quarter forecast IC Insights lowers the prediction in total sales volume in optoelectronics, sensors and actuators, and discrete semiconductors, which account for about 17% of total semiconductor revenue worldwide.
However, they state that the weakness in optoelectronics sales will be offset by stronger sales in discrete semiconductors. This increase is predicted to be primarily due to price increases and tight supplies in power transistors and diodes.
Price hikes are not new to the industry, last year TSMC and several other manufactures announced price hikes and now they are announcing hikes for 2023. What is different is the rate of price increase due to increased cost of business, inflation, increased cost of energy, supplies and labor, as well as the timing of the price increases adding volatility to the electronic supply chain management process.
Market shortages in the past couple of years has shed light into the complexities and vulnerabilities of the electronic supply chain making the semiconductor and electronic supply chain management and procurement process extremely difficult.
Ongoing COVID-19 shutdowns in China, weather disruptions, geo-political unrest, global warming, rising cost of raw material, the global economy all continue to contribute to unpredictability in semiconductor industry.
Since market volatility has become the new normal, supply chain and procurement agility is a must. Agile procurement entails decision-making that is both strategic as well as operational. To become truly agile businesses, need to build agility into their supply chain and procurement process for operation and business continuity and success.
To build agility into your operation you need to look for and anticipates uncertainty, rather than just managing the current environment.
- Having visibility into your supply chain, understand your supply chain risks and potential disruption factors.
- Having access to data and real-time alerts on supplier stock changes, product changes and product obsolescence.
- Having access to market data, availability, and pricing.
- Receiving data and alerts on events that may impact your supply chain or your suppliers’ operations. Such as, regional disasters, changes in international trade policy, and raw materials shortages are issues that could also affect a supplier’s ability to fulfill their obligations.
- Having alternative supplier and sourcing options.
- Having alternative component sourcing options.
- Understanding your supplier’s business history and identify their risk factors. Such as delayed shipment incidents, their financial health, business merges, geographical location and sub-tier supplier relationships and dependencies.
Building an agile supply chain and procurement process will help keep your operations more flexible and responsive in this ever-changing marketplace.
Using a supply chain risk management (SCRM) tool can help enhance your end-to-end supply chain visibility so you can quickly pivot and make intelligent purchasing and sourcing decisions.