Although we are used to new generations of electronics costing roughly the same as the previous generation, the electronics segment is not immune to inflation. With recent announcements of semiconductor price increases starting in 2023, consumers should act quickly to lock in lower prices during back-to-school and holidays.
It started in June with Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest semiconductor foundry, announcing price increases from 2023 and now the dominoes are falling.
TSMC’s announcement was followed by a similar announcement from Intel and reports from DigiTimes that Marvell and Qualcomm have informed their customers that they will raise chip prices. It now appears that most, if not all, semiconductor companies are following with their own price increases.
Higher prices passed on to consumers
As a key part of nearly everything we use in our daily lives, from electric toothbrushes and toasters to smartphones and cars, semiconductor price increases will lead to similar increases throughout the value chain and ultimately these increases will be passed on to consumers.
Even service fees charged by communications, internet and entertainment companies are likely to increase as they pass on the increased prices of their new equipment.
These price announcements are not surprising.
The semiconductor industry has been grappling with capacity and supply chain constraints throughout the surge in demand during Covid. Previously, foundries pushed their semiconductor customers to invest more in future capacity or faced the consequence of lost manufacturing priority and/or price escalation.
But, with continued limitations and rising raw material prices, foundries and integrated device manufacturers (IDMs) like Intel, Microchip and Micron are all facing the same problem: rising costs.
No quick fix
As Tirias Research has already indicated, there is no simple solution to solve semiconductor supply problems. Most of the new manufacturing capacity will be built to support new manufacturing process nodes where the higher cost can be recouped through higher profit margins.
This leaves constraints on older process nodes until demand decreases as new products are introduced on advanced process nodes and additional capacity becomes available for older nodes.
With automotive, industrial, medical, and even some consumer applications using the same chips for five, 10, or even more years, it will be years before manufacturing demands stabilize on older process nodes and capacity. of existing manufacture.
Moreover, it takes at least two years to build and start ramping up a new semiconductor factory, even on an existing manufacturing site. While some of the foundries have committed to building new plants, much of that commitment has relied on assisted funding from the US and EU governments, which has been very slow in coming.
As of this writing, the United States has funded the CHIPS and FABS Acts, but it remains unclear how these funds will be allocated and when the funds will be available to semiconductor manufacturers.
More inflationary pressures
These problems are bad enough, but when combined with continued shutdowns in China, limited exploitation of raw materials, bottlenecks in shipping and labor shortages, the he semiconductor industry, like all other industries, will succumb to the pressures of inflation.
The only real solution to the problem is a reset in demand, which results in an overall market correction, i.e. a recession. As the economy heads into a recession, it will take time, possibly a few years, to reduce the rate of inflation and bring disposable income and the prices of everything from raw materials to consumer goods back into balance. consumption.
So when it comes to electronics, the best plan for consumers is to price what they need for back-to-school and holidays, because higher prices will be the norm in 2023.
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