While we have been accustomed to new generations of devices costing roughly the same as the preceding generation, the electronics industry is not immune to inflation. Consumers should act swiftly to lock in cheaper pricing during the back-to-school and Christmas seasons, given recent reports of chip price hikes beginning in 2023.
The report came in June when Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest semiconductor foundry, announced price rises in 2023.
Following TSMC’s statement, Intel made a similar announcement, and DigiTimes reported that Marvell and Qualcomm alerted their customers that chip costs would increase. Most, if not all, semiconductor makers appear to be following suit with price hikes.
As a major component in almost everything we use in our everyday lives, from electric toothbrushes and toasters to smartphones and automobiles, rises in semiconductor prices will induce equivalent increases across the value chain, and those increases will eventually be passed on to consumers.
Even service costs offered by communications, internet, and entertainment firms are projected to rise as the cost of new equipment rises.
Throughout the Covid-19 demand surge, the semiconductor industry has struggled with capacity and supply chain restrictions. Previously, foundries pressured their semiconductor clients to spend more on future capacity or face losing production priority and higher pricing.
However, with persistent raw material limits and growing prices, foundries and integrated device makers (IDMs) like Intel, Microchip, and Micron are all confronting the same dilemma – increased costs.
As Tirias Research has already said, there is no simple answer to the semiconductor supply concerns. The majority of the additional fab capacity will be created to accommodate newer manufacturing process nodes, where larger profit margins may offset greater costs.
This limits older process nodes until demand decreases due to the introduction of newer goods on advanced process nodes and the availability of extra capacity for the older nodes.
With automotive, industrial, medical, and even some consumer applications utilizing the same chips for five, ten, or even fifteen years, it will take years for production needs to level out across older process nodes and current manufacturing capacity.
Furthermore, it takes at least two years to establish and ramp up a new semiconductor fab, even on an existing production site. While several foundries have committed to developing additional fabs, most of that commitment was contingent on government assistance from the US and EU, which has been sluggish to arrive.
The United States has financed the CHIPS and FABS Acts as of this writing, although it is unknown how those monies will be divided or when they will be accessible to semiconductor makers.
These challenges are problematic enough on their own, but when combined with ongoing shutdowns in China, restricted mining for raw materials, transportation delays, and labor shortages, the semiconductor sector, like all other industries, will succumb to inflationary pressures.
The only genuine solution to the problem is a demand reset, which translates to a market correction, sometimes known as a recession. While the economy is in recession, it will take time, probably years, to lower the pace of inflation and restore balance to disposable income and prices for everything from raw materials to consumer items.
As a result, when it comes to technology, customers should lock in costs for what they need during the back-to-school and Christmas seasons, as greater prices will be the norm in 2023.
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