Analyze the reasons for chip price increases in 2021

Chips are shortage everywhere, and the prices of chips are rising.

From the second half of 2020 to the present, announcements issued by various chip companies show that the price increase is roughly 10% to 20%, but some products, such as some brands of embedded memory control chips, have a price increase of 50%.

1.Factors in the price increase of raw materials

We know that the production of chips requires some basic raw materials, such as copper, aluminum, gold and some plastics. The price increase of these basic raw materials gradually stretched the cost of chips. When manufacturing the chip wafer, when it is packaged and produced, it is necessary to connect the solder feet of the wafer to the pins outside the chip body through gold or copper wires, and then encapsulate it with epoxy resin and other plastics. Manufactured into a functionally intact chip.

The rise in the prices of raw materials such as copper and silicon has led to the increase in the cost of chip production, and the rise in bulk futures prices has also led to the market’s panic buying and hoarding of raw materials, aggravating the shortage of raw materials, and thus inhibiting the expansion of chip production capacity.

2.The problem of excessive concentration of chip production exposed in the epidemic

The epidemic may be the apparent reason for the chip shortage and price increase this time.

Take automotive chips as an example. Affected by the epidemic last year, global car companies generally held a conservative attitude towards the sales market of cars this year, which led to a significant reduction in the number of orders for chip foundries by car chip companies. On the other hand, the epidemic also led to the production of chips. Activities could not run normally, and production was suspended. As a result, when the market demand caught up, it was found that the production capacity was insufficient.

However, the epidemic is only a superficial cause, which exposes the problem of excessive global chip production.

Over-concentrated production makes it difficult to diversify risks. Take Malaysia as an example. It is the seventh largest semiconductor export center in the world and a global chip packaging center. There are more than 50 semiconductor companies investing and building factories in Malaysia. The leading-edge lead frame of packaging alone accounts for about 30% of the world’s total. Capacity. Therefore, when Malaysia was once again completely blocked due to the epidemic, it further exacerbated the problem of global chip shortages.

 

3.Hoarding factors

The shortage of chips has become a reality, and the price of chips has naturally risen, and some chips have risen by 5 times. This has led to a phenomenon, that is, “As long as you stock up on chips, you can make money by changing hands.” There will naturally be many unscrupulous businessmen in the market to earn this intermediate benefit. This will further aggravate the shortage of chips and enter a vicious circle mode. As we all know, 2020 is a special year. Huawei’s high-end chips are fully restricted, and Kirin chips will no longer be manufactured after September 15. In theory, a lot of production capacity should be freed up for other technology companies to manufacture. Why is it out of stock? In fact, Huawei’s production restriction by the United States only affects Huawei itself on the surface, but it is also a reason for global chip shortages. Because, in order to fight against restrictions, Huawei stockpiled a lot of goods in advance. As a result, most of the production capacity during this period was rounded up by Huawei, while orders from other manufacturers were more or less delayed. This has caused these companies to lack chips more or less in a short period of time. Take Huawei as an example. In fact, as long as powerful companies are increasing their stockpiles.

In this round of out-of-stock price hikes, some manufacturers took advantage of this “gap” to maliciously drive up the price of speculation chips. On August 3, the State Administration for Market Regulation issued a document “One Check to the End!” The State Administration of Market Supervision conducts investigations on auto chip distributors suspected of driving up prices. In response to prominent problems such as hype and high prices in the automobile chip market, the State Administration of Market Supervision has recently conducted sales of car chips suspected of driving up prices based on price monitoring and reporting clues. Enterprise investigation. In the next step, the State Administration of Market Supervision will continue to pay attention to the market price order of important commodities such as chips, further strengthen supervision and law enforcement, and severely investigate and punish illegal acts such as hoarding, price drive ups, and price collusion.

Previously, according to a report in the Wall Street Journal, Vincent Roach, CEO of ADI, said: “In addition to paying more for the additional supply that must be added, we have not used this cycle to do anything with pricing. We are passing on this. One point.” Broadcom CEO Hock Tan said: “We have seen the increase in the cost of raw materials such as substrates, so we have adjusted prices. Customers expressed that they understand this situation and are willing to bear higher prices.”

The price increase is forced by circumstances, but it is not advisable to maliciously drive up prices.

Chip shortage will affect many industries

The latest research shows that this chip shortage will affect as many as 169 industries around the world to a certain extent, including automobiles, steel products, concrete production, air-conditioning manufacturing, and even soap production.

The shortage of chips has led to an extension of the company’s raw material procurement cycle. According to a report from the National Bureau of Statistics, China’s high-tech manufacturing supplier delivery time index was lower than 44.0% for three consecutive months, while the manufacturing supplier delivery time index was 47.6% in April, a decrease of 1.1 percentage points from the previous month. Below the critical point. This shows that the delivery time of manufacturing raw material suppliers has been further extended, which has affected normal production activities to a certain extent.

Take the microcontroller (MCU) as an example. According to a report by Esson Huamai, the lead time for the microcontroller from order to delivery to the car manufacturer/tier 1 supplier is usually 12 to 16 weeks. But now, due to the shortage of chips, the delivery time has almost doubled, and it will take at least 26 weeks or longer.

The most direct impact of the chip shortage is the shutdown and production cuts of auto companies. Since the beginning of this year, car manufacturing plants around the world have experienced short-term shutdowns. On May 24, Ford announced that its eight North American plants will suspend production in a period of time. Ford CEO Jim Farley said that this is the most serious shock facing the supply chain and will cause Ford to reduce production of 1.1 million vehicles throughout the year. The loss of 2.5 billion US dollars (about 16.1 billion yuan). According to the forecast of AutoForecastSolutions, the global auto market will reduce production by more than 2 million vehicles in 2021 due to a shortage of chips.

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