The "Core Shortage" in The Global Electronics Industry Has Intensified: Some Chips Have Soared by 5 Times, and The Terminal Market Is Brewing

Liu Minghua is the general manager of an electronics company in Guangdong. In this hot June, he has become utterly devastated in the face of the spread of chip shortages and price increases.

Since the second half of 2020, it has continued to the present. Due to the strong market demand and limited wafer manufacturing capacity, the contradiction of chip supply in short supply has become increasingly prominent, and domestic and foreign chip manufacturers have issued price adjustment notices one after another.

Unexpectedly, the resurgence of the epidemic in Taiwan, China and Southeast Asia has once again made the already turbulent global semiconductor industry chain worse. Small and medium-sized business owners like Liu Minghua have to find a way to survive in the cracks.

Increasing Chip Shortage
"Last year, the chip gap was relatively small, and I didn't expect it to be completely out of stock now. Some of my friends with 20 years of experience said that they have never encountered such a situation." Liu Minghua reports to 21st Century Business Herald Said.
In June, a mass infection broke out in the Zhunan plant of KYEC, the global leader in chip packaging and testing, and was required to shut down operations for 48 hours. The epidemic caused KYEC to reduce its production capacity by 4 to 6% in June, which is equivalent to a monthly reduction of 16,000 wafer needle measurements and 16 million IC product tests worldwide.
The packaging and testing business is one of the most labor-intensive links in the semiconductor industry chain. As the largest IC testing plant in Taiwan, the production slowdown button pressed by KYEC due to the epidemic has an obvious impact on the global semiconductor industry chain.
Data show that Taiwan’s semiconductor production capacity accounts for about 26% of the global semiconductor market. Chaofeng, Zhibang, Jingding, and Power Semiconductor Manufacturing Zhunan Park have successively reported confirmed news, and the epidemic has spread to many semiconductor manufacturers.
In addition, Southeast Asian countries such as Malaysia are also facing epidemic challenges recently. Malaysia occupies 14% of the global packaging and testing market and is also one of the main centers of global packaging and testing. Packaging and testing giants ASE and Tongfu Microelectronics have set up factories in Malaysia. Under the influence of the epidemic, the production capacity of a large number of semiconductor manufacturers has been affected, and the shortage of the chip market has further intensified.
Under the influence of strong market demand and limited production capacity, chip price hikes are continuing to spread.
Since last year, major foundries such as TSMC and UMC have increased their prices several times. There is currently news that as the supply of wafers continues to heat up, the four major foundry giants of TSMC, World Advanced, UMC and Power Semiconductor Manufacturing Co., Ltd. Decided to continue to increase the OEM offer in the third quarter, an increase of up to 30%, far exceeding expectations by 15%. In other words, chip prices will continue.
"Before we were able to get some goods from agents. Due to the impact of the spread of the epidemic, chips are now even more scarce. Small and medium-sized enterprises like us are already very difficult to get the goods." Liu Minghua said.
A head of an electronics company told a reporter from 21st Century Business Herald, “For some chips, the price increase from the original factory is not too outrageous. It’s just that the current market hype is prevailing. It’s normal for some products to be sold at several times the price. It has heated up the market."

Downstream Companies Are Forced to Adjust Product Lines

Data shows that communication equipment, PC/tablet, consumer electronics and automobiles are the top four downstream industries that have the strongest demand for chips. These industries each account for nearly 30%, 30%, 15% and 10% of global chip downstream terminal demand. Chip shortage and rising prices continue to spread, and the impact on these industries is self-evident.
Since the beginning of this year, Liu Minghua, like many small and medium-sized enterprises, has had to deal with the huge challenges brought about by chip shortages and price increases. His company has dozens of employees. Since the beginning of the year, orders have increased significantly, but the company's production capacity has been released at most by only one-third. The operating rate of enterprises is not high, the prices of upstream raw materials have to be increased, and employees have to be paid. The superposition of multiple factors has caused Liu Minghua's pressure to double during this period.
At present, in the face of chip shortages, panic stockpiles are common in the electronics industry. Leading companies have strong financial strength and will be less affected, while SMEs are in a weak position and have to continue to face the market environment where chips continue to rise.
Hong Shibin, a well-known industry observer, told the 21st Century Business Herald that "the rise of upstream raw materials such as chips, coupled with the appreciation of the renminbi, has made many manufacturing companies with low profit margins worse, and some companies have become unwilling to accept orders."
The shortage of chips has also imperceptibly affecting the order-taking mode of small and medium-sized enterprises. "Now, many companies dare not take orders easily. When receiving a customer order, they must first see if there is a corresponding chip, otherwise it will not make sense to accept it. The other is to determine whether the customer accepts the new quotation." Liu Minghua said frankly.
Faced with the pressure, Liu Minghua did not sit still, and he has been actively seeking countermeasures. "Now, we have adjusted the product line and slowly transformed to make some products that do not require chips, and some products that can get chips. We directly rejected other orders. This is also a helpless move. "

The End Market Starts to Increase Prices

With the spread of chip shortages and price increases, the terminal consumer market is also under considerable pressure. The 21st Century Business Herald reporter learned that under pressure, the terminal market of some industries is already brewing price increases.
Hikvision is a giant in the domestic security market. Recently, a price adjustment notification letter from Hikvision has attracted widespread attention. Hikvision mentioned in the notification letter that due to the spread of the global epidemic, the prices of upstream raw materials have risen across the board, causing the production costs of products to continue to rise. Due to cost pressure, the company decided to gradually increase the prices of some products.
Recently, the domestic security chip price surge continues. Security chip leader Fullhan Microelectronics stated that it cannot guarantee 100% supply of orders. Due to the price increase in the supply chain, Fullhan Microelectronics products are also increasing in price, with the same rhythm.
As a leading company in the security field, in the context of high production costs, Hikvision can only choose to increase prices to digest and transfer internal costs in this way.
The person in charge of Lenovo, the world's largest personal computer brand, recently stated that it is expected that the personal computer industry will see a price increase this year. Lenovo CEO Yang Yuanqing also said: "From the current trend, the shortage of supply will inevitably lead to an increase in the price of parts. We have absorbed part of it, but the rest will be achieved through price adjustments. This is a dynamic process. ."
In the past two months, some models of laptops have risen. According to data from the price tracking website Keepa, a laptop for gamers, listed by Amazon as the best-selling product, has risen from $900 to $950 this month.
In addition, HP increased consumer PC prices by 8% and printer prices by more than 20% within a year. The person in charge of HP said that the price increase is due to a shortage of parts, and the company may further adjust prices to reflect the impact of rising costs.
A computer accessories agent introduced to a reporter from 21st Century Business Herald that since this year, the price of computer graphics cards has been rising, especially high-end graphics cards are in short supply. "In addition to the factors of the Bitcoin mining boom, the shortage of chips also makes manufacturers tight, which is directly transmitted to the downstream market."
Analysts said that although some electronic products have increased prices, the impact on consumers is still relatively limited, because retailers can decide whether to make consumers pay higher prices or bear part of the cost of price increases.
For Liu Minghua, his most urgent thing this year is to enable the company to survive. The industry expects that the chip shortage will not be eased until at least 2022. "This year is not optimistic. I can only look forward to next year." Liu Minghua said.