Editor’s note: This story has been updated.
More tech companies mentioned “pricing” during their Q1 earnings calls than any other sector, including consumer goods, according to research firm GlobalData. Electronic component prices are on the rise, with one chipmaker increasing prices between 5 percent and 40 percent in the past quarter.
Discussions about pricing grew by more than 65 percent compared with the same quarter last year, the research firm found. Compared with Q4 2021, pricing discussions rose by 19 percent.
That shouldn’t come as any surprise. Chip prices have increased as they have remained scarce. The cost of moving chips around the world – whether by air, land or sea – has also spiked. For the most part, U.S. manufacturing companies have been able to pass those increases on to customers, according to the Institute for Supply Management. But sectors differ, and high-tech often tries to absorb logistics costs as part of their service offerings.
“The rise in costs and lead-times for the supply of electronic components and devices is due in part to another Covid outbreak taking place in China on top of all the prior supply chain disruptions,” said Ara Surenian, VP of product management and engineering at Plex, a provider of smart manufacturing solutions. “The outbreak is closing certain manufacturers in various cities across China, including some of those responsible for producing microchips, electronic devices and other complex components that power our TVs, phones, computers, refrigerators and anything else with an on/off switch.”
In Q2, STMicroelectronics announced a 15 percent price increase affecting all product lines from April onward, due to surmounting raw material, energy and logistic costs, according to distributor Fusion Worldwide’s monthly Greensheet report.
In May, an additional price increase of 25 percent to 30 percent will apply to STMicro’s discontinued STM8 (8-bit) MCU series. The series will be dropped by Q3 and will lead to customers to the alternative STM32 (32-bit) series. However, the STM32 has been impacted by delivery delays and will require customers to redesign their boards to accommodate the part. For all series, deliveries are delayed to Q4 2022 or Q1 2023, Fusion reports.
Microchip has implemented a wide range of price increases between 5 percent to 40 percent across the board, with an average increase of 10 percent. Lead times are currently up to 50 weeks and any new orders are required to be no cancel, no return (NCNR) with a one-year delivery window, Fusion added. There have been numerous instances where participation in Microchip’s Preferred Supplier Program has not guaranteed full allocation, with shortfalls as high as 50 percent reported, according to the distributor, suggesting gaps in supply are much higher for non-participants.
However, there was an apparent price drop on Intel server CPUs when the Chinese government mandated lockdowns at Shenzhen factories in March due to Covid-19, Fusion added. This is likely due to vendors actively reducing inventory of existing Intel Cascade Lake and Cascade Lake Refresh supply.
In January, passives component manufacturer Omron raised prices of system control products by 15 percent and the prices of inverters, safety products, application sensor products, electrical components, industrial relays and industrial switches by 10 percent.
Activity in Q4
The fourth quarter of 2021 saw its share of price hikes. Chip makers Silicon Labs and Renesas notified customers of price increases. TE Connectivity, a supplier of interconnect, passive and electromechanical (IP&E) devices, announced price hikes of between 5 and 10 percent. Interconnect manufacturer Molex raised prices by 7 percent and semiconductor maker Xilinx between 10 percent and 20 percent.
Across the board, component makers cited supply chain volatility as the main reason for the price hikes. Many tried to avoid raising prices by increasing efficiency, but most are investing to increase capacity. Silicon Labs noted unprecedented cost increases throughout its supply chain — raw materials, foundries test and assembly, logistics and labor.
The same pressures are extending lead times at unprecedented levels. Chip supplier Infineon’s lead times increased from an average of 48 weeks to 60 weeks. IP&E vendor Vishay Intertechnology’s lead times extend beyond one year, Fusion reported.
Operations at two Vishay factories in Shanghai, China have been impacted by mandated lockdowns and workforce restrictions due to Covid-19. One of the factories manufactures MOSFETs while the other makes diodes.
The quarantine restrictions at Vishay distribution and sorting factories affect both MOSFET and diode production, preventing customers from receiving orders. This is expected to create supply gaps well through April. Automotive MOSFET lead times are at 75 weeks; thin-film resistors at 50 weeks to 80 weeks; and shunt resistors at 80 weeks, Fusion reported.
On Semiconductor (Onsemi) lead times continue to surpass 50 weeks with no sign of improvement as production capacity is at its max for 2022, Fusion reported. Allocation levels also remain tight as priority is currently given to customers in the U.S. and EMEA. As prices for raw materials continue to increase, prices are also expected to rise in Q2.
Organizations need to recalibrate their plans and stock up on the components they need in a timely fashion that allows for unexpected shortages or delays in component production and delivery, Surenian notes. “In reality, this is incredibly difficult to do when company leaders don’t have access to an enterprise-wide, traceable digital supply chain thread that connects their demand plan with supply to understand the impact when prices and lead-times will skyrocket.”
Adding to delays, Onsemi’s “ship and debit” initiative to protect customers is requiring customers to seek allocation approval amongst thousands of other claims. When distribution inventory is sold at a discount, the difference is debited to a supplier. The labor-intensive process creates more challenges.
Overall, semiconductor commitments from large customers stretch out past 52 weeks, according to researcher LevaData. Given that dynamic, there is less incentive to lower lead times. Given the recent events in Ukraine and the potential impact on the global supply of raw materials used in semiconductor production coming from either Russia or Ukraine, such as neon gas, hexaflurocyclobutene, and palladium, LevaData expects further pressure on lead time trends remaining at the current elevated levels for some time.
Data collection across supply networks helps companies plan ahead. “This contextual data, which creates a digital thread of information from the shop floor to the top floor and across the supply chain, helps companies predict supply chain disruptions, monitor gradual price increases and lead-time for delivery of products,” said Surenian. These insights can be folded into their ever-changing business plans. “This is especially critical for manufacturers of electronic devices, as those components are primarily produced in China and southeast Asia, which is one of the global hotspots for Covid at this time. Otherwise, shortages and delayed deliveries will be unpredictable.”