Chip supplies are loosening up, according to analysts, which in normal times would also ease pricing. But the electronics supply chain is still far from normal.
Prices continue to increase in certain sectors of the semiconductor market. Intel is the latest chip maker to announce a price hike – some estimates are as high as 20 percent. More than a half dozen major chip suppliers have increased prices within the past year.
Microprocessor supplies will remain under pressure for some time, according to industry sources. “There’s such a broad range of component classes that any given class may be in over supply or under supply,” said Paul Romano, COO for global distributor Fusion Worldwide. “The market is still in a significant state of imbalance. There are still supply issues in the automotive, industrial and automation sectors.”
On the other end of the spectrum is memory, which Korean suppliers are discounting to spur sales, according to TrendForce. In addition, low-priced chips from the spot market are circulating. “Other suppliers have no choice but to follow suit and fervently reduce pricing for sales, rapidly exacerbating the 3Q consumer DRAM price drop from the original estimate of 8~13 percent to a quarterly decline of 13-18 percent,” said the research firm.
“In some areas we are seeing supply and demand coming into balance but not enough to change the trajectory of the chip market,” said Romano. Fusion forecasts supplies of certain chip products will be constrained through 2023.
Microprocessor prices have grown, on average, by 11.7 percent in 2022, according to an analysis by Khaveen Investments for SeekingAlpha. Specifically:
Company Reported Price Hike (Average)
Samsung (foundry) 18%
Texas Instruments 10%
Broadcom (AVGO) 7%*
Source: Tom’s Hardware, Bloomberg, WCCF Tech., DigiTimes, Khaveen Investments
Last year, TSMC reportedly raised its foundry quotes between 10 – 20 percent, Khaveen found. Samsung was increasing its foundry quotes between 15 – 20 percent this year, according to Bloomberg. AMD and Nvidia CPUs and GPUs could increase by up to 20 percent with the increasing foundry quotes from TSMC, DigiTimes reported. Texas Instruments reportedly raised its prices 10 percent for certain ICs and Broadcom plans a 6 – 8 percent price hike for network communication chips starting in 2023.
And, while some headwinds have abated, inflation, global supply chain issues, extended lead times, geopolitical uncertainty and elevated logistics and labor costs will remain problematic for the electronics supply chain, according to Supplyframe. Prices are stabilizing across many component categories. In the chip market, analysts expect higher prices will bolster 2H earnings as many suppliers have forecast lower sales. One suggested higher chip prices will help fund dozens of new fabs that are set to be built.
“The electronic component supply chain is improving, but slowly and unevenly,” said Supplyframe CEO and founder Steve Flagg. “The multi-tier electronics supply chain exists within a complicated and volatile environment in which ever-evolving, unforeseen events continue to impact capacity, costs, lead times, and other considerations. Constraints and shortages are not over. And a rebalancing of inventories and component market corrections is in play.”
The overall demand picture remains mixed. Programmable logic devices experienced a 9 percent increase from Q1 to Q2 said Supplyframe, while capacitor and resistor demand shrunk by 12 percent. Overall memory demand dipped 6 percent during the period and will decrease another 2 percent in Q3. Global demand was down 11 percent month-on-month in June versus historical 4 percent increases, with Asia-Pacific and the EMEA region declining by 11 percent and 14 percent, respectively.
In the channel, demand is still outstripping supply, executives told analysts. “We don’t see that changing anytime soon,” said Arrow Electronics Inc. CEO Sean Kerins.
“We still saw many price increases from the suppliers this past quarter and we’re seeing more coming, which is interesting,” said Avnet Inc. CEO Phil Gallagher.
Lead times are decreasing, according to Supplyframe, but remain historically elevated. Its Q3 Commodity Intelligence Quarterly (CIQ) found 52 percent of all electronic component lead time dimensions are expected to decline or stabilize in the third quarter. That’s a significant improvement from the second quarter, when 80 percent of lead times rose.
Lead times of ceramic capacitors improved markedly quarter-on-quarter, and electrolytic capacitor availability is on track to stabilize in the first quarter of 2023. Printed circuit boards lead times are poised to decline by the end of the year. And NAND flash availability is improving, positively impacting the lead times of solid-state drives (SSDs).
The CIQ found less than half of all electronic component pricing dimensions for direct commodities in the Q3 will increase, down from 74 percent in Q2.
Notably, distributors are not seeing a lot of order cancellation or push-out and book-to-bill ratios remain above 1:00. “I see more of a bumpy landing as things come back in balance,” said Romano. “There are going to be issues – we don’t know what else is going to occur.”