Recently, major chip manufacturers such as Taiwan Semiconductor Manufacturing Company, Samsung Electronics and Intel, decided to increase the prices of semiconductors. The move to hike the prices is part of an industry-wide effort to meet the increasing prices of raw material, and operating expenses. According to Samsung Electronics, the prices of semiconductors could increase by up to 20%.
Why Are the Prices Increasing?
According to GlobalData, the market value of semiconductors increased to $501.3 billion in 2021 from $407.9 billion in 2017 due to a higher demand for semiconductor-intensive products such as personal computers, electric vehicles (EVs), smartphones, and other consumer electronics. For instance, the market value of EVs increased to $219.25 billion in 2021 from $103.7 billion in 2017, recording an absolute growth of 111%.
While the demand for semiconductors is increasing, the supply remained constrained. High inflation, the Russia-Ukraine war, and China’s COVID-19-related lockdowns resulted in the shutdown of manufacturing facilities, affecting the global supply chain. The chip shortage, along with the demand-supply mismatch, is prompting semiconductor companies to raise the prices to fund their expansion to meet the growing demand.
Effect on Critical Industries
The supply-demand mismatch and increase in chip prices will make most electronic products expensive. These chips are widely used in “critical industries” such as automotive, medical devices, and broadband. The shortage of chips due to supply chain disruptions hampered the automobile industry. The EV segment is the most affected as semiconductors are one of the major components in this industry and are widely used in the automobile sector. Despite strong demand, many original equipment manufacturers (OEMs) slowed or delayed their production.
Industry Outlook
Since the semiconductor industry relies on a few major companies for raw materials, localization of supply chains could reduce risks and eliminate bottlenecks. The best alternative seems to be an effort to address risks in the semiconductor supply chain, particularly those linked to geopolitics. The long-term market developments such as the shift to EVs, increasing industrial automation, and the wide use of smart gadgets is likely to keep factories busy and prolong the chip scarcity.
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