Expected Inflation in the Global Electronics Market

Demand should be reset for an overall recession aiming to reduce the inflation rate and raise disposable income and the prices of everything. Therefore, consumers must lock in prices in electronics, as higher prices will become the norm.

FREMONT, CA: As businesses are accustomed to new generations of electronics costing about the same as the previous generation, the electronics segment is not immune to inflation. With recent semiconductor announcements that price increases will commence in the coming year, consumers should move quickly to lock in lower prices.

This started with a company announcing price increases starting in 2023, and now the dominoes are falling. This announcement was followed by a similar statement by another company, which reported notifying their customers that they would be increasing chip prices. Most semiconductor companies follow suit with their own price increases.

Price Hikes Passed to Consumers

As a primary component of everything in daily life, from electric toothbrushes and toasters to smartphones and cars, the semiconductor price rise will force similar growth throughout the value chain, and those increases will be transitioned to consumers. Even the service fees charged by communications, internet, and entertainment companies will expand as they pass on the growing prices of new equipment.

The semiconductor industry has struggled with capacity and supply chain limitations throughout the demand upswing during the pandemic. Earlier, the foundries pushed for more investment by their semiconductor customers into future capacity or faced the consequence of losing manufacturing priority or higher prices.

With continued limitations and increasing raw material prices, the foundries and integrated device manufacturers (IDMs) face the same challenge of rising costs. There is no easy solution to solving the semiconductor supply challenges. Most of the new fab capacity will support newer manufacturing process nodes where the higher costs can be recovered through higher profit margins.

This leaves constraints on older process nodes until demand reduces as new products are introduced on advanced process nodes, and additional capacity for the older nodes becomes available. With automotive, industrial, medical, and even some consumer applications using the same chip for years, it will take a long time before the manufacturing demands level out across the older process nodes and existing manufacturing capacity.

In addition, it takes at least two years to develop and ramp up a new semiconductor fab, even on an existing manufacturing site. Even though several foundries have committed to building new fabs, a large portion of that promise was dependent on government assistance, which has been very slow to materialise.

These issues, when combined with continued shutdowns, limited mining for raw materials, bottlenecks in shipping, and labour shortages, will cause the semiconductor industry to succumb to inflationary pressures. The only real solution is a rest in demand, translating to an overall correction of the market or recession. As the economy moves towards recession, it will take time to reduce the inflation rate and bring disposable income and the prices from raw materials to consumer goods back into equilibrium. As a result, the optimal plan for consumers in electronics is to lock in prices now, as higher prices will be the norm in 2023.