The price increase is unstoppable!

Price increases are noticeable in every area of the economy and probably everyone already realizes that further increases are inevitable and are just a matter of time. The same is happening in the IT industry. At the end of October 2021, the chip design industry revealed that an increase in production capacity will appear only in 2023. The factory will continue to be profitable, although with limited production capacity.

UMC (United Microelectronics Corporation), a Taiwanese semiconductor company founded in 1980, has announced further price increases for the first quarter of next year. It is estimated that the price increase will be at the level of 10% ~ 15%, and this is a lot, given the current increases.
Of course, it is not only the prices that have become a problem. Delivery times for individual chipsets have also increased significantly, and have reached a record high of 21.7 weeks. At the same time, this is also associated with huge delays in the very devices that are equipped with the aforementioned chipsets.


According to the chip design industry, it has been found that the current global demand for chipsets is huge, and the factories themselves are not able to meet such high demands. Not only the factories in Taiwan that produce components for mobile phones, but also the factories that produce the chipsets themselves are having major problems. And we have to remember that factories in Taiwan produce chipsets for SMIC, Hua Hong, Sharp and Toshiba . What is more! Some companies "ignore" smaller factories and smaller orders in favor of large orders with better gross profit. It is also worth remembering that in September 2021 there has already been a large increase, but it does not end there! Prices will rise again in the first quarter of 2022. It is estimated that the 40-nanometer process will increase by about 10-15%, while the other processes will increase by about 5~10%.

According to recent reports in the Taiwanese media, a meeting of shareholders of MCU Factory Shengqun was held on July 26. Vice President Cai Rongzong announced that the production capacity of the factory next year has already been practically negotiated, and the production capacity will increase slightly compared to this year. As for the orders themselves, 60-70% of production capacity has already been booked within the last month. It is also estimated that market conditions next year will be comparable to this year.
As for the second half of the year, Cai Rongzong said that the fourth quarter of 2022 should be the best quarter compared to previous quarters. Revenue is also expected to reach higher levels quarter after quarter, and the whole of 2022 is expected to rewrite history.

In response to increases at both factories and packaging and testing facilities, Holtek has again raised production prices. From August 2021 Holtek has again increased prices by approximately 10-15% on average. It is also expected that the gross profit margin in the third quarter will be about the same as in the second quarter. However, if production prices continue to rise, they will be reflected to customers accordingly.
As for Hua Hongli's earlier reports about Taiwan reducing its production capacity to satisfy local players, Cai Rongzong admitted that Holtek's revenue in China is at about 80% and therefore local customers have not felt the supply shortage.

Similarly, Realtek, a netcom chipset manufacturer, held a legal meeting on 27 October. Vice President Huang Yiwei pointed out that there is still a shortage of Realtek products on the market, and that the prices of individual components will continue to rise and will continue to rise from the beginning of next year. Huang Yiwei also pointed out the very strong demand for products in the second quarter of 2021 and the simultaneous increase in average selling prices of products. All this has led to a significant increase in revenue.
Sales of PC-related products were particularly prosperous in the second quarter, increasing the proportion of PC revenue from 34% to 36%. As for the supply chain itself, however, whether in factories or packaging and testing facilities, no new capacity will be brought on line. Of course, Realtek continues to say that current inventory levels are still very low, and so far the situation does not look like it will change. Amidst the supply shortage, Realtek has announced further product price increases in an effort to increase profitability.
As for next year, Huang Yiwei confirmed that demand is still greater than supply and prices are expected to continue to rise next year. And further increases are inevitable. Although the end customer will not feel a big increase at once, it will happen gradually. But there's one fact, and it's not very optimistic: THINGS WILL SURELY GET MORE EXPENSIVE!

Author:
Leszek Blaszczyk