The global shortage of chips is causing prices to rise for products like laptops and printers and threatens to do the same for products sold in bulk like smartphones.
The price hikes are rolling like a snowball through suppliers and raw materials in chip production, with the industry accelerating to catch up with growing demand and plug holes in supply. As a result, many of the world’s largest chip makers are raising the prices they charge from brands that make computers and gadgets. Industry executives say price increases are expected to continue.
Customers are already starting to feel the sting. Prices of popular models of some laptops have started to climb in the last two months, while other electronics have also gone up in stores. A mobile game designed for gamers manufactured by Asus (AsusTek), which Amazon ranks as one of the best sellers, has risen in price from $ 900 to $ 950 this month, according to Keepa, a price-tracking site. The price of the popular Violet Packard (HP) Chromebook rose from $ 220 to $ 250 in early June.
HP has raised the price of home computers by 8% and the prices of printers by more than 20% a year, according to Bernstein Research. HP CEO Enrique Lors said the price hikes are driven by a shortage of components and that the company may change prices again to reflect the rise in production costs.
Other computer makers have said similar things. “While we are thinking about the rise in the price of ingredients, we will regulate our pricing as needed,” the CFO of Del Thomas Sweet said in a recent earnings talk. A senior Asus official said in May that the company reflects the increase in production costs in the prices of its products.
While some electronics have already become more expensive, the wider impact on the consumer market is often difficult to assess because retailers can decide whether to let customers pay or absorb some of the price increases, analysts say. Tony Sakunagi, an analyst at Bernstein, said the price hikes at HP reflect a lack of regular discounts rather than price increases on all of the company’s products.
Chip industry executives say they are not taking advantage of the shortage to pad the profit margins and price increases only reflect the higher costs their companies are paying. “We do not take advantage of this cycle to do anything about pricing, except at points where we pay more for the supply that then goes to the printed circuits. We pass those increases on,” said Vincent Roche, CEO of chipmaker Analog Devices.
“We are seeing inflation in the price,” said Hawk Tan, CEO of Broadcom, which specializes in wireless communications circuits used in Apple’s iPhones and Samsung’s elite products. Customers understand the situation and are willing to swallow the price hikes, he told analysts this month.
Industry executives say the costs have gone up for various and varied things like silicone sheets which are the building blocks of the chips and resins and metals used in their manufacture.
Digi-Key Electornics, one of the largest distributors of electronic components in the United States, has raised processor-related component prices by about 15 percent this year due to supply chain pressures, though it has tried to keep prices where it could, said David Stein, vice president. Worldwide supply in the company.Some components now cost even 40% more than they cost in the past, he said.
Several factors drive the growing appetite for chips which has led to a shortage and this has only been exacerbated by the load on supply chains that were disrupted during the corona plague and have not yet returned to normal. People bought record quantities of laptops to work and learn from home during the plague. Demand for medical devices has risen and the proliferation of fifth-generation networks has led people to buy new phones capable of taking advantage of the rise in browsing speed.
The number of chips sold worldwide in April reached a peak of nearly 100 billion, according to data from the World Semiconductor Trade Statistics, which represents many chip manufacturing companies. About 73 billion chips were shipped in January 2020, just before the plague, and that reflects how much the industry has increased production to meet demand.
Prices for computer memory contracts have risen about 34 percent since the beginning of last year, according to data from Taiwanese research firm TrendForce. Longer time in front of computer screens in games during the plague also led to the creation of a secondary market for Nvidia video cards that were sold as used for more money than their price when they were new.
Gadget price hikes are part of a broader rise in inflation in the U.S. economy, while growth is recovering from the epidemic and supply chain disruptions continue. Meanwhile, the rises are not as severe as the rises on other products. Prices of computers and other electronics rose at an annual rate of 2.5% in May, according to U.S. government data, the largest increase in more than a decade. Prices generally rose by 5% in May, largely due to rising energy prices.
The increases in chip prices are particularly pronounced with regard to so-called microcontrollers, which are important components in a variety of gadgets, household appliances and even vehicles. Supplyframe, a company that tracks the prices charged by distributors, said the median price of the 20 best-selling microcontrollers has risen more than 12% since the middle of last year.
There are also secondary pricing effects for chip shortages outside the technology industry. Automakers had to slow down production because they lacked chips. With a smaller inventory of cars, new vehicles became more expensive.
The rise in price within the chip industry itself is not uniform. On average, chip prices have not shown much change since the beginning of last year if you look at all the processors sold worldwide, according to industry data, even while some sub-sectors, including wireless communication chips and chips consisting of consumer product circuits, did rise.
In some cases, price information does not yet reflect recent price increases across the supply chain, said Dale Ford, chief analyst at the Electronics Components Association. Prices are also sometimes set in advance in long-term contracts, he said, which delays the time they adjust according to market forces.
“Raw material prices have gone up recently, and I think now people are saying this is not a temporary situation,” Ford said. “Those price increases are going to stay here.”