According to Jiwei Network, the domino effect triggered by the tight supply of wafers is intensifying in the semiconductor industry chain.

Price increases for MOS, power management chips, MCUs, automotive electronic component chips, memory chips... each price increase notification is tugging at the hearts of practitioners.

Where does the "increase" come from?

According to incomplete statistics from Jiwei Network, as of now, more than 21 chip companies have issued price increase notifications. From the disclosures, the average price increase is between 10%-20%. Some companies, such as De Yi Microelectronics, have raised their embedded storage control chip prices by 50%, making it one of the products with a significant price increase. (Details of the companies' price increases are attached below)

Price increase notifications from 21 chip companies

From the notifications of each company, the reasons for the price increases are largely similar. The main reason is: due to the continuous rise in upstream raw material and packaging costs, coupled with tight production capacity and extended procurement cycles, product costs have increased significantly, hence the need to raise product prices to share the cost pressure.

In fact, the current wave of price increases in the semiconductor industry is mainly due to the tight supply of wafers.

On one hand, at the beginning of the year, due to the impact of the pandemic, the industry had a conservative judgment on the future market direction, leading terminal manufacturers to be cautious in stocking up; but later it was found that the pandemic had greatly stimulated the demand for automation and digitalization, resulting in a rapid growth trend for semiconductor solutions.

On the other hand, the ongoing tension in the China-U.S. trade war has led domestic IC design companies and chip agents to start stockpiling in a planned and large-scale manner; some terminal manufacturers, in order to seize market share from Huawei, have begun large-scale procurement of mobile main chips, resulting in uneven wafer capacity allocation.

Due to the relatively fixed wafer capacity, under the combined effects of rising demand and excessive reservations, since October 2020, the tight supply of wafers has become a hot topic in the industry. Behind the heated discussion, there are also voices of doubt: is it a real shortage or a false "shortage"?

Industry insiders point out that if a customer has a procurement demand of 1K and distributes it to 5 suppliers, the market will see a demand of 5K; when the 5 suppliers report back to the original factory, it becomes an 8K procurement demand; from the perspective of wafer factories, it appears that the demand has surged, but the actual demand is only 1K.

But regardless of the true market demand, the price increases by chip companies are a tangible reality.

How is the "increase" trend?

Although more than 21 chip companies have issued price increase notifications, with an average increase of 10%-20%, some companies have seen significant price increases, but they are few.

Behind the widespread perception of "increase", some companies have stated that considering the pressure on downstream customers and the nature of long-term cooperation, they will not adjust product prices for the time being; however, as upstream cost pressures increase in the future, they will discuss sharing cost pressures with customers and will not adopt a "one-size-fits-all" approach.

Lin Yongyu, chairman of Xingchen Technology, which focuses on providing chip solutions for AI cameras, stated that due to the company's position in the supply chain and accumulated connections, the current wafer supply is at a normal stage, and product prices have not been adjusted. If future cost increases are significant, they will make minor adjustments based on the market, but how and when to adjust will be negotiated with customers considering long-term cooperation.

He Jianxiong, deputy general manager of Shengsheng Micro, which mainly produces Power MCU products, also stated that although the related industry chain is experiencing price increases, putting certain pressure on the company's operations, due to timely stock preparations made earlier, product supply is currently operating normally, and prices have not changed; if supply and demand remain tight in the future, they will make minor adjustments to product prices, but overall will maintain a certain level and will not see a dramatic increase, with an expected increase of within 10%.

Some companies, in the face of a chorus of "increases", choose to work together with customers to overcome difficulties.

On January 8, 2021, Shanghai Lingdong Micro issued a "communication letter regarding price strategy", stating that as the COVID-19 pandemic continues to escalate, the chip industry will face more severe supply chain challenges in 2021, with rising raw material costs, tight production capacity, and extended supply cycles becoming increasingly prominent. In this difficult time, Lingdong will do everything possible to minimize the impact on customers, and there will be no adjustments to product prices in the first quarter of 2021.

What is the trend for 2021?

Overall, the magical year of 2020 has passed, and in the face of challenges related to overall supply shortages, relevant chip companies will inevitably take measures to alleviate the shortage.

For example, global MCU leader STMicroelectronics has chosen to increase capacity investment next year to address the challenges of supply and demand tension.

Cao Zhiping, vice president and general manager of STMicroelectronics China, stated during an interview with Jiwei Network and other media at the "2020 Second Industrial Summit": "In the face of challenges, we have already taken many actions. On one hand, we are adjusting the supply chain, and on the other hand, the company's capital investment in 2021 will be greater, which means that capacity expansion in 2021 will be larger than in previous years, in order to address temporary supply shortages."

"It is currently impossible to estimate how long the supply and demand tension will last, but there will be improvements at some point in 2021," Cao Zhiping added.

Some companies have made the decision of "no returns for non-quality issues" to prevent agents from stockpiling and alleviate delivery pressure, which will also help to some extent ease the current supply and demand tension.

Regarding the fundamental judgment of the future market, Wang Huilian, director and general manager of Xiamen Semiconductor Investment Group, stated that the tight wafer capacity in 2020 is expected to continue until the third to fourth quarter of 2021.

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