Chip Prices Are Spiking Due to High Demand & Supply Chain Disruptions

Published by North Shore Components on

Demand for many types of chips is outstripping supply right now, and that’s leading quite a few chipmakers to hike prices.

Earlier this week, chip manufacturing giant Taiwan Semiconductor (TSM) - Get Report was reported to be ending volume discounts starting in 2021 for 300mm (12-inch) chip wafers, which account for the lion’s share of its production. Assuming the report is accurate, it could spell slightly higher wafer costs for TSMC customers such as Apple (AAPL) - Get Report, AMD (AMD) - Get Report, Nvidia (NVDA) - Get Report and Qualcomm (QCOM) - Get Report.

The TSMC report arrived three weeks after one indicating that some of TSMC’s rivals are hiking prices for 200mm (8-inch) wafers, which are often used for older and specialty chip manufacturing processes. 8-inch wafer prices are reportedly set to rise 10% to 15% in Q4, and another 20% to 40% in 2021.

Separately, NXP Semiconductors (NXPI) - Get Report, which among other things is the world’s biggest automotive chip supplier, told customers in late November that it’s raising prices on all products. The company cited both higher materials costs and a “severe shortage” of chips.

DRAM prices, which were under pressure for much of this year, also now appear poised to rise. That, of course, is a positive for DRAM giants Samsung, SK Hynix and Micron (MU) - Get Report.

And earlier this week, Silicon Motion (SIMO) - Get Report, a major supplier of controller chips for solid-state drives (SSDs) and smartphone flash memory, rallied following a report that flash controller suppliers are considering hiking prices by 10% to 15% in Q1.

Directly or indirectly, gamers are also paying higher prices for chips right now. Graphics cards based on Nvidia’s recently-launched RTX 30 series GPUs remain out of stock and selling for large aftermarket premiums, and the same goes for AMD’s latest high-end desktop CPUs and GPUs.

What’s driving these price hikes? COVID-related supply chain disruptions are a factor in some cases. Such disruptions have impacted not only chip manufacturing capacity, but also other parts of the semiconductor supply chain, such as materials supplies and chip assembly and testing capacity.

But from the looks of things, an even bigger factor is the sky-high demand being seen in many large semiconductor end-markets -- particularly consumer-facing ones that are benefiting from the COVID-driven shift in consumer spending towards goods relative to items such as travel, dining and live events.

In addition to gaming hardware, demand for notebooks, tablets, smart home devices and TV sets (among other things) is high right now. And though smartphone and auto sales slumped in the months immediately after the arrival of COVID lockdowns in the U.S. and Europe, demand has rebounded sharply in recent months.

It’s unlikely that such a demand and pricing environment will last through the whole of 2021.

As COVID vaccines become widely available, it’s quite possible that demand within many consumer chip end-markets will cool off markedly, particularly during the back half of the year. And if that happens, inventory corrections might be carried out by some of the hardware makers and chip distributors that are ordering aggressively right now.

But for the time being, quite a few chip suppliers appear to be having no trouble selling every chip that they can manufacture or receive from a foundry partner.

Originally published

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