Crisis on the semiconductor market – why electronics are getting more expensive?
There are many reasons for the current high prices, and they are all intertwined like a chain, creating a macabre picture of a market ragged with pandemonium. The situation on the electronics market is not much different from the rest, except for the fact that it will disrupt the entire infrastructure of technological development!
I was inspired to write this article Artur Kurasiński newsletter, in which he touched upon several important issues regarding the discussed subject matter, i.e. crisis on the market of semi-finished products. The word crisis is increasingly in the mass media, which is symptomatic of many of the components we will discuss today. Why are electronics so expensive when theoretically they should be getting cheaper during the crisis??
Pandemic – the genesis of the problems?
I would not go that far in this discussion, although the outbreak of SARS COV-2 has certainly contributed to the situation that has arisen in the market, and many experts designate it as the source of all the problem.
Disrupted supply chains
The outbreak of the pandemic in China caused a number of things, but the most notable was the hijacking of supply chains and the delay in production due to reduced work of production factories. This has resulted in a reshuffling of global markets and the perforation of entire distribution systems. – The pandemic has caused two things – first, it has shown that the supply chain is easy to break, effectively blocking the production and distribution of such complex products as microprocessors. Secondly, the demand for electronic devices, which during the pandemic helped us study, work, shop and communicate while we were sitting at home, increased dramatically – Artur Kurasiński writes.
Demand for electronics
A symptom of the coronavirus (not physical, of course, although those who are curious might say that most cases were asymptomatic) was also a state of suspension between freedom and captivity, which is commonly called lockdown or quarantine. A number of regulations, as well as fear, contributed to limiting our social activity in the real world, which had to find an outlet and some methodology for functioning in the digital world. So, the virus has accelerated the digitization of entire societies, highlighting how technologically excluded individuals can be without the right equipment or skills.
The very need to be with others, the way of education and remote working, which more and more people are opting for, have all contributed to an increase in demand for electronic devices. According to economic principles, when demand for a category of products and services increases, prices will follow, especially when supply is not commensurate with it, and the situation in the semiconductor market has long been alarming.
Oil of the XXI century – microprocessors
Forsal Service.pl notes that at the time of the pandemic, consumers bought consumer goods in excess, disregarding whether they actually needed those goods. Producers were rubbing their hands as stores became empty, and entire national economies were wondering what effect this would have in the face of waves of disease. The relaxation eventually came to the globals, but paradoxically it was the relaxation that resulted in everything becoming more expensive. Before the so-called. loosening of restrictions, at the time of shortage of manufacturing, mining, transport and warehousing work, the world began to be affected by the information about the shortages, which became evident early this year, for people who want to buy a car or renovate an apartment. The crisis in the semiconductor market was created in the clash with these facts, and going deeper the portal itwiz.pl explains the complexity of the microprocessor market and how bottlenecks operate the global supply. Car makers and home appliance manufacturers are increasingly worried about the battle with smartphone, computer and technology makers over components for their devices. What’s more, we can see the presence of transport bumps generally everywhere, which allows us to think about the real genesis of the global problem. – Another problem is the so-called logistics bottlenecks, i.e. the means of transport and the places where they are unloaded. Currently in the U.S. alone, there are 77 ships waiting at the ports of Los Angeles and Long Beach waiting for unloading $24 billion worth of goods – explains Kurasinski.
Let’s hurry to love electricity – Crisis of energy resources
Energy is everywhere, even in your bread roll – sounds like an exotic esoteric claim, but nothing could be further from the truth. The cost of producing and transmitting energy affects the cost of electricity, and this is needed both to light a bulb and to produce it. In fact, the price of energy is in almost everything, because our currently developed civilization was created on the basis of energy, and it is needed both by factories for production and by us for heating in winter or cooling in summer.
Parquet.com recalls last year’s winter season, which, due to its extreme cold, reduced gas stocks around the world, which were consumed during a hot summer that did not bring much rain, which for Norway , Italy or Spain meant the incomplete operation of hydroelectric power plants. The summer was also not very windy, which did not bode well for the UK and the Netherlands in terms of energy from wind turbines. Germany, however, suffered the most in terms of RES, which even had a limited amount of sunshine, forcing them to increase coal mining, contrary to their green energy plans. All these factors constitute a real threat of an energy lockdown and are the key to raising the prices of everything in which we find the cost of this desired energy.
Increased prices for everything related to transport are also influenced by the crisis in the market for containers, which are in short supply for transporting goods. Benchmark website.en states that The chaos may worsen when confronted with increased transport costs, which have on average increased by up to six times. According to the BME (German Association for Materials Management, Logistics and Purchasing), one in three companies has an uninterrupted container shortage problem, and nearly 60 percent of. The need to be in touch with others, to be educated and to work remotely, which is a growing trend, has contributed to an increase in demand for electronic devices.
The United States vs. the Middle Kingdom
Many of us have probably already forgotten about the restrictions the U.S. imposed on Chinese brand Huawei, which not so long ago sought to build 5G infrastructure in Western Europe. The United States realized that the Chinese economy would single-handedly take the helm of the global market ship, so as a superpower it waged war on the other superpower. Conspiracy theorists have also tried to find a link between the occurrence of the pandemic and a trade conflict between the players. The truth is that both superpowers are flexing their muscles against each other, but they are interdependent – China is flexing its muscles (taking over and stifling democracy in Hong Kong, demonstrating a military presence around Taiwan) but the interests of both countries are very much intertwined – the US needs products made in China (until it builds its own factories, but this will take a lot of time and money) and China needs markets for its technology (hence the enormous pressure on European countries to make Huawei the supplier of 5G solutions). – explains the founder of Spellarena.
China and Taiwan
– The Chinese communists reacted fastest by issuing a series of decisions aimed at expansion of national program production of processors and other strategic elements. Beijing’s problem is that for the time being they have to import microprocessors from Taiwan (commonly referred to as the “unsinkable aircraft carrier of the USA in the Western Pacific”), which is officially recognized by China as a rebellious province (and like Hong Kong must eventually be taken over) – writes the author in getrevue.what. The situation is not colorful for Taiwan, more looks like a ruthless political struggle of an aggressive neighbor for technological existence and domination not only in the region, but across the globe.
European backyard shines with emptiness
– What does Europe look like against this background?? Kurasiński asks – Very bad. In the 90s. It controlled 40% of the chip production market. In 2020 it was 24% and in 2021 alarming 10%. Microprocessors have been identified as one of the 137 products critical for the European market. The Union has finally recognized the problem and has decided that the production of microprocessors in Europe is extremely important – the goal is to regain 20% market share by the end of the decade. That is, until then, European companies will be forced to buy microchips from China, Taiwan, Korea or the USA in order to stay ahead in the technological race. The Koreans and the Chinese control all the links in the value chain. This means that in addition to the production of chips they can create products such as telephones, refrigerators and cars. Even now, when there is a shortage on the market.
From a global point of view, it is another iteration of the U.S.-China struggle and a shift in the center of gravity from Europe to the Pacific. Americans know that China, not Russia, is their biggest rival and are trying to stay in the game as long as possible – answers.
Europe is also not helped by the lack of internal cohesion, the current situation in Belarus and the constant legislative hurdles that are imposed on member states, e.g. The Chinese have to pay a lot of money in the form of emission fees for carbon dioxide, which makes it unprofitable to run coal mines.
And finally we arrived at our own backyard. Poles are absolutely screwed. The EU situation is affecting them, especially in view of recent events on the border, not only with Belarus. Poland has recently fought a battle with the EU over the Turów mine. Putin, at the same time working to pass Nord Stream 2, has outclassed our elites, who are also adding their puzzle to this crisis puzzle. A number of packages and aid shields in the aftermath of the pandemic caused inflation, which is to be remedied by further shields … anti-inflationary. All these actions cause uncertainty about our currency, and a weak zloty means more expensive products from abroad.
What’s next? Inflation, hyperinflation or stagflation?
On the pages of BizWeek, Damian Olszewski explained on the example of Venezuela how hyperinflation can end, but in the background voices can already be heard talking about a much worse phenomenon. Poland is heading towards stagflation; says prof. Witold Orłowski on businessinsider.com.en
Service benchamrk.pl predicts that the prices of electronics may increase by up to 20 percent. compared to current. What is more frightening – she may not be right, as everything points to even worse scenarios, especially on the Polish market, which is struggling with the weakening of the zloty and the outflow of investors, which involves the evaporation of capital from our economy. All the components generate a massive inflation, which the Polish Central Statistical Office currently estimates at 7.80 percent. y/y. The optimism is not added by the vision of next year’s Polish Governance, which will further deepen this phenomenon.
– We expect prices to remain strong given thrifty inventories, seasonal demand and improving economic activity, all supported by capacity constraints due to truck production limitations and driver availability challenges – said Fowler, an analyst at KeyBanc Capital Markets. (forsal.pl)
Artur Kurasiński has a different opinion and it is not so pessimistic – What the near future may look like? Changing the location of microchip production will reduce the need for sea transport, thus reducing the enormous amount of pollution generated by this sector of the economy (container ships account for 84% of CO2 emissions in the European Economic Area!). New companies and new types of microprocessors will emerge. We will see spectacular business alliances and probably new technologies will help squeeze even more out of microprocessors. Truly – we live in interesting times. – says.
We hope these words will ring in our ears in a few years as a positive aftermath in the face of skeptical market turmoil. Artur Kurasinski is also a confirmed speaker at our Mobile Trends Conference 11, which we invite you to March 2022!