Electronics to get more expensive as semiconductor manufacturers struggle

More than two years after the start of the COVID pandemic, semiconductors continue to struggle to meet the high demand for components, and multiple world events are now pushing the cost of living even higher, which is now expected to increase the price of semiconductors. What world factors have contributed to rising living costs, what have semiconductor foundries said, and when will semiconductor supplies normalise?

What world factors have contributed to rising living costs?

The past two years have been nothing short of challenging, with the COVID pandemic triggering global lockdowns, businesses going bankrupt due to disrupted operations, and semiconductor supplies becoming non-existent due to poor management and planning. While many thought that life would return to normal once the pandemic subsided and lockdowns were removed, the opposite couldn’t be truer.

Rising inflation rates due to COVID government spending are obliterating cash savings and driving up mortgage rates. The rate of wage increase is far behind that of inflation, and not only does this see spending power of salaries decreasing, but the combined rise in prices for everyday items is making living costs significantly higher.

The Russo-Ukraine war, combined with the reliance on foreign fuel sources (such as oil and gas), has seen these prices skyrocket as the west tries to cut ties with Russia. This price increase has seen the cost of electricity more than triple in the UK, and it is now expected that the average electrical bill will grow by £800 per year (this doesn’t include the cost of gas).

Finally, the rising cost of living, the restriction on cheap fuel sources, and poor energy planning are now affecting the electronics industry as a whole. Increased energy prices will undoubtedly raise the prices of electronic components, while access to key resources from Ukraine needed to produce semiconductors will hinder the ability to mass-produce devices.

What are semiconductor manufacturers saying?

In a recent report, multiple semiconductor foundries are now suggesting that the price of semiconductors will be subjected to new increases. The foundries that include TSMC, Samsung, and Intel, have pointed to their attempts to expand their manufacturing capabilities as the prime reason for a future price hike.

It should be stated that this is not the first time semiconductors have increased prices in recent times, and they have already seen increases of between 10% to 20% in the past two years. Additionally, financial experts have stated that further rises in semiconductor prices would most likely fall in line with inflation.

According to major semiconductor suppliers, the rising cost of semiconductors also reflects the increased difficulty in manufacturing integrated circuits. For example, chemicals used in the manufacturing process have increased by as much as 20%, and labour costs needed to create new foundries have increased due to inflation and the lack of qualified workers.

The desire to expand and create new foundries comes from the sudden realisation that countries are dependent on semiconductors just as much as food, water, and oil. As such, governments worldwide are launching incentives and plans to encourage semiconductor expansion, which is presenting foundries with new opportunities to grow. But no amount of government funds will be able to pay for every expansion project, and thus foundries need to raise funds from customers.

When will semiconductor supplies normalise?

Unfortunately, there is no straightforward answer to this question as world events keep changing. The end of COVID lockdowns was seen as the light of the tunnel that turned out to be a small service light illuminating a sign with the words “Distance to end of tunnel: Unknown”. The start of the Russo-Ukraine war further plunged the world into an economic crisis, and the increasing reports of Monkeypox around the world could become the next pandemic.

Some experts say that semiconductor supplies will normalise by the end of the year; others say that these shortages will last well into 2024. While we cannot determine when it will stabilise, what we can say for sure is that semiconductors take an awfully long time to produce, with some devices taking as long as a year.

This means that any orders being placed now to try and stabilise supplies won’t be ready until a year’s time, and even then, that is when they have finished their manufacturing stage, ready to be used in products. During this time, unpredictable events such as natural disasters can easily disrupt this manufacturing process (as was seen in the Renesas fire). For example, China may feel that Taiwan is ripe for the picking and, in the process, could seize or damage TSMC foundries which would have a major effect on global semiconductor supplies.

Overall, the semiconductor industry is still in disarray from the COVID pandemic and the ensuing consequences of government spending, rising energy prices, and the Russo-Ukraine war. When it normalises is hard to answer, but it is unlikely to be by the end of this year.