Inventory & Pricing: What Gives?

I've been compiling a list of articles this week reporting increased prices throughout the supply chain. Due in large part to higher labor and materials costs, component and board makers have slowly been passing these costs on to end-users. (See: China Costs Prompt Price Hikes.)

Then I see “Semiconductor Inventories Swell to Alarming Level” from market research firm IHS iSuppli. That should mean prices go down.

So what gives?

Here's what I've been seeing: Price increases are largely coming from the interconnect, passive, and electromechanical (IP&E) arena, not from the semiconductor market. (The exception to that is memory, which never follows market trends anyway.)

Here's a brief list of price hikes in the past week:

  • Pulse Electronics announced it would increase prices for its magnetic components, antennas, and connectors.
  • Asian trade publication DigiTimes reports MLCC makers are looking to hike quotes and have initiated price negotiations with clients after the Lunar New Year holidays, citing industry sources. Those sources indicate that with Samsung Electronics' Semco actively ramping up capacity and quoting aggressively to grab market share, they are still unsure about the possibility of a price increase.
  • Yageo declined to comment on possible price hikes, while Walsin Technology (WTC) said that it needs to negotiate with clients in order to reflect rising raw material costs and the appreciation of the New Taiwan Dollar.
  • Contract prices for DRAM chips are expected to increase by at least 5 percent in February 2011, starting to gain momentum, according to Nanya Technology. The company had previously predicted that DRAM prices would start recovering as early as the first quarter.
  • DRAMeXchange's latest comments suggest a similar situation. The price tracker believes contract prices for mainstream DDR3 memory are set to recover from the bottom seen in the first half of February. Prices had declined by up to 50 percent during the fourth quarter of 2010, DRAMeXchange noted.
  • Sources at memory module makers pointed out that an earlier rally in DRAM spot prices helped stabilized contract prices for early February. Thanks to inventory replenishing demand prior to the Lunar New Year, DDR3 spot prices soared as much as 20 percent. The sources expect spot pricing to gain momentum once again in March and spur prices upward in the contract market.
  • Spot prices for 1Gbit/s and 2Gbit/s DDR3 chips are likely to rise modestly to US$1.30-1.40 and US$2.50-2.60, respectively, by the end of March, sources say.

Usually at this point, I invoke the timeless advice from The Hitchhiker's Guide to the Galaxy : “Don't Panic!” Instead, I'll cite EBN editor-in-chief Bolaji Ojo: “Put the phone down.” (See: Inventory Spike Haunts Semiconductor Market .)

The price increases in IP&E are coming slowly, and that market doesn't tend to track the dramatic upward/downward spikes of the semiconductor market. Work directly with your supplier or distributor, if possible. There are also a lot of new suppliers entering the US market from Asia. I'm not suggesting you amend your approved vendor list but you might want to see what's out there.

Compile as much research as possible on the specific components you need. Visit pricing sites such as DRAMeXchange, but also distributor sites that list component prices. Get a general sense of where things are heading before you place an order.

The other thing you can do is get a general sense of what drives pricing in the channel. Supply and demand is one thing; raw materials prices and labor costs are also in play. But where you source and how much you source also factor in.

EBN has called in an expert — Lytica Inc. CEO Ken Bradley — to answer readers' questions in a Live Chat at 2:00 p.m. EST on March 10. Lytica recently launched pricing tool, which enables companies to compare their electronic components pricing against a pricing database. Ken knows what buyers go through when prices are unstable: He was chief procurement officer for communications giant Nortel before founding Lytica. Free registration is required to participate in the chat.

9 comments on “Inventory & Pricing: What Gives?

  1. stochastic excursion
    February 17, 2011

    I wonder how much yield is a factor when capacity is ramped up for the electromechanical moving parts and not so much antennas that you mentioned.  Especially in JIT when you're trying to minimize inventory, quality volatility can introduce variability into manufacturing that can complicate process flows.  Keeping tolerances low can also be labor-intensive.

  2. jbond
    February 17, 2011

    This is another interesting point. Most people are assuming these price increases have been coming from the semi conductor market. Though the prices in that market are bound to rise, it's good to hear about the current surplus. Even though IP&E usually doesn't have those dramatic upswings, they are subject to the same rules. Eventually labor, production and material costs are going to rise and start setting the bar for market to rise.

  3. Mr. Roques
    February 17, 2011

    Is it all because of China? … Can they keep up their dominance, even if their cost rise? (where's the inflection point?)

    Are we running out of RAW materials? Any in particular?

  4. Anand
    February 18, 2011


      Thanks for the article. It gives a clear picture of the reasons for price volatality.

    Why are the prices of memory going up, is it short term phenomenon or somethings are really driving the prices of the memory upwards ? And do you feel new suppliers entering the US market will drive the  prices lower ?

  5. tioluwa
    February 18, 2011

    i agree with jbond,

    labor issues have been on the increase in china, and one of the major cries in the Bahrain protests in increase in wages.

    Barbarah has said it all

    “…get a general sense of what drives pricing in the channel”

    its way beyond suppy and demand.

    Franckly speaking, its not very easy keeping up with trends in the industires, factors creap up without notice and we can get caught up in it even before we know what's going on.



  6. Barbara Jorgensen
    February 18, 2011

    I'm a little rusty on my memory supply chain, but I do know that memory is so volatile it is treated like a commodity in terms of market tracking. In fact, Enron at one point was going to get into the memory trading business. I tend to track the memory market separately from other components because of this.

    I also know the type of chip can be determined farther down the manufacturing chain–in other words, whether the chip is a DRAM or SRAM takes place later in the process. So it's easier to meet supply/demand, but it also makes memory more volatile.

    Hope this helps..

  7. SP
    February 18, 2011

    If the prices are rising of memories and other components, how are all the electronic gadget manufacturers dealing with that. Not sure if they also increase their prices because this doesnt seem to be seller's market currently.

  8. Clairvoyant
    February 19, 2011

    The price to build the products using the rising cost components must be going up because of this. Therefore I would assume that the product manufacturers must be raising their product selling prices or else be taking a hit on their profits.

  9. hwong
    February 25, 2011

    I am seriously starting to worry about the social economic conditions. Lately I have heard that there will be price increase in majority of our necessity items such as milk and detergent. Yet people's salaries are not increasing at the same rate.To top it off, our national unemployment rate is still over 11% countrywide. All these companies are trying to pass the cost down to the consumer while the consumer may not have such high purchasing power. What will happen in the as a result ?

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