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 Freebenchmarking.com, 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.