By PENG Xin
Chip prices have plunged this year after having ascended to the height of absurdity during the pandemic. National broadcaster CCTV reported recently that a chip made by STMicroelectronics that cost 3,500 yuan (US$500) last year now is priced at 600. Another was selling at 200 yuan last year - now it can’t find a buyer at even 20 yuan.
Inflationary pressure
Behind the price swings are nothing but supply and demand. Prices surged last year as stockpiles grew in the face of anticipated supply chain disruptions. Now demand has fallen, and these companies have dumpsters of chips in storage. Buyers such as Samsung and Dell have cut orders or even told suppliers to stop shipping. Some largest chip makers including Intel and Qualcomm have raised prices to maintain margins as inflation becomes the market’s biggest problem.
Last year’s most sought-after chips have fallen the most precipitously. Graphics processing units (GPUs) made by Nvidia and AMD, widely used for mining Ethereum, are at their lowest since the crypto crash of 2021. Display Driver Integrated Circuits (DDIC), essential to smartphone screens, are at two-year lows. Both are higher than their pre-pandemic levels.
Road to recovery
Car chips, on the other hand, have mostly been immune to price drops. As EV sales grow, the demand for microcontroller units (MCU) is outpacing supply, with sales in China expected to exceed US$4.5 billion by 2025. Some car makers are trying to make their own MCUs but that will take at least two years. Even those who are already making their own chips need at least six months to recalibrate equipment.
Some car chip makers such as Bosch are facing capacity constraints due to problems with their own suppliers. Delivery time for some parts has gone up from 10 months to 14 months.
Chip makers who have strong control of their own supply chains may expand capacity relatively quickly to alleviate the shortage but their effort alone will only have a limited impact.
