We are reposting our piece from November 1st where we speculated the long secular deflation in semiconductor prices may be over.  We got lucky and looks like we picked the bottom.

But first this:

A shortage in production capacity compared to demand in semiconductors is expected to increase their prices in 2021. Some companies have already notified their customers of the price hike.

TSMC, the world’s largest contract chip maker, recently scrapped its price cut policy (up to 3%) for major customers. This is likely due to overdemand.

This is the same for other foundry companies. GlobalFounderies reportedly is operating its fabs at near 100% capacity. Samsung Electronics is in a similar position.

Taiwan’s 200mm foundries, UMC and VIS, have also increased chip production prices. South Korean foundry DB HiTek recently notified customers of a 20% hike in prices. DB HiTek’s fabs are running in full capacity.

Shortage of supply in the foundry market causes memory and system semiconductor prices to rise. Market research firm TrendForce expects solid-state drive (SSD) controller chip price to increase by up to 20%. This is due to controller makers being unable to meet demand from SSDs. TSMC and UMC’s shortage in production capacity is also expected to cause this increase.

A rise in controller chip prices leads to price rise of embedded memories like eMMC and UFS. Prices of eMMC is expected to rise 5% in the first quarter of 2021.

Fixed prices of DRAM is also expected to rise. Spot prices are showing increase. DRAM spot price was US$3.46 in December, a rise of 30% from November. TrendForce expects prices to increase by around 5% in the first quarter of 2021 compared to the fourth quarter.

Prices of PMIC and DDI, which are produced by 8-inch foundries, is also expected to rise. AOS said it was increasing PMIC prices by up to 20% staring on January 1. The company had said COVID-19 and changes in the worldwide PMIC supplychain have caused the price increase and extension in lead time.

Taiwan’s Novatek, which makes DDI for LCD, announced that it will increase prices of touch DDI and DDI chips in the first quarter of 2021. According to

DigiTimes, the company has already finished negotiations with its customer.

China’s Goodix also announced that it will increase the price of its GT9 Series touch chip by 30% starting in January 1. Taiwan’s Global Wafers is expected to increase spot prices of silicon wafers. The company was running its 12-inch, 8-inch and 6-inch production lines at near full capacity, the firm had said. – THEELEC

 

Is Secular Deflation Over In The Computer & Electronics Sector?

 

 

Just a quick note on what we believe has been one of the largest factors, along with globalization to the disinflationary forces over the past 30 years. That is the secular decline in the price of semiconductor prices.  Semiconductors are the basic building block of today’s economy, as was oil during the industrial revolution.

Semiconductor Prices

The price of semiconductors and other electronic components has been declining for more than 30 years as illustrated in the monthly year-on-year price changes in the chart below.

 

Stunningly,  320 of the 368 months since January 1990 or 87.0 percent of the observations, the price of semiconductor and other electronic components have experienced negative year-on-year growth.

Deflation, no.  Relative price changes, yes, brought on mainly by technology and to some extent globalization.

 

The Great Misread

The kneejerk reaction of most economists, including yours truly,  when observing such steep secular declines in prices — down 48 percent over the past 30 years — is to attribute it to collapsing demand.  Not so, with this commodity, however.

The above chart and table below illustrate the rapid and sustained growth in semiconductor production over the past several decades.

Since 1990, for example, semiconductor shipments in the U.S. have grown by 37K plus percent or 21.4 percent annually. Pretty amazing as prices have fallen by almost 5o percent.

Clearly, the positive supply shock of technology and globalization has put downward pressure on the “new oil” of the modern economy, which is a major factor contributing to the macro disinflationary pressures the economy has experienced over the past 30 years.

Here’s to hoping the trend continues but de-globalization and geopolitical instability make us less sanguine, however.

Taiwan, The Most Important Geopolitical Important Country In History? 

Lastly, a little sidebar on the geopolitical and strategic importance of Taiwan as the Straight gets hot, hot, hot.   See here and here.

If Intel falls further behind and leading-edge semiconductor manufacturing becomes concentrated in Taiwan then Taiwan will become geopolitically important in a way that the Middle East never was. Modern semiconductor manufacturing is at least as important to the economy as oil was in the 1970s. But in the case of oil, at least it was available all over the world albeit at higher prices than in the Middle East. Imagine a world where oil only came from one country, and how important that country would have been for the last hundred years. That is what the world would look like if Intel cannot find its footing and continue to manufacture chips at the leading-edge here in America. Taiwan could become by far the most geopolitically important country in the history of the world. – themarket.ch

Stay tuned, folks.