Device Prices Set to Go Up Due to Chip Shortage

Anyone who knows of a quality smartphone that checks all the boxes and comes with an agreeable price tag can speak up and volunteer that information now. A good one that’s not going to be obsolete within a year or two is going to cost you, and it would seem that given recent worldly developments in the digital hardware sphere it might be that even the less expensive smartphones, laptops, and desktop computers are going to be going up in price quite a bit too. We’re entering an inflationary period in North America right now, but that’s not why prices on devices are shooting up.

It’s mostly related to how international chip makers are hamstrung in their ability to make the semiconductor chips in the same quantities they made them for years. Take a look at any of the very newest smartphones on the market and your enthusiasm for them based on the features is quickly slowed when you see how much they cost. If you’re a person who’s fine with a more standard and ordinary device this trend isn’t going to bother you too much, but if you’re all about the latest and greatest in technology – be prepared to pay quite a bit more for it.

There’s no getting around the basic principle of supply and demand with pretty much any consumer product in the world. It turns out this applies to components too, and when it comes to what enables these devices to work their magic the demand is now outdistancing the supply of them like never before. Any Canadian web hosting provider like us here at 4GoodHosting have our own operating constraints related to demand outstripping supply too, but it’s different when it’s the individual consumer who’s faced with the prospect of paying a LOT more when it’s time to upgrade or replace.

Wafers Wanted

Wafers aren’t only snacks, and in fact they are integral part of the chips that are so needed by mobile and computing device manufacturers these days. What’s happening now is that recent increases in wafer quotes by major manufacturers means there’s going to be a serious impact on the price of actual hardware, including cell phones and a broad range of everyday consumer hardware. It’s believed that this is going to result in more consumers being to buy lower-end hardware.

If you’re not familiar with the role these parts play, modern PCs and smartphones usually contain one or two key chips (CPU, GPU, SoC) made using the most advanced chip tech, like a leading-edge or advanced node. The foundries which make the chips have already increased pricing for their customers. Until recently most chip designers and other firms that make the finished products were hesitant to pass the price hikes on to their customers so entry-level and mainstream products were still agreeable to price-sensitive customers.

Now though the cumulative cost increases for some chips from 2020 to 2022 will be 30% or even more. It’s not possible to avoid passing this increase up the supply chain as margins are already very thin and these companies will not be okay with losing money. The expectation now is that chip designers will increase the prices they charge OEMs, and that will filter down to the end products in 2022.

Bigger BOM Costs

BOM is an acronym for Bill of Materials, and if vendors are going to pass on these higher wafer prices to OEMS then the estimate is that high-end smartphone BOM cost increases will be around 12% for 2022. The average BOM cost for a high-end smartphone is usually around $600. But what’s interesting is the cost for entry-level ones could have their BOM cost affected even more. They could see a 16% increase.

So an anywhere from 12 – 16% increase in BOM cost can create a major impact on a device’s recommended price, and experts say these factors will keep pricing high for years to come. Making chips using leading-edge fabrication technologies like TSMC’s N7 and N5 or Samsung Foundry’s 7LPP and 5LPE is very pricy due to contract chip makers charging up to 3x more for processing wafers using their latest nodes.

Investments in this hardware as part of technology advances are usually made long before those chips start to earn money. It’s for this reason that only a handful of companies in the world can afford leading-edge processes.

It’s also forecasted that over the next few years technologies will remain mostly inaccessible for the majority of chip designers, and even rather advanced chips will still be produced on 16nm and 28nm-class nodes but with 10% to 18% increases in wholesale pricing attached to them.

Demand, and More Demand

The demand seen for all electronics devices is already high than ever these days and emerging and powerful trends like 5G, AI, and HPC all mean that the demand for chips will only get bigger. Experts foresee supply balances not coming around until mid-2023, and adding to all that is the fact that demand for equipment designed for lagging-edge nodes is growing faster than demand for tools aimed at leading-edge nodes. The same nodes that won’t be part of the newer technology chips that major manufacturers are going to be focused on producing.

Adding to this further is that major chip foundries have increased their quotes for 40/45 nm, 55/65 nm, 90 nm, and larger nodes multiple times since mid-2020. This is going to mean that the price of a wafer processed using 90nm technology will increase by 38% in 2022. Again, prices will be passed on to consumers.

The fact that these foundries have utilization rates above 100% nearly all the time means they spend more time processing wafer and less time working on their maintenance too. They will be even more reluctant to drop prices even when demand-supply balance stabilizes.

More Will Go for Entry-Level Devices

Price-sensitive customers who buy higher-end smartphones and PCs may instead choose entry-level devices unless different midrange products appear on the market. The GPU market went through something similar not long ago. This happening with more popular devices like iPhones, Pixels, and Galaxies is quite likely.

This is because the price increases on chips made using mature nodes will affect the end costs attached to all devices. For high-end PCs and smartphones these additional costs won’t affect their recommended prices much at all. But for mainstream devices these additional costs may have a drastic effect on MSRP. Many buyers may feel they have to look past even midrange products and consider buying entry-level instead.

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