The coronavirus impact on the electronics supply chain has depleted some consumer products from Apple, such as the iPhone 11 in Europe, as well as gadgets from other vendors.
Aside from the consumer electronics category, FierceElectronics asked four analysts if there will be a shortage of chips, memory and other components. And, will prices go up if there are shortages in such components, as the law of supply and demand would normally dictate?
The short answer from the analysts was that, yes, prices might go up modestly, perhaps 2% to 3%, depending on how long the virus crisis lasts. But having some supply rather than none is far better, they added.
Chinese factories manufacture or assemble a huge share of the world’s electronics, and many factories there were closed through the Chinese New Year that ended on Feb. 12. Some workers did return afterwards, but there has been a ripple effect that has delayed production.
China has been at the epicenter of the virus, starting in Wuhan. Apple, especially, depends on Chinese manufacturing to make many of its products and relies heavily on Foxconn factories in the country.
Factory workers in China “are a bit scared to go back to work” because of the virus, said Sourcify CEO Nathan Resnick on CNBC on Friday. “A lot of them haven’t even gone back.”
Some U.S. companies are increasing the size of their purchase orders for goods from Chinese manufacturers in an attempt to get moved up the line amid production backlogs, he added. Others are trying to diversify to factories outside China in countries such as Vietnam.
Overall, there are more than 3,500 facilities owned by large companies that make semis and consumer electronics and are located in quarantined areas globally, according to Resilinc, a Milpitas, California-based supply chain research firm.
Michael Yang, an analyst at Omdia, said that with many Chinese workers off the job for a week to 10 days in late February, it meant that production was essentially curtailed for almost a month. “For that one month, from talking to suppliers and manufacturers of devices, they have been in a holding pattern and waiting to get production online,” he said in an interview.
Without that constant supply, some hot consumer items have fallen out of stock. Bloomberg on March 2 reported some products from Facebook and HP were in short supply and cited some Apple store employees that noticed reduced iPad Pro inventory in previous days.
A recent report in Taiwan-based DigiTimes that was noted by Tom’s Hardware said the virus is expected to lead to RAM and chip resistor price hikes due to supply problems. NAND and DRAM prices were previously expected to rise in 2020 because of greater demand from smartphones, video game console and graphics card makers, but the article said that memory companies also worry about supply problems due to the quick spread of the virus in South Korea.
In that country, over virus concerns, SK Hinix quarantined hundreds of employees recently, and Samsung shut down a factory for three days on Feb. 22.
DigiTimes also reported that Taiwan’s Ygeo and Walsin Technology, Japan’s Murata and South Korea’s Semco see low levels of inventory for chip resistors and Multi-Layer Ceramic Chips. (MLCCs)
However, Yang, who provides DRAM intelligence for Omdia, stressed, “It’s hard to pinpoint what market changes are specific to coronavirus because the DRAM and memory market overall went into freefall throughout 2019 due to oversupply situations. The market was pretty bad and reached bottom before going on the rise before the Chinese New Year.”
Prices start to fall in an oversupply condition, reducing a manufacturer’s profitability, which in turn leads to reductions in orders for equipment to make more products, Yang said. In such situations, as now, the “market is slow to react,” he said. “We have to wait this out. 2020 is the year where the supplier says wait and not increase capex and see the recovery of the average sales price (ASP). Every quarter we are expecting price increases as the supply is muted, but that’s a natural action.”
Yang marked a 60% decline in the ASP for memory products over 18 months going back to 2018. “As supply and demand start to balance, we are expecting ASPs to rise,” Yang said. “Really, what is happening is there is no real price impact from coronavirus” on memory. “Certainly there are price changes not due to coronavirus.”
Roger Entner, an analyst at Recon Analytics, said if component prices increase by 2% to 3%, “that’s nothing.” He said the bigger worry than small price increases is whether components and finished products are available at all. “Getting small price increases means the product is still coming,” he said.
Even so, Entner admitted, “We haven’t seen a shock to the supply chain like this. It will lead to the finish of CEOs and cause government to rethink. China for good or bad has turned into the factory for the world. That’s because China is very efficient and cheap, and transportation has become frictionless.”
Patrick Moorhead, an analyst at Moor Insights & Strategy, said most original design manufacturers and equipment makers will benefit from long-term purchase agreements with manufacturers, which tend to limit fluctuations in pricing.
“Independent of coronavirus, the laws of supply and demand apply to semiconductors,” Moorhead said.
Large companies will often enter into one or two year contracts for assembly of parts or production of components, Entner said. Manufacturers also tend to sell to established clients first.
“It’s times like these that relationships matter,” Entner added. “If you are a vendor and you excessively raise prices to customers, that’s a sure way of never having business again. And if you have a supply and are gouging existing customers on price, you’re done.”
Jack Gold, an analyst at J. Gold Associates, said he felt certain that there will be some premium pricing on electronics components for a while, “depending on how long certain factories stay shut. My guess is it will be short-lived. I don’t think production lines will be down long enough. For the most part, there won’t be that much fluctuation in price.”
Even so, he said the price of oil offers an analogy that might apply to electronics. “When there is a conflict in the Middle East and certain countries should be affected, the price of oil goes up on speculation everywhere, even if it really shouldn’t,” he said.