Chip 'laundering' and other extremes of a global chip shortage

The global chip shortage has produced 30% higher chip prices and some bizarre extremes, including reports of a German automaker cannibalizing chips from new washing machines to install in its vehicles.

Chip prices over the past year have jumped 30% on average across various commodities, said Yashar Shahabi, senior vice president of e-commerce, technology and product at Sourceability, a company that sells electronic components from hundreds of suppliers via the web and offers a market intelligence subscription for users to get regular updates on pricing, lead time and inventory.

“Microcontrollers have jumped multiple-fold,” he said, noting that it was not uncommon for a single microcontroller to sell for a few hundred dollars, up from only a few dollars more than a year ago. The most extreme example he could cite was a microcontroller from one chipmaker going from $7 to more than $400.

The cannibalization of washing machine chips was described by ASML CEO Peter Wennick in an earnings call last week.  “It happens everywhere,” he said. The chips came from washing machines made by Meili and were used in a German carmaker’s vehicles, Shahabi said.

 Based in the Netherlands, ASML makes the machines used to etch circuits on semiconductors, and those expensive machines themselves are in severe backlog.

Shahabi believes chip prices will come down, but is not sure when. “As interest rate hikes start making a dent on demand and the fed gets to a place where inflation is back to where it should be, the demand will moderate,” he said. “If that comes with less supply chain disruptions due to Covid restrictions easing off, we should see price moderations across the electronics components industry.”

Many chipmakers are concerned about continuing lockdowns in some eastern cities in China where government officials are trying to nip Omicron outbreaks. 

“Sustained Covid-19 eruptions in two-thirds of Chinese provinces and elsewhere in Asia are prompting government-mandated shutdowns and strict containment protocols—creating further labor limitations, straining supply and introducing new supply chain disruptions,” said Richard Barnett, chief marketing officer at Supplyframe. The company expects that 85% of all chip prices will increase in the second quarter with longer lead times for 83% of products.

The company said there will “only be pockets of relief through the remainder of 2022 and into 2023 for many commodities.”  Supplyframe’s Commodity IQ report found that increased costs for fuels and metals and a shortage of labor and freight capacity will continue.   “The electronics supply chain continues to face new and unprecedented challenges,” said Supplyframe CEO Steve Flagg in a statement.

Due to Covid-related shutdowns at factories in China, Texas Instruments last week reported 10% lower expected revenue in the second quarter. The company cannot ship its chips for assembly factories in China, TI said.

RELATED: TI cuts revenue outlook 10% over Covid shutdowns at China factories

Even with the China lockdowns, TI’s first quarter was strong, with $4.91 billion in revenues due primarily to growth in industrial and automotive. Increases in chip prices helped, the company said.

In fact, semiconductor sales continue to do well, following record numbers in all of 2021. The first quarter of 2022 saw chip sales increase 23% year over year, reaching $151 billion. March sales were $50 billion, up 1% over February, according to the Semiconductor Industry Association.

For all of 2021, the chip industry saw record revenues of $586.8 billion, an improvement of 24% above 2020, according to Omdia.

“Supply shortages throughout the semiconductor landscape resulted in rising average sales prices, which helped lift revenue,” said Craig Stice, chief semiconductor industry analyst at Omdia.

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