Chip prices fluctuate wildly, is there an "invisible hand"?
Latest update time：2022-09-18
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Author丨Uncle J Tanxin
Editor丨Xiaojing
Editor丨Xiaojing
● Key points
●The sharp fluctuations in chip prices are essentially caused by the imbalance between supply and demand, but the reasons for this imbalance are too complicated.
●For commonly used specific chips, the general price trend will fluctuate downward.
●Short-term chip price fluctuations generally will not affect the production expansion decisions of chip companies (especially Fab).
●To cope with chip price fluctuations, companies can only work hard on supply chain management, which is even more important than controlling costs.
Editor's note: Since the beginning of this year, chip prices have skyrocketed, and then there have been price cuts in the chip market. According to CCTV news reports, as a core component of an electronic control system, the market quotation of a certain STMicroelectronics chip rose to about 3,500 yuan each in 2021. In 2022, it fell from a high to about 600 yuan each, with a price reduction of more than 80%. The price of another type of chip will remain at about 200 yuan each in 2021, but in August 2022, the price will be only about 20 yuan each, only one-tenth of the highest price.
According to a research report by GuoRong Securities, the quotations of MCU chip manufacturers such as STMicroelectronics, Infineon, and Texas Instruments have dropped significantly, and the price of STMicroelectronics' general-purpose MCU chips has dropped from RMB 70 in March to RMB 32 in July. However, at the same time, the "chip shortage" phenomenon has appeared in the fields of automobiles, industrial automation, AI big data, etc.
Why can there be a shortage of some chips and a sharp drop in chip prices at the same time? Is there a pattern in the fluctuation of chip prices? What factors will affect the rise and fall of chip prices? Tencent Technology's new product research series specially invited Uncle J, a creator of Tencent News and a "veteran" in the chip industry with 15 years of experience, to talk about chips. Through nine questions and nine answers, he interprets the rise and fall of chip prices.
In layman's terms, what are the categories of chips?
According to scene
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Data center-level chips: Mainly used in cloud computing data centers: including CPU, GPU, memory, storage controller, solid-state drive, etc., which mainly require high performance, high stability, and high reliability.
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Consumer product-level chips: Currently the most widely used chip with the highest market share, it is used in daily-use computers, mobile phones and other products.
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Industrial product-level chips: Industrial products are exposed to extremely high/low temperatures, high humidity, strong salt spray, and electromagnetic radiation for a long time. The use environment is relatively harsh, so industrial chips must have stability, high reliability, high security, and long service life (taking electricity as an example, the failure rate of industrial chips is required.
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Automotive electronics-grade chips: They have strict requirements on temperature environment and must be able to be used in a wider temperature range.
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Military and national defense-grade chips: chips related to the national defense and military industry, such as satellite communications, guidance, precision navigation, etc.
According to process
90nm and above (including 90nm, 128nm and above), 60nm, 45nm, 28nm, 14nm, 12nm, 7nm, 7nm and below. The so-called advanced process chips now mainly refer to those below 12nm, such as 12nm, 9nm, 7nm, 5nm, and even 3nm. TSMC has already achieved mass production of 5nm chips and trial production of 3nm.
According to functional categories
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Processor type: Chips that mainly undertake specific computing and control tasks in the system, such as MCU, CPU, GPU, NPU, etc.
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Storage class: Chips that are mainly responsible for storing data in the system, as well as some storage controller chips, such as DRAM, SRAM, Flash, etc.
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Communication (wired, wireless): Chips that mainly undertake communication functions in the system, such as some Ethernet chips, switching chips, wide area and local area network, point-to-point and ad hoc network chips, as well as auxiliary communication filtering and amplification , power and other devices can all fall into this category. WiFi, Bluetooth, 5G baseband, GPS, NB-IoT, network cards, switches, etc. that are commonly known to the public can all be classified into this category.
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Interactive category: Chips that are mainly responsible for the collection, presentation and interaction of information in the system. This category includes a wide range of devices, such as general sensors, input and output devices, and some signal processing chips. Microphones, display chips, motion sensors, and some AD/DA chips that are commonly known to the public can all be classified into this category.
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Power management and power devices: Electronic systems require a continuous supply of electrical energy to maintain their operation. Devices that mainly perform this function in the system can be classified into this category, such as PMIC, DC-DC, AC-DC, LDO and IGBT.
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Resistors and capacitors: In addition to the chips that perform the main tasks, in a system, there are also resistors and capacitors that actually regulate the entire circuit. In certain cases, passive components can also be classified into this category.
In addition to the above classification methods, some people classify them according to chip characteristics into digital circuits, analog circuits, radio frequency, power devices, etc.
Since the outbreak, the market has been talking about a chip shortage.
Which chips are mainly missing?
At the beginning of the epidemic, people were caught off guard and lowered their expectations, which led to insufficient inventory in the upstream. At the same time, the insufficient operation of factories caused by the epidemic directly led to limited output. At the same time, due to the surge in demand for equipment and equipment needed to fight the epidemic, as well as home office and education, there was a serious mismatch between supply and demand. The downstream saw that the chip production capacity was in short supply, and downstream manufacturers were anxious to stock up and placed more orders than the actual demand, resulting in inflated demand.
In addition, many chip companies are listed companies, and profit forecasts have been announced with the financial report of the previous cycle. As a listed company, it is necessary to avoid the impact of fluctuations in numbers on the stock price. Therefore, even if certain models are in stock, If the listed company's sales have reached the expected target, it will still not be sold.
For the Foundry factory, when demand increases, it takes time to build a factory to expand production capacity. From the perspective of Foundry's operations, the newly built factory should also be based on future mainstream processes. This will lead to the fact that the new production capacity will not be able to meet current demand in the short term, and the old process will not be expanded in the medium and long term, and there will still be a shortage of old process products.
Another factor is the demand for graphics cards from cryptocurrency mining. From 2020 to mid-2021, graphics cards from Nvidia and AMD were hard to come by, and even spare parts and refurbished cards were sold at high prices. This sudden demand squeezed production capacity and caused a shortage of other chips.
At that time, the chips with the most limited production capacity were consumer electronic chips. From the process point of view, they were chips above 45nm, especially chips between 60nm-90nm.
Another area is automotive chips, but the main shortage is 90nm and above chips, which are used in braking, control, sensing and other traditional automotive applications. Most of the chips used in cars are older chips, so major foundry companies, such as TSMC and Global Foundry, will not increase the production capacity of such chips. Although there is also a shortage of chips required for automotive intelligent systems (such as smart cockpits), the shortage is not serious. These chips overlap with mobile phone chips in terms of process technology.
There is another reason why the automotive industry is facing a serious chip shortage. Most of the automotive industry adopts lean manufacturing and agile inventory, and rarely stocks. From chip components to production lines, the supply cycle has been compressed to the highest efficiency (shortest time). Therefore, when the chip supply chain is unbalanced, chips in the automotive field will be particularly prominent due to the lack of stock.
Another category of chips that are in serious shortage is "mining" chips. Since the outbreak, virtual currencies have skyrocketed, global mining demand has increased significantly, and the demand for graphics card chips (GPU) has skyrocketed, squeezing the production capacity of other chips. At the same time, the price of GPUs has also soared, including ST's MCU, STM32F series, TI's power management chips, such as TPS61021, and Nvidia's graphics cards. Storage chips are also skyrocketing, including DRAM, FLASH, etc.
Chips whose prices have plummeted recently mentioned in the media,
What are the main chips?
The main products that saw a sharp drop in prices roughly coincide with the previously scarce chip categories, mainly MCUs, analog ICs, power devices, storage, GPUs, etc., covering a relatively wide range.
A brief summary of the main reasons: the supply and demand imbalance caused by the epidemic has returned to normal; everyone's expectations for future growth have dropped, the willingness to stock up has dropped, and demand has dropped; virtual currencies have plummeted, and the demand for "mining" has dropped.
What is the chip trading chain?
Who are the participants?
Generally speaking, the formal supply process is that after the chips come out of the foundry factory (wafer foundry) and packaging and testing factory, they will enter the chip company's warehouse and then be shipped through agents (Distributors). Of course, for certain large customers, there is also a direct supply (Direct Account) model. After that, the agent will sell and ship the product according to the price agreed by the three parties (chip manufacturer, agent and customer). The shipment target can be the technical solution, ODM manufacturer, EMS foundry, or even the end customer's own factory. However, in this process, for some chips that are in short supply, or for chips with large price fluctuations and wide market price ranges, spot dealers have room to operate. Even for some chips with large market demand and concentrated supply, such as Memory, , relevant personnel will stock up and sell goods to make profits.
For large customers such as Huawei, Xiaomi, and O/V, chip manufacturers generally do not increase prices. Even if they increase prices, they will be within a certain limit. Therefore, when there is a shortage in the market or a substantial price increase, it is important for large customers to The difference between the price and the market price creates room for arbitrage.
The stories behind this are very colorful. Some people become rich, while others suffer losses. But as long as the space exists, there will be people coming one after another.
The rise and fall of chip prices,
Is there any regularity?
For the electronics industry, it has its particularities and generalities. Particularity means that there are certain fields with extremely high technological content and very difficult entry barriers. In this field, scarcity and versatility are very well combined, making it a top priority for all links in the supply chain. The general meaning is that, as in other fields, there are both diminishing marginal effects and fluctuations around the price baseline with supply and demand:
The industry is highly concentrated, and large companies have pricing power over such products. For example, in the display category, Samsung and LG have almost complete control over the pricing power in the industry; in the storage category, companies such as Samsung, Hynix, and Micron have almost complete control over pricing power. For this category, there are roughly three types of price rules:
Under normal circumstances, costs will gradually decrease as product shipments increase and new technologies and products emerge.
However, when a company feels that its profits are not as good as expected, or the capital market needs to cooperate, the company will control production capacity and create shortages to increase profitability.
There is another situation that lies in the gray area. The senior management of such companies will artificially create price space by creating information asymmetry and then profit from it.
Scenarios 2) and 3) generally appeared periodically in the years before the epidemic.
Companies like Intel, although they are also close to monopolies, cannot manipulate prices like storage chips, that is, monopoly prices do not necessarily lead to price manipulation. As the main system chip, it must first ensure the stable and healthy operation of the system and the market, and this responsibility is much smaller in the storage industry.
Ordinary products are provided by multiple suppliers in the market, and the technical routes are also jointly formulated by multiple companies, such as the Bluetooth chips and WiFi chips that are well known to consumers.
Major trend: As product shipments increase and new technologies and products emerge, costs and selling prices will gradually decrease until they stabilize within a certain range. Based on the author's personal experience, in early 2010, a wifi module (802.11 a/b/g/n) cost 10 US dollars, but today, you can buy a chip with this specification for less than 0.6 US dollars (module The set price is also within $1).
There are small fluctuations within the general trend, which mainly come from the short-term imbalance of supply and demand. This imbalance may come from the lack of supply in the process of product upgrading, or it may come from the emergence of explosive products in the terminal market, the mismatch between sales demand and supply rhythm, and certain Abnormal production capacity and logistics caused by some unexpected events (such as earthquakes in Taiwan and Japan, unrest and floods in Thailand, etc.).
On the other hand, even for ordinary chips, as long as the product is in rigid demand to a certain extent within a certain period of time, and the supply is concentrated in one or two companies, the price manipulation phenomenon mentioned above will also occur.
Some so-called sunset products, due to the small market size, no upstream manufacturers actively increase production capacity, no new companies enter the market, the remaining supply basically remains stable, the price generally does not fluctuate much, but the profit margin is high. For example, DDR1 and DDR2, in terms of capacity, are much more expensive than the current DDR4.
This time chip prices plummeted,
How long is it expected to last?
As mentioned above, the general trend of chip prices is in line with Moore's Law and must be downward. Short-term surges and falls mainly depend on the supply and demand relationship in the industrial chain. However, considering the high level of stockpiling in the past nearly two years and the subsequent weakening of demand, this round of plummeting is expected to last for some time. But how long it will take is difficult to predict. Since the epidemic, we have witnessed too much history, and what we usually think is impossible has actually happened many times. In an uncertain world, looking for certainty is an important ability that determines whether crises can be turned into opportunities.
Chip prices fluctuate violently,
Who has the greatest impact?
First of all, it has the greatest impact on planners and OEMs who contract work and materials. When these companies negotiate orders, they sign them based on the determined ex-factory price. When prices fluctuate violently, their profit margins will be directly affected;
Because of this, many domestic companies facing foreign trade customers will face the negative impact of weak demand, delivery time and transportation costs, and chip price fluctuations caused by the epidemic. Coupled with foreign exchange fluctuations, their operating conditions are at great risk;
Some terminal product manufacturers focus on cost-effectiveness. Some manufacturers win by low cost, which means that the terminal price is difficult to increase with the increase in chip prices, which squeezes the profit margin. However, we can also study the response measures of some companies that claim that the hardware profit margin does not exceed a certain percentage when facing the increase in chip prices, and actually test whether their hardware profits are really as low as they say. A healthy profit level is understandable and is beneficial to the orderly development of the social economy.
How do companies generally deal with chip price fluctuations?
We must work hard on supply chain management. When there is a shortage of goods or price fluctuations, the level of supply chain management directly determines whether we can seize the opportunity to seize the market and improve profitability. Improving supply chain management capabilities requires daily efforts, which includes facing the relationship between Party A and Party B, abiding by the contract, and a deep understanding and sensitivity to the industry and the market. In the long run, we must cultivate and support a relatively excellent supplier ecosystem to minimize risks. From this point of view, domestic enterprises have a long way to go.
Chip companies' expansion decisions,
What usually triggers it?
If it is a Foundry company, their production expansion decision mainly depends on the general trend of the industry, with a cycle of 3-5 years, and they are less likely to look at short-term fluctuations in chip prices.
For chip design companies, normal supply forecasts are generally based on the main products of their own product lines, and have nothing to do with chip price fluctuations.
Generally speaking, the production expansion decisions of chip companies will not be affected by short-term chip price fluctuations.
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