How should domestic manufacturers respond to the resurgence of MCU price increases?

The black swan-like epidemic has fanned countless "wings". For the semiconductor field, the price increase of MCU may be a "storm" it has transmitted.

The price has increased by more than 20%?

As the impact of the epidemic abroad becomes serious, some overseas wafer fabs/packaging and testing plants have announced shutdowns. Xia Chaofeng, product manager of Hong Kong North High-Tech Technology Co., Ltd., analyzed that this will lead to a loss of some production capacity, and a global semiconductor shortage will be inevitable, especially for overseas manufacturers.

MCUs, which are widely used in large quantities, are the first to be affected. As most of the factories of international MCU manufacturers are in Europe and the United States, as the epidemic situation in Europe and the United States becomes more severe, MCU prices have risen accordingly. "The shipping prices of foreign MCUs have generally increased by 20% to 30%, and some have even doubled." This is the assertion of Fu Yu, the head of a domestic MCU original manufacturer.

Distributors have played an indispensable role in this. Su Yiyuan, a Shenzhen-based agent for ST, TI and other manufacturers, said that MCU prices have risen by at least 20% because of tight supply and shortage of materials, and the shipping prices of distributors have also risen accordingly.

Although MCU prices have increased from time to time before, most of the time they were due to excessive demand leading to continued supply shortages, while this price increase was caused by the "damage" of the epidemic.

Regarding the issue of continued price increases, Su Yiyuan believes that it may continue for the first half of the year, and it also depends on the strategies of foreign MCU manufacturers.

"The supply of packaging and testing is relatively tight now. Many large packaging manufacturers are located in Malaysia, and some raw materials are also supplied locally. The epidemic situation in Malaysia is very serious. These raw materials can actually be produced domestically, but some international manufacturers may have quality requirements and are not willing to change suppliers. Otherwise, domestic alternatives can be used. This is one way. The second way is that many foundries or packaging and testing factories will cut orders from some small customers to ensure the supply of important customers. Some work can also be done in this regard." Fu Yu expressed his own views.

To follow or not to follow?

Regarding the secondary "disasters" caused by the epidemic, will domestic MCU manufacturers follow the price increase trend or not?

"Our strategy is not to raise prices! Instead, we will work overtime to increase supply and not raise prices. We don't want to make a little money through the epidemic or competitors' shortages. Instead, we hope to take advantage of the epidemic to expand our market share and enhance our brand influence." Fu Yu's words revealed the ambitions of domestic MCU manufacturers.

Xia Chaofeng also believes that some MCUs from overseas manufacturers have adjusted their prices due to production capacity, but currently most of the upstream supply chains of domestic MCU manufacturers are in China, so the impact is not significant. Moreover, this is an opportunity for domestic MCU brands to seize market share, so there has been no obvious price increase for domestic MCUs for the time being.

Of course, whether it can always hold on to "not raising prices" and the final direction depends on the supply chain situation. "Currently, suppliers have not raised prices, so we can do so, but if suppliers such as foundries or packaging factories raise prices, we will not be able to bear it and will inevitably raise prices, but it has not reached this stage yet." Fu Yu is still optimistic about the resilience of the domestic MCU supply chain.

Even so, we still need to prepare for a rainy day. Fu Yu said that the company has increased its inventory. The original inventory was about 6K per month, but now it has increased to 20K, which is three times the amount. After all, it is still unclear how long the epidemic will last.

Inevitably, the huge shock wave caused by the epidemic has also affected the expectations for performance. Fu Yu pragmatically mentioned that from the perspective of the first quarter's performance, it was basically the same as the same period last year, but the original expectation of doubling growth may be slightly discounted. He explained in detail that because MCU is the main control and a very important device, customers generally replace it in small batches first, and may need 100,000 pieces a month, but at the beginning they will only purchase 10,000 pieces for trial, which means that if customers replace all of them this year, there may be a tenfold increase. Semiconductor companies basically have this feature. Once the volume is increased, there will be a surge, and three to five times is normal. However, due to the global epidemic and economic uncertainty faced by end customers, at most they maintain basic production and stocking, and maintain the original procurement method.

The way to fill the position?

Judging from the impact of the epidemic, the total demand for terminals will inevitably decline, which will affect the overall performance of MCUs. However, for domestic MCU manufacturers, it is an opportunity for a "Jedi counterattack" to fill the gap?

"What we are competing for now is, first, sufficient MCUs, second, MCU performance, and third, service. The company currently has a lot of spot goods, and sold tens of millions of them in 2019, which has been tested in the market. In terms of support, the company already has more than 140 people, and its scale ranks among the top five among MCU companies." Fu Yu is full of confidence in the company's performance.

Jin Guangyi, product marketing director of Beijing GigaDevice Technology Co., Ltd., also mentioned that for customers, alternative solutions need to consider functionality, compatibility, etc. Although domestic MCU manufacturers started late, they have obvious latecomer advantages and higher cost-performance, that is, stronger performance and lower cost, and there is still a lot of room for development.

Analyzing from the perspective of entry, Xia Chaofeng explained that we still need to grasp the market hotspots, such as forehead thermometers, e-cigarettes, TWS earphones, charging boxes, etc., which have low entry barriers and fast growth, and will help to quickly accumulate markets and customers.

To truly "fill the gap", domestic MCUs still need to solve the two major "mountains" of reliability and ecology.

"It is easier to improve the reliability of dedicated ICs, but to make general-purpose MCUs, we face various complex situations and have to consider the balance between performance and cost, which is very complicated. At the ecological level, developing chips is already very expensive, and then we have to build a software ecosystem based on the chips, which requires even more investment." Fu Yu analyzed, "Most domestic MCU manufacturers do not have enough funds to support the full outbreak of these two points. Most companies develop chips first and then consider the application ecosystem. At the same time, in terms of technical background and capabilities, the understanding and knowledge of the ecosystem is still not comprehensive enough. Insufficient investment + insufficient capabilities, so we can only cross the river by feeling the stones."

"What will be competed in the future is the ability to fully cover the MCU product line and continuously launch new products, while also having a stable and reliable customer experience and sufficient production capacity guarantee." Jin Guangyi concluded that domestic MCU manufacturers still need to take each step steadily and steadily.

In any case, this is a "core" opportunity for domestic MCUs. Xia Chaofeng said that the development of domestic MCUs has entered the fast lane, especially under the influence of the epidemic, many brands have seized the opportunity, and once customers are familiar with domestic MCUs, if the performance of domestic MCUs is satisfactory, more customers will choose domestic MCUs as their first choice in the future.

It is said that pessimists are more correct and optimists grow more. Under the impact of the huge wave of the epidemic, how fast and how far domestic MCU manufacturers can run depends not only on their past achievements, but also on their current actions.