Sourceability Insights: June 2024 Market Update
The semiconductor industry is in an exciting place. Tepid consumer electronics demand prompts original component manufacturers (OCMs) to keep supply tight. Buyers are beginning to receive letters from popular chipmakers confirming shortage conditions for specific product lines but there are no plans to increase production capacity.?
These bottlenecks for hard disk drives (HDDs) and solid-state drives (SSDs) have led to 20% to 25% price surges. Enterprise SSDs have quickly overtaken HDDs and are prevalent in mainstream consumer PC markets for storage devices below two terabytes. SSDs also have access speeds that surpass HDD by ten times, which has allowed SSDs to narrow the cost gap.?
TrendForce reports that NAND-flash contract prices will increase substantially in Q2, between 13% and 18%, with enterprise SSDs falling on the high end. Depending on AI developments, there could be a secondary price increase of 5% to 10% in 2Q24. Taiwan’s earthquake may also contribute to fluctuations in the coming months since the memory market’s uncertain outlook is causing swings between low and high stock purchases among buyers.??
Memory is Going Up and Up
Over 1Q24, after months of glut and inventory overhang caused steep declines in component prices, memory giants began to announce price hikes on chips, specifically those in DRAM and NAND-flash. Keeping production capacity tight, Micron, Samsung Electronics, Western Digital Corporation (WDC), and SK Hynix, among others, began raising prices as orders surged.?
Artificial intelligence (AI) demand, alongside industrial controls and automotive intelligence has bolstered the memory market after its steep drop last year. Over 1Q24, price hikes ranged from 10% to 25% depending on the component, with HDDs and SSDs seeing exceptionally high demand for their use in AI and enterprise markets.?
As Q1 closed, market analysts suggested that DRAM and NAND flash contract prices might decline or increase by single digits in Q2 as replenished inventories slowed buyers down.??
Then the devastating earthquake in Taiwan occurred, causing some damage and wafer loss to Micron, Nanya, Winbond, and PSMC supplies. While all chipmakers quickly assessed damages and recovered production, memory supply will be affected for Q2.??
Micron might increase its price on some memory products by 20% in Q2 but is still undergoing price negotiations. The Taiwan earthquake damage primarily impacted its advanced processes, which leads experts to believe Micron’s larger price hikes might be on its server DRAM rather than mobile DRAM.??
WDC recently confirmed a shortage of HDD and SSD product lines, warning customers of pricing adjustments over the coming quarter with no exact range. With the tight supply-demand for enterprise SSD, there is a consideration that Samsung Electronics may follow WDC’s lead. According to industry sources, Samsung may raise its prices for enterprise SSD by 20%-25% in 2Q24.??
NAND flash will also increase by 13% to18% as the market climate and reduced supplier inventory influence buying trends among procurement teams. Even with the earthquake's impact, the memory market is uncharted. Consumer electronics demand hasn’t yet returned, and many are still waiting to see how the tides change around 2H24.?
AI will continue to set the pace, meaning organizations looking for HDD and SSDs should note expanding lead times and high prices.
Sourceability Gains AS6081 Certification
Sourceability is now AS6081 certified, expanding its ability to service high-reliability markets such as aerospace and defense. AS6081 is one of the most recognized and respected standards in the aerospace industry, helping keep counterfeits out of high-reliability supply chains. By gaining AS6081 certification, Sourceability ensures that all parts sold are authentic by following the Society of Automotive Engineers (SAE) rules and regulations.?
Under AS6081, Sourceability follows its four main tenants:?
AS6081 is “the SAE aerospace standard (AS) that presents standardized practices to identify reliable sources to procure electrical, electronic, and electromechanical (EEE) parts, assess and mitigate the risk of distributing suspect counterfeit or counterfeit EEE parts, control suspect counterfeit or counterfeit EEE parts, and report incidents of suspect counterfeit and counterfeit EEE parts.”?
The acquisition of AS6081 certification signals Sourceability’s ambition to expand its services to support all industries, including OEMs, CMs, and EMS providers in aerospace and defense. According to the American National Standard Institute (ANSI), AS6081 is one of the most respected standards, and its requirements are critical to reducing the risks associated with suspect or confirmed counterfeits entering the supply chain.?
“Our quality, sales, procurement, and operations team members have become experts in awareness and compliance of both the AS9120 and AS6081 standards,” said Bessy Estrada, Quality Management System Manager at Sourceability. “Obtaining the AS6081 certification will open new doors for Sourceability as demand for electronic components continues to grow.”?
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America Plans to Triple Production Capacity in the Next Decade
The Semiconductor Industry Association (SIA) and Boston Consulting Group (BCG) released a collaborative report on the global chip supply chain. In this report, research projects that the United States will triple its domestic semiconductor manufacturing capacity in the next decade from 2022 to 2032 post-CHIPS and Science Act passage by 203%.??
This growth rate is the largest projected increase worldwide over this time. It is a significant jump in the U.S.'s share of the world’s total fab capacity for the first time in several decades. The SIA and BCG’s study, “Emerging Resilience in the Semiconductor Supply Chain,” states that the U.S. will grow its share of advanced logic manufacturing to 28% of total capacity by 2032, up from its previous 0% capacity in 2022.??
Furthermore, research shows that America is projected to capture “over one-quarter (28%) of total global capital expenditures (capex) from 2024-2032, ranking second only to Taiwan (31%).”?
These developments are attributed to the success of the CHIPS Act. Without its enactment, research suggests that the U.S. would have only been able to capture 9% of the global capex by 2032. Rich Templeton, Chairman of the Board at Texas Instruments and SIA board chair, believes that continued government policies to reinvigorate semiconductor manufacturing in the U.S. will further domestic manufacturing success.?
“Effective policies, such as the CHIPS and Science Act, are spurring more investments in the U.S. semiconductor industry. These investments will help America grow its share of global semiconductor production and innovation, furthering economic growth and technological competitiveness,” said Rich Templeton. “Continued and expanded government-industry collaboration will help ensure we build on this momentum and continue our next steps forward.”?
Now, increased bottlenecks and supply chain risks are possible, as certain segments are more likely to overconcentrate or oversupply. Industry executives have expressed concerns about greater chances of excess without strategic planning. The study believes the government should focus on “enabling targeted, distributed, market-based investments.”?
John Neuffer, SIA President and CEO, says this is a significant step to strengthen U.S.-based semiconductor manufacturing, but additional government policies are necessary to ensure continued success.?
“The CHIPS and Science Act has put America on course to significantly strengthen domestic semiconductor production and R&D, but more work is needed to finish the job…We look forward to working with government leaders to advance policies that broaden the STEM talent pipeline, invest in scientific research, promote free trade and access to global markets, and expand and extend critical CHIPS incentives.”??
U.S. Pushes New Tariffs and Sanctions in Trade War?
New developments in the ongoing trade war around chips between the U.S. and China continue to shift the semiconductor industry landscape domestically and abroad. The U.S. government reportedly revoked Intel and Qualcomm’s licenses to supply semiconductor chips used in laptops and handsets by Huawei.??
Citing several sources, Reuters stated that some companies received notices on May 7th and that the license revocation took effect immediately. The Commerce Department confirmed the revocation of some of the export licenses to Huawei but would not provide further details. Since 2019, the White House has placed Huawei on a trade restriction list that requires suppliers to apply for licenses before shipping.??
Despite the restrictions, Huawei has been able to work alongside numerous U.S. suppliers within the technology sector since landing on the list in 2019.?
Later that same month, the Biden Administration announced sweeping tariff increases on several Chinese imports. These include semiconductors, electric vehicles (EVs), batteries and battery components, solar cells, and many other components used in different technologies. The White House press release states, “Tariffs on Chinese semiconductors will increase from 25% to 50% in 2025, doubling its tax rate.”?
Liu Pengyu, a spokesperson for the Chinese Embassy in Washington, said, “We hope the U.S. can take a positive view of China’s development and stop using overcapacity as an excuse for trade protectionism.”?
Some representatives were not happy with the recent increase in tariffs. David French, the executive VP for Government Relations for the National Retail Federation, said, “As consumers continue to battle inflation, the last thing the administration should be doing is placing additional taxes on imported products that will be paid by U.S. importers and eventually U.S. consumers.”?
Colorado’s Democrat Governor Jared Polis echoed similar statements in a post on X, “This is horrible news for American consumers and a major setback for clean energy. Tariffs are a direct, regressive tax on Americans, and this tax increase will hit every family.” On the other hand, the Republican National Committee is saying that the Biden Administration wasn’t tough enough.?
Chinese companies have made leaps and bounds in developing domestic technology in the face of export restrictions and bans. This can be seen with Naura Technology and Shanghai Micro Electronics Equipment’s push to create new advanced lithography tools after ASML was restricted from exporting its equipment to China. While U.S. Commerce Secretary Gina Raimondo said that Huawei’s latest chips lag behind U.S. chips by several years, Chinese chipmakers are working overtime to shorten that time span.?
It will be interesting to see how the rest of the year plays out in the semiconductor market landscape.