Once is Not Enough
Shortages and price increases are in the tech news every day, mostly in reference to those products that affect large industries, but supply/demand imbalances and raw material price increases have begun to affect a much larger swath of the consumer electronics space. One unusual circumstance comes from Shanghai Jingfeng Mingyuan Semiconductor (688368.CH), aka Bright Power Semiconductor, a Shanghai based supplier of LED lighting drivers. While the company’s 1Q report, indicating a 124.3% jump in y/y sales, gross margin improvement from 23.9% to 37.4%, and a staggering 2,424.3% increase in net profit, was exemplary, the most telling part of the 1Q report was not the rapidly increasing sales or profits.
The company indicated that it had issued a letter to its customers informing them of a price increase on January 5, a result of upstream raw material price increases, long semiconductor and packaging production cycles, and limited foundry and testing resources. While not all that unusual, the company added that it issued another price increase letter on March 12, and a 3rd on April 1, and pointed out that any orders that had not been delivered by April 19 would be subject to another price increase, making four since the beginning of the year.
While this is only one company in China, it does point to how intense the driver shortage actually has become, and while in this case the drivers are for LEDs, the foundry capacity normally allocated to driver production, which typically runs on more mature nodes, is being allocated to other products at the same time both raw material pricing is increasing and relatively simple resources, such as testing, are also in short supply. This leaves buyers in the position of using volume to garner favor with those providing resources, even if that volume is overstated. This ‘trickle-up’ effect will burden the industry even after demand slows as the cost of inventory will be that much higher and slower demand will extend the time it takes to work through that inventory, regardless of what it is.
The company indicated that it had issued a letter to its customers informing them of a price increase on January 5, a result of upstream raw material price increases, long semiconductor and packaging production cycles, and limited foundry and testing resources. While not all that unusual, the company added that it issued another price increase letter on March 12, and a 3rd on April 1, and pointed out that any orders that had not been delivered by April 19 would be subject to another price increase, making four since the beginning of the year.
While this is only one company in China, it does point to how intense the driver shortage actually has become, and while in this case the drivers are for LEDs, the foundry capacity normally allocated to driver production, which typically runs on more mature nodes, is being allocated to other products at the same time both raw material pricing is increasing and relatively simple resources, such as testing, are also in short supply. This leaves buyers in the position of using volume to garner favor with those providing resources, even if that volume is overstated. This ‘trickle-up’ effect will burden the industry even after demand slows as the cost of inventory will be that much higher and slower demand will extend the time it takes to work through that inventory, regardless of what it is.
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