The prices of chip ICs have surged dramatically, creating a wave of upward movement across the industry. From storage components and silicon to MLCCs, discrete devices, MCUs, and traders, nearly all segments are experiencing rising costs. However, beneath this price hike, there seems to be a hidden force at play—an underlying "cleaning up" process that is reshaping the market.
After resuming operations in spring, companies like Murata, a leading manufacturer of MLCCs, issued a major announcement in 2017, stating that certain MLCC products would cut production by 50% in 2018 and increase prices. The production order was set to take effect on March 2, 2018, catching downstream customers off guard. This move triggered panic among buyers, who began stockpiling wafer resistors in anticipation of further shortages. As a result, orders for major wafer resistor suppliers surged unexpectedly.
Unfortunately, the concerns of downstream customers proved accurate. This year has not been a peaceful one for passive components. Just days after Murata announced its price hikes and capacity reductions, Wanzai and Tian Er Technology also raised their prices due to rising raw material costs. These developments have created a ripple effect throughout the supply chain.
While price increases from IC manufacturers and traders are not entirely uncommon, the scale and timing of this particular surge are unusual. Typically, the post-Spring Festival period marks a seasonal slowdown, with prices stabilizing rather than rising sharply.
So why are prices increasing across the entire industry chain?
Looking back, it's clear that the price hikes started as early as January 2018. It’s becoming evident that the next round of price increases will not be driven by demand but by supply-side factors. This shift signals a fundamental change in how the semiconductor industry operates.
Firstly, the current price increases are a short-term strategy, but the long-term goal for semiconductor manufacturers is to directly engage with end-users. In recent years, the shortage of memory chips led to a widespread price surge across all levels of the semiconductor supply chain—wafers, foundries, packaging, testing, and trading. This has initiated a new cycle of reform within the industry.
In the future, IC OEMs will no longer rely heavily on agents. Instead, they will focus on direct relationships with end-users and customers. By understanding market dynamics firsthand, they can better align production with actual demand, making the industry more efficient and aligned with broader manufacturing trends. The future of manufacturing is shifting from reactive to proactive, where demand drives production planning. If original equipment manufacturers fail to grasp these changes, they risk falling behind in an increasingly competitive market.
Secondly, the price increases are not just about profit—they serve as a tool to capture end-user markets. The so-called “Qingbi Qingye†(clearing up) initiative is essentially a strategy to secure higher profits and gain direct access to customers. Traditional supplier-agent relationships are turning into conflicts, as the balance of interest distribution in the industry chain becomes disrupted. Original equipment manufacturers seek greater control over profits, while agents aim to maintain their traditional margins. The push toward direct terminal engagement is not only about maintaining profitability but also about laying the groundwork for long-term growth in China’s semiconductor industry.
Thirdly, the sharp rise in foreign exchange rates has put pressure on domestic markets, which have either remained stable or seen only minor increases. As global players like Samsung, ARM, Broadcom, Qualcomm, and TSMC continue to invest heavily in new facilities, acquisitions, and partnerships, the entire semiconductor industry is accelerating its development. Their strong financial backing, market expertise, and long-term commitment pose a serious challenge to state-owned semiconductor firms. With internal needs and external pressures, these global giants are pushing forward aggressively, threatening China’s position in the sector.
Fourthly, the price increase phenomenon offers customers a perfect opportunity to maintain high gross profit margins. As the market adjusts to the new pricing landscape, many customers have successfully passed on the increased costs to their own clients, boosting their profit margins. Maintaining stable prices is crucial, especially with rising operational costs such as rent, labor, and environmental compliance. Downstream customers are increasingly concerned about preparing for chip shortages, but they face slower growth and potential price drops. Only by maintaining a stable pricing environment can they avoid being forced into a downward spiral.
With clear national policies supporting the domestic semiconductor industry, the real economy is finally gaining momentum. While foreign IC imports may see a short-term volume increase, long-term price rises are inevitable. The only way this situation might change is if China’s integrated circuits regain a more rational pricing structure. However, the power to decide remains outside of our control.
Looking at the upstream and downstream links of the integrated circuit industry, almost no one wants to lower prices. Therefore, 2018 is expected to be a year of continued price increases. The business ecosystem of the semiconductor industry is quietly transforming.
This wave of price hikes has left China’s semiconductor industry with few options. However, it’s important to recognize that a long-term high-price market is unsustainable. Ultimately, the market must return to its core principles—supply and demand will adjust prices and production capacity accordingly. As the manufacturing industry undergoes transformation and supply-side reforms deepen, the business model of the integrated circuit industry will inevitably evolve.
The best time to seek change is the worst time to ignore it. The best time to plan for the future is now. The best time to do nothing is the worst time to regret.
2018 is a season of renewal. Are you ready?
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