Wafers are valuable components in many industries, but they’re the building blocks for technology. Semiconductors are what make integrated circuits work, and in a tech-driven world like ours, changes in silicon prices have the power to affect every area of our economy.
Now, as inflation rises, analyzing its impact on silicon wafer costs can provide valuable insight into what to expect for the upcoming months. In this article, we’ll tackle the main ways in which inflation affects silicon wafer pricing and the solutions available.
We’re living in a decade of major economic disruptions. These events change the global flow of commerce and cause uncertainty in various markets, all of which contribute to rising inflation. The silicon wafer industry is no exception.
In fact, according to the China Times, wafer prices are expected to increase by up to 25% by 2025. Companies like GlobalWafers, Taiwan's biggest manufacturer, have already pre-sold all their wafers through 2024.
Companies like INTEL and Samsung are planning to build chip factories in the US, so we can predict that demand for silicon wafers will only continue to rise. With increasing demand and not enough production, the prices will follow, too.
Here are some other reasons why:
Silicon is one of the most widely available elements in the universe. However, disrupting events such as the COVID-19 pandemic, the war in Ukraine, and rising commercial tensions with China can lead to volatility in its price.
This is strongly affecting companies across many sectors, including semiconductor manufacturing. Volatility in the price of raw materials can cause supply disruptions and pent-up demand, which leads to more price increases.
This can be very troublesome in an environment where industry demands are on the rise.
Inflation significantly impacts production utilities like water, electricity, and natural gas. The semiconductor industry relies especially on water, as a typical manufacturing facility uses two to four million gallons of water every day.
Because of that, a rise in utilities can significantly impact the costs associated with producing silicon wafers. Advances in equipment efficiency have taken place in the last few years, but technology absorption is not constant throughout every manufacturer.
This also happens at a time when demand for wafer production is on the rise, and suppliers focus more on meeting industry requirements, even if it means using more utilities. That, however, affects the silicon wafer’s price.
The location of a semiconductor fabrication plant can heavily influence its operational costs. Factors such as local supplier networks, available technical expertise, and regional labor laws can all affect expenses related to logistics and facility maintenance.
Governmental actions such as the CHIPS Acts and the Inflation Reduction Act are working towards increasing the country’s semiconductor production capacity, and states like Arizona offer attractive tax incentives to manufacturers.
However, starting or moving a wafer company is not as easy as it seems. The construction sector has also been heavily affected by inflation. In the US, the cost of building new factories has escalated due to a 25% annual increase in materials since 2021.
Another reason we haven’t seen many new wafer production facilities emerge is that the advanced technology required to produce semiconductors is also highly expensive. Wafer production is a precise manufacturing process, and innovation is happening constantly, so businesses need to invest in complex technological assets.
Sadly, there’s limited local expertise in building highly specialized semiconductor production facilities, and the costs of new facilities are expected to remain high. So, although governmental incentives aim to increase wafer production, meeting the industry quota will remain a challenge.
The technology industry is experiencing a combination of complex developments. Price increases due to inflation are happening at the same time as industry demand for wafers grows. All this is happening in an environment where geopolitical chaos leads to price volatility.
The most serious issue with semiconductor inflation is that it disrupts the supply chain and causes scarcity. Although wafers only account for a small portion of total technology input costs, without them, production is immediately stopped, as there are no close substitutes for semiconductors.
As a result, the cost for semiconductor-dependent industries like technology rises. Here are some examples:
The recent Producer Price Index (PPI) data showed a significant rise in the prices of crucial components of technological devices, such as host computers and servers. This leads to higher prices on computer storage and IT support services, directly affecting tech-dependent businesses.
The same goes for CHIP prices. TSMC’s prices, one of the biggest semiconductor producers in the world, have increased 22% in just one year.
The inflationary environment is pushing companies to modify their purchasing strategies, particularly in IT. The rising costs of on-premises equipment and the ongoing challenges in the hardware supply chain are forcing companies to renounce owning IT assets.
Investment in technology hasn’t weaned, but mainly because companies are shifting toward service-based models, like cloud storage.
Technological growth has contributed to enhanced productivity for many companies these past few years. However, inflation forces business owners to reassess their technology spending and critically evaluate their investments.
Reducing operational costs can lead to greater efficiency and better positioning in a competitive business market. However, this also poses a risk to technology companies. Those who can't offer attractive products and services for their clients risk losing their competitiveness and seeing a decrease in revenue.
The intersection of inflation, technology costs, and semiconductor production is reshaping the tech industry's landscape. Companies try to navigate these challenges by adapting their strategies and focusing on innovations that help them stand out in a fiercely competitive market.
To do so, understanding the factors that influence silicon wafer prices is crucial. If you’re interested in learning more, give us a call!
