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Changes by IPC companies trigger new wave of component shortages

External circumstances and changing industry demands have continued to impact various industry chains since the second half of 2020. For IPC companies, the consensus in 2021 is that they can only produce as many products as there are materials.

While some companies have emphasized they will not purchase from the spot market at excessively high prices, they will attach a proviso, and as long as clients are willing, they will meet client demands.

Based on changes in the demand-side structure, the upstream semiconductor supply shortage can be felt all the way through to shipments by final assembly companies.

Many IPC companies, including Advantech and Ennoconn, have stated that what is lacking in 2021 are not orders but components. The component shortage has impacted shipments. To aid shipments in the early stages of the component shortage, companies adopted a strategy of acquiring components from the spot market.

As a result of the growing impact of the shortage and lack of supply to meet demand, the price of some components has been artificially inflated to previously unimaginable degrees.

Upon realizing that excessively high procurement costs would seriously affect profitability, IPC companies made adjustments to their spot procurement strategy.

Companies including Advantech and Adlink have come forward and said they will no longer purchase from the spot market at excessively high prices. Through this action, they hope to gain some control of the soaring prices for components.

Some companies have started calling for rational procurement, and not allow chasing the market to become the norm and affect the long-term development of the industry. However, there are also companies that believe as long as clients are willing to accept the terms, the problem of chasing the market will not improve.

IPC companies revealed that because the cost of controllers is too low for the end client, even if the price for one component were to rise 100 times from US$0.01 (NT$0.28) to US$10, it would still be just a tiny fraction of the end selling price for the million-dollar equipment. Even if the price were to rise for three to five components, it would still have little impact on profits. For this reason, clients are not likely to mind the higher prices.

The market is also being shaken up by other factors.

Taking Ethernet IC as an example. Due to production capacity and cost concerns, originally most companies took goods from factory A, while factory B, which has the same type of products, only supplied a few companies. By doing so, these few companies were not significantly impacted in the early stages of the component shortage.

However, after most companies changed plans and integrated the similar products from factory B into the supply chain, the procurement pressure felt by most companies is even being felt by those few companies that had relied on factory B.

Small and medium-sized enterprises (SME) hope that market demand gradually slows to allow the supply side to catch up. Only then can the material shortage problem be solved. However, current market demand is likely to continue for some time, meaning relief from the component shortage problem is not likely to come until after the second half of 2022.

IPC companies pointed out that the severity of the shortage is difficult for the entire IPC industry regardless of business scale, but is especially tough for SMEs. If they do not properly prepare and manage their inventory, the peak shipment season in the second half of 2021 could become a nightmare.