Price of Semiconductor & Electronic Components

The price of semiconductors has fallen steadily over the past decade. The steady price fall is caused indirectly by Moore’s Law, an observation that the number of transistors that can be inexpensively placed on a circuit board doubles every two years. As computing capacity grows exponentially yearly, manufacturers can create more powerful chips using less and less expensive silicon. As chip production has become cheaper, it has become more competitive. The highly competitive nature of the semiconductor manufacturing industry has pressed the companies to offer their products at cheaper and cheaper prices.

The price decline in the last decade was exaggerated during the recession, as consumers tended to put off computer purchases until the economy turned around. The demand drop worked its way up the supply chain, causing semiconductor prices to drop more quickly during the recession before slowing once the economy and computer demand recovered. As semiconductor manufacturers continue to jockey for business, the collective price of their products fell an additional 0.5% over 2013 and the price decline continued from 2014 through 2016. After the chip industry attained a drastic revenue expansion during the prior period, many semiconductor suppliers overproduced in 2019 and raised the inventory levels dramatically, leading the price of semiconductor and electronic components to decrease.

Despite declining prices, a global semiconductor shortage began in 2021, causing a surge in the price of semiconductors and electric components after a long-term decline. The pandemic caused a decline in vehicle sales at the start of 2020, leading to manufacturers reducing orders of semiconductors for vehicle parts, including displays and other safety systems. Later in 2020, demand for vehicles grew again, contributing to the prices for semiconductors and electronic components growing in the year's later months. However the long-term challenges experienced in the year as the pandemic hurt consumer demand for these products keeping semiconductor prices lowered compared to pre-pandemic years.

Even as the economy reopened in 2021, the prices for semiconductors and electronic components continued to decline but at a meager rate. This trend can be connected to the gradual reopening of many downstream industries, which kept demand for semiconductors and electronic components at a relatively moderate rate. However, as inflation continued to worsen in the year, projections began to change, especially as downstream markets struggled to keep up with demand, which kept costs growing for manufacturers, including semiconductor companies. In response to these challenges, the Taiwan Semiconductor Manufacturing Company (TSMC), the biggest semiconductor producer in the world in August 2021, announced plans to increase chip prices by 20.0%, which contributed to a delayed but substantial effect on semiconductor prices in the year. While prices continued to remain lower than in the year before as companies increased their production to respond to growing demand, the later ,more significant surges in the prices contributed to the blunting of price declines, which contributed to a more meager 0.2% decline in the year.

The long-lasting effects of these pressures began to take a more substantial shape in 2022 in the form of higher inflation, which raised the costs for many industries while extending these chip shortages as manufacturers ramped up their production to meet consumer demand but at a more expensive rate which contributed to semiconductor prices increasing 4.0% in 2022. In turn, prices for semiconductors are set to expand 0.6% in 2023 as consumer spending has continued to remain elevated by a continually tight labor market which will boost the need for various products that are reliant on semiconductors as part of their production processes. As various common and popular products are continually retrofitted and integrated to include technology from furniture and appliances, the need for semiconductors will remain steady in the period especially as more products get developed using smart technology that relies on semiconductor chips meaning that production of such products in the period will necessitate the need for more semiconductors. The continuation of these factors in 2024 will boost prices within the year especially if the economy manages to hit a soft landing instead of a hard recession, as this will help boost prices more thoroughly. IBISWorld expects this trend to continue in 2025.