China’s Chips Shortage Likely to Result in Price Hike for Electronics

January 29, 2021 Updated: January 29, 2021

As China seeks to boost its domestic chipmaking capabilities, an increase in demand for mini LED chips that are used in manufacturing laptops, tablets, and other electronic devices has crowded out chipmakers’ ability to produce older, conventional LED chips used for display screens.

This shortage has already resulted in price hikes for the conventional LED chips.

Industry experts predict that manufacturers will likely transfer the price hike downstream, to retailers of consumer electronic goods.

According to a Jan. 20 report by Hong Kong Economic Times, tech giants Apple and Samsung are preparing to launch new laptops, tablets, and TVs that are fully equipped with mini LED backlights this year. This will lead to skyrocketing demand for mini LED chips. As producing mini LED chips yield far higher profit margins than conventional LEDs, manufacturers are cutting down their capacity to make traditional LEDs.

Taiwan-based market research firm TrendForce stated that mainland factories in the downstream LED supply chain have aggressively stocked up on electronic components in order to mitigate the impending price increase on raw materials and manufacturers’ tight production capacities after the Lunar New Year. However, products of certain serial numbers or specifications are already in shortage. Thus, manufacturers are giving higher quotes to small- and medium-size clients who place low-volume orders.

A fire at a Chinese chipmaking factory called Xuzhou GAPSS last month caused production on 400,000 pieces of a LED chip material known as patterned sapphire substrate (PSS), to be suspended. This incident also led to a five to ten percent price hike in core LED chip materials, which is likely to exacerbate the shortage of LED chips further.

A price increase letter dated Jan. 6 from a leading Chinese semiconductor firm CR Micro was widely circulated among the industry. In the letter, the company told its customers that product prices will be adjusted accordingly from New Year’s Day, with an increase of 10 percent. In addition, other Chinese semiconductor manufacturers such as New Clean Energy, Goodix Technology, Silan Microelectronics, and Fuman Electronics have all issued price increase notices, according to a report by Radio Free Asia. Their price hikes ranged from 10 to 30 percent.

In addition to price increases for electronics that contain such LED chips, other sectors that use the chips are likely to cut down on production due to the chip shortage. Those sectors include automobiles, cameras, and water heaters.