Small businesses may close under the chip shortage and inflation-Chapter 3

small businesses may close under chip shortgae and inflation chapter 3 3

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In Shenzhen, where the largest concentration of switch manufacturers is located. At every exhibition, especially at overseas exhibitions, we can see switch products from many manufacturers. In the first two articles of the “chip shortage” series, we introduced the current situation faced by switch manufacturers from global switch chip supply and localized switch chip supply. It’s not easy for switch manufacturers to get through this crisis, as the new virus is spreading wildly in India and other countries overseas. The trade dispute between the US and China is intensifying, and the international storm is changing. Switch product manufacturers, just like HoweVision Technology. Under the micro-profit, to provide the global high-speed development of the Internet of Things of all kinds of innovative switch products of good quality and low price, they will face what kind of survival environment?

The more shortage, the more stocking, the more serious the shortage crisis

From late 2020 to early 2021, some switch manufacturers continue to increase the hoarding of switch chips in the domestic switch chip market situation. Switch other components, crystals, inductors, resistors, and other passive components even though the original factory has repeatedly released the news of price increases shortage. Still, the spot market prices can not go up, and there has been a crisis of excess. In addition, shortages and price increases have already had an impact on the switch downstream market. Some areas of market demand have been weak; the end customer has appeared to project extension or even terminate the project. This has led to news that small and medium-sized switch manufacturers have switched to other businesses or even ceased operations. In this industry, it is well known that every shortage ushers in a global distributor frenzy and by stocking up, speculating, and releasing goods at the exact right time. Substantial profits can be realized in a short period. It is worth noting that this time, the main force of switch hoarding but switch product manufacturers, system integrators. Switch product distributors are in a subordinate position in the entire switch product distribution chain and have become the game’s audience. Panic stockpiling is indeed prevalent in the electronics industry, and the switch field is no exception. According to an employee of a large domestic switch manufacturer, the company predicted that the general environment of raw material tension would continue, increased stocking efforts from the beginning of last year, and continues the strategy of high inventory. But the shortage of chips continues to plague the entire industry. Although large companies and well-stocked companies will be less affected, who can not predict how long the supply shortage can last. Of course, the way to increase the chip inventory has also received a high degree of attention from the original switch chip manufacturers. Targeted based on the number of chips ordered by each manufacturer in previous years to compress the way batch supply, the investigation of the chip hoarding situation is trustworthy switch manufacturers and such manufacturers to a period chip supply cut-off penalty. Just how strong the implementation, that no one knows.

small businesses may close under chip shortgae and inflation chapter 3 2

Out of stock, price increases

In Shenzhen, the shortage problem has reached the limit, so that various manufacturers face the risk of losing core customers. Bidding for switch chips has become an unwritten rule of the game. Switch chip “black market” on the rapid formation, can not get the original chip, go to the “black market” bidding to get the chip. To this shortage and speculation is the most severe switch chip Realtek, the rate of increase has been up to more than thirty times. Realtek chip factory employees said that the company’s prices rose only between 30% and 50% but can not stop the downstream chip distribution channels speculation so that the company’s products are inflated. Something like this is not only in Realtek chip makers. Other chip manufacturers are in varying degrees of such events, significantly increasing the manufacturing costs of the switch. “The company’s strategy for market supply is to protect large customers, but the status quo is that large customers can not be fully satisfied, small and medium-sized customers are even less.” The staff of the switch chip maker further said that, compared to domestic companies, shareholders of large international companies have more stringent requirements for profitability. Below a certain level of gross margin products, the company will withdraw. Therefore, the company can not achieve expansion in the short term, and the increase is irreversible. Usually, the shortage of price hikes is followed by a wave of inventory backlog. The company also needs to bear huge fab operating costs and dare not quickly expand production. According to industry insiders, although short-term benefits are available for stockpiling, speculation, price increases, but in the long run, such suppliers will give downstream manufacturers an impression of the emergence of unstable supply, not the spirit of the contract. And the consequence is that when supply and demand are no longer tight, terminal manufacturers will avoid using such suppliers of chips.

Price increases are not only chips.

Switch manufacturers face significant difficulties in 2021, and this hoarding and shortage cover the entire switch manufacturing sector. The price increase also covers every component and even hardware and packaging materials. As a result, switch manufacturers can only increase the inventory of every fabric in the bill of materials and also need to pay now to purchase materials. A typical situation for switch manufacturers at this stage is that the company maintains a high inventory model, where the warehouse is complete and has all kinds of raw materials piled up inside. But because of the lack of one of the chips, it is about to face the crisis of not starting work and can not process raw materials for electronic products to achieve capital turnover. A Shenzhen switch factory employee said, “due to a shortage of switch chips, the price has increased tenfold, passive components stocked again can not produce, the factory may have to go on vacation. Recently, domestic traders began to release goods. Some material prices have fallen, but the overall price is still high, and the impact of price increases is slowly emerging. Switch chip maker Realtek said that at a meeting held on May 5, the supply chain tightening has begun to impact the bid market. The bid delayed, and even due to the chip price increases, resulting in customers renegotiating the bid price, the overall market situation tends to develop chaos. According to a switch factory employees in Dongguan, because the chip and PCB prices are too high, the increase has exceeded the profit. Our terminal had to stop taking orders or project delivery delays. Another industry insider also said that many low-end manufacturers suffered a surge in chip prices, procurement costs higher than the selling price, companies that can not support the market demand will instead appear weak. The switch product processing links and many small businesses are generally faced with “make more losses,” “a single also dare not take” the dilemma, the market reshuffle is accelerating.

small businesses may close under chip shortgae and inflation chapter 3 1

High-quality switch manufacturers need the support of users.

In the Pearl River Delta, many high-quality manufacturers of switch products in different segments, like HoweVision Technology, use the same switch chip solution but can design switch products with other performance and parameters and provide excellent outcomes. Although these manufacturers may not produce as much as the giants and may not have brands that everyone knows, like the unicorns, these quality manufacturers promote the development of the industry. They are constantly innovating for the application of switches in niche areas. If all of them are killed in this storm, then the ultimate harm is the global users, the end consumers. It may also allow all kinds of integrators and engineers around the world to provide excellent solutions and differentiated quality services. Before the crisis, join hands with peers to protect quality switch manufacturers, a little more delivery tolerance, a little more price support, more orders to take care of, the winter passed, the spring blossoms, the switch field will once again flourish.

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Mr.Hua

Hi, I'm Mr. Hua, The funder of HoweVision technology, I'v been woking industrial communication equipment for 8 years now, and the purpose of this article is to share with you the knowledge related to industrial communication from a China supplier's perspective.

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