Market Outlook for Q2 2022

Manufacturers Reassess their Supply Chains

Prevailing obstacles since the COVID-19 Pandemic in 2020 have manufacturers reassessing their supply chain strategies. Most recently, the following major disruptions in 2022 Q1 added to existing setbacks, or created new ones altogether:

2022 Q1 in review

Supply has been chasing demand for quite some time now across multiple commodity groups, and this isn’t expected to let up anytime soon.

The notable events that exposed this gap between supply and demand in Q1 also revealed manufacturer vulnerabilities. This includes the lack of global diversification, which left manufacturers reliant on singular locations for necessary chipmaking resources, such as raw materials and gases.

Dependence on Single-Sourced Materials Added to Manufacturing Gaps

Infineon observed that the dependence on Ukraine for over half of the world’s supply of neon gas could have long-term effects if the current Russia-Ukraine war continues to intensify. The inert gas is crucial for semiconductor manufacturing and the cost has already increased to nine times its starting price since Russia invaded Ukraine in February. In addition, if manufacturer stockpiles do run out, it will likely lead to additional constraints and the inability to manufacture end products. The major manufacturers like Taiwan Semiconductor Manufacturing Co. (TSMC), Intel and Samsung likely have advanced preparations for such situations, but other smaller chip fabs may not have the same buffers and will see a more immediate impact.

Delays Continued Amid Operation Interruptions

The two earthquakes in Japan in Q1 hindered operations at a handful of manufacturing facilities. Renesas factories were affected by both earthquakes, so delays have mounted. Additional manufacturers that had to halt operations during the quakes include Toshiba, Sony, Kioxia and Murata. The ripple effect of the disruptions was felt on some immediate accounts, while pricing and lead times may be impacted in the long term.

Manufacturers Have Renewed Concern Due to COVID-19 Mandated Lockdowns in Asia

Ongoing COVID-19 lockdowns throughout Asia impeded processes at several manufacturing hubs. The lockdown restrictions in Shanghai and Singapore led to temporary shutdowns at Tesla Inc., Infineon, Foxconn and Unimicron. The length of the halted operations varied at each manufacturer’s factory. However, any additional disruption to the electronic component supply chain is likely to create an effect in the market similar to other lockdown instances in previous quarters.

A Look into 2022 Q2

Instances such as the earthquakes in Japan, the Western Digital/Kioxia NAND flash line contamination and widespread COVID-19 lockdowns had manufacturers scrambling to get operations back on track. While halted production was the primary pain point as a result of the aforementioned events, ongoing raw material shortages and rising logistical costs also factor into the second quarter pricing and lead time increases.

Higher Demand, Limited Supply

Prices of substrates used in IC packaging are poised to increase in Q2. An uptick in demand for leadframes and substrates necessary for IC packaging in the automotive sector is leading to increased costs of materials. Substrates used in IC packaging are poised to increase in Q2. Already, leadframe makers have increased pricing by 5-10% because of higher nickel and copper costs.

The leadframes and substrates are required for automotive power modules needed for electric vehicles and traditional automotive builds. Manufacturers such as STMicroelectronics, Infineon, onsemi and Renesas have planned to ramp up automotive production capacity to meet increased EV demand. However, these higher logistics and materials costs will likely impact production and end-product pricing.

Constraints in All Areas of the Global Supply Chain

In another instance, TSMC’s critical role in product design and production for Apple, Qualcomm, Nvidia and Intel is proving to be tumultuous. TSMC has raised its production costs, driven by the consistent demand to deliver advanced technologies at a fast pace in a very competitive market. This has added pressure for other companies as they try to contend with the standard set by TSMC. This is reflected in anticipated price increases for manufacturers like Intel, whose Ethernet chipset prices are expected to rise by 10-20% in May. Additionally, Qualcomm’s severe constraints across its production lines are reflected in prices across its commercial-grade AT80x series and AR series as they rise by 10-20%.

TSMC also contends with other manufacturers working to expand production efforts by building new factories to find talent and fill the new spaces with the proper equipment. The workforce shortage and delivery constraints chip equipment suppliers are experiencing will likely add to manufacturer woes.

The Takeaway

Built-up supply chain setbacks in consecutive quarters over the past couple of years will likely have lingering effects across various commodities. With the push for supply to meet demand, local governments and individual manufacturers have begun investing in expansion efforts. However, these efforts to build additional factories, as well as navigate global workforce shortages, will not be an overnight solution. Production lines are anticipated to be saturated in Q2.