Semiconductor Margins Getting Squeezed at Both Ends
By William Trent, CFA of Stock Market Beat
Our regular readers know that we believe semiconductor pricing conditions are only going to get worse in coming months due to continued investment in new supply, which is growing at a faster rate than end demand. We also recently noted that solar power’s resurgence is creating competition for raw materials.
As this article elaborates:
Scrap wafer recycle supplier Phoenix Silicon International (PSI) said the company turned profitable in May, thanks to large demand from solar cell makers, according to the company. The company also sees encouraging capacity growth on growing demand.
PSI observed that the tight silicon supply boosted the price of scrap wafers significantly. The price of a 8-inch scrap wafer from semiconductor makers had jumped to US$6.50-7.00 from last year’s US$1.20-1.40. Despite the price increase, the company’s recycled scrap wafer output continues to grow with 8-inch wafer shipments staying at 3,000 per month while 12-inch shipments are hitting 50,000 wafers, according to the company.
Semiconductor manufacturers rely on other commodities such as copper and aluminum, which have also seen substantial price increases, in their production as well. This has seldom been an issue in the past, as commodity prices were tame and/or declining and because the raw materials made up such a small percentage of the total price of semiconductors (gross margins as high as 70 percent in some cases.)
However, with prices set to decline even more rapidly than normal and costs having gone up significantly in the last year, margins could be set to compress dramatically. The combination has not lined up this way in many years, and thus may catch many market observers by surprise.
http://stockmarketbeat.com/blog1/
Our regular readers know that we believe semiconductor pricing conditions are only going to get worse in coming months due to continued investment in new supply, which is growing at a faster rate than end demand. We also recently noted that solar power’s resurgence is creating competition for raw materials.
As this article elaborates:
Scrap wafer recycle supplier Phoenix Silicon International (PSI) said the company turned profitable in May, thanks to large demand from solar cell makers, according to the company. The company also sees encouraging capacity growth on growing demand.
PSI observed that the tight silicon supply boosted the price of scrap wafers significantly. The price of a 8-inch scrap wafer from semiconductor makers had jumped to US$6.50-7.00 from last year’s US$1.20-1.40. Despite the price increase, the company’s recycled scrap wafer output continues to grow with 8-inch wafer shipments staying at 3,000 per month while 12-inch shipments are hitting 50,000 wafers, according to the company.
Semiconductor manufacturers rely on other commodities such as copper and aluminum, which have also seen substantial price increases, in their production as well. This has seldom been an issue in the past, as commodity prices were tame and/or declining and because the raw materials made up such a small percentage of the total price of semiconductors (gross margins as high as 70 percent in some cases.)
However, with prices set to decline even more rapidly than normal and costs having gone up significantly in the last year, margins could be set to compress dramatically. The combination has not lined up this way in many years, and thus may catch many market observers by surprise.
http://stockmarketbeat.com/blog1/
posted by douglas mcintyre at 10:28 AM
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