Tolerance to Price Increases for Semiconductor Package Substrates

CORE.MACRO.SUPPLY_CHAIN

Assuming the perspective of a semiconductor package manufacturer or an end OEM that uses PCBs, this brief evaluates the extent to which price increases for semiconductor package substrates and PCBs are generally acceptable, particularly when driven by unavoidable circumstances like a sharp rise in critical material costs.

01. Price Increase Thresholds and Market Reactions

A price increase of 1-3% per year is generally considered acceptable or routine. This can be absorbed or passed on with minimal friction, and is considered the cost of doing business.

A price increase of 4-7% per year is a significant increase and requires justification and negotiation. It will require the supplier to provide transparent data on their cost drivers and will trigger formal reviews.

A price increase of 8-15% per year is considered highly disruptive as this level of increase is painful and triggers strategic action. Potential product redesigns are looked at, as well as exploring alternative suppliers with longer qualification times. This level of price increase requires executive discussions and the formation of task forces to mitigate the cost.

A price increase of greater than 15% per year is crisis-level and unacceptable in normal circumstances. An increase that large threatens market competitiveness of the end product, and is typically only accepted under extreme market shortages.

02. Supply Chain Positioning: Manufacturers vs. OEMs

As a semiconductor package manufacturer, our position is that of a middleman. When we buy substrates, our primary value-add is the assembly and test process. The ability to accept a price increase from a substrate supplier is dependent on our ability to pass that cost on to the customer. Negotiations with customers will be opened to pass on the substrate cost increase.

As an end OEM, our primary concern is the final product’s Bill of Materials cost and its impact on our product’s retail price and overall profitability. During a shortage, however, market conditions come into play, and all rules go out the window.

Semiconductor package manufacturers are more flexible than OEMs if they can maintain their margin. Transparency from the supplier is paramount. The "acceptable" percentage is a fluid number defined by a negotiation between partners.