Supply Chain Risks: Inflation Now Troubles the Industry

Inflation and ongoing supply chain risks mean trouble for the automotive industry, while demand for consumer electronics is falling rapidly.

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Rising Costs and Declining Demand

While the summer of 2022 is winding down, the worldwide demand for electronic components is not. Rising costs due to inflation and the ongoing semiconductor shortage continue to present supply chain risks for the automotive industry. At the same time, demand for PCs and smartphones is waning just as the consumer IC industry has reached a state of excess inventory.

Are things evening out, or will we continue to see fluctuations in supply, demand, and price through the end of the year? Let’s take a closer look.

Electronic Component Orders Exceed Capacity

STMicroelectronics CEO Jean-Marc Chery expects orders to exceed production capacity through 2023, despite the influx of investments directed toward correcting the world’s semiconductor shortage. Although the industry is working toward increased production capacity across the board, more and more manufacturers are announcing cost increases due to inflation and high material costs. Intel announced 10%-20% increases for most microprocessors, along with NXP, Infineon, Broadcom, Qualcomm, and Marvell.

Demand for Consumer Electronics Weakens with Inflation

Rising inflation is eating up disposable consumer income and driving down demand for PCs and smartphones. Gartner predicts PC shipments will shrink by 13% in 2022 after two years of growth, and mobile phone shipments will decrease from 1.57 billion units to 1.46 billion units. As consumer demand falls, the supply chain is catching up to—even surpassing—inventory needs. Distributors and equipment suppliers report excess inventory, and the demand outlook for consumer electronics for the rest of the year is bleak.

New Risks in the Supply Chain

Meanwhile, demand for semiconductors in data centers and auto manufacturing is expected to increase, especially as carmakers increase the number of electronic components needed per vehicle. These demand fluctuations lead to increased prices and decreased inventory for the auto industry, the opposite for consumer electronics. TrendForce reports that the continued rise in material inventory will bring risks to the supply chain.

As you continue to navigate the ever-changing semiconductor market, remember that Velocity is your trusted supply chain partner. With more than 22 years of experience, we understand the risks you face when the industry is in flux. Learn more about partnering with our global team to ensure supply chain woes don’t get the best of your growth in these unpredictable times.

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If you're searching for flexible solutions for your supply chain issues, reach out today! We would love to assist you.

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