Global chip shortage might prompt smartphone companies to boost price

Smartphone companies are most likely to increase prices of components due to global chip shortage. The world is undergoing a semiconductor supply shortage, with chip production issues affecting supply chains for many companies.

As such, Xiaomi president Wang Xiang warned that this could cause the company to increase prices of its products because the shortage is putting upward pressure on costs. Xiaomi is currently the third largest manufacturer of smartphones. The company believes its chip supply issues are hindering its operations, but it hasn’t been a major problem until recently. Supply chain feedback suggests Chinese smartphone producers have stockpiled inventory since the fourth quarter to mitigate any shortages.

According to Gamers Grade, the shortage has not just affected the production of smartphones, but also gaming consoles and the auto sector. The supply crunch is primarily attributed to the coronavirus, whereby the stay-at-home era pushed demand for home-networking equipment and consumer electronics beyond estimated levels. This caused some businesses to stockpile, resulting in some companies having more inventory than usual.

Analysts highlight that Huawei also began hoarding components around the same time to ensure survival from restrictions imposed by the US, and the situation was exacerbated by the Texas storm, in February, which impacted Samsung’s operations in Austin.

Wedbush, in its report, states that given that Apple and other device producers will have undergone stockpiling measures, it is likely that they too will be feeling the supply pinch. The limited component availability could force Apple and others into short-term price adjustments that could hit consumers hard. The firm believes it could be a situation that benefits device producers as constraints yield forward pricing leverage.

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“To Apple, a chance to renegotiate contracts could be beneficial, as it famously is known for coaxing favourable terms from its suppliers. The longer period of tight supply could increase pricing of components as terms for new programs are set or older contracts are renegotiated,” it said.