Semiconductors and Inflation


December 10, 2022

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If you’re looking to buy silicon wafers in 2023, you may be wondering what to expect. The economy has been full of surprises in the past few years, partially though not entirely due to the pandemic and the resulting quarantine.

Over the past few years, semiconductors have had a major impact on inflation. This makes sense, given how important they are as a component in countless electric devices. However, inflation is also likely to have a major impact on the production of chips.

Today, we would like to discuss the relationship between semiconductors and inflation. We’ll also examine what inflation could mean for semiconductor manufacturers moving forward.

How Semiconductors Impact Inflation

Semiconductors were one of the major causes of inflation during the pandemic. In the early days, manufacturers believed that consumer spending was going to be significantly reduced, so they cut back their orders on all kinds of products.

This estimate ended up being correct, since consumers spent time at home while still working, saving a significant amount of money on things like eating out and transportation.

This meant that manufacturers went into overdrive trying to produce to meet demand. However, they were prevented by the fact that semiconductors were in short supply.  

Semiconductors take a longer time to develop and manufacture than many other products, sometimes taking 18 months to produce.

Consumer demand wasn’t met by the actual goods available, especially for vehicles and personal computers. This meant that the prices of these goods had to rise.

The semiconductor shortage wasn’t the only thing contributing to inflation, of course. There were countless other factors that economists are still examining to determine the impact of, including:

  • Other supply chains issues
  • China’s zero-COVID policy
  • Stimulus checks

The government has put a greater emphasis on manufacturing semiconductors domestically, which should insulate us from price shocks if semiconductors become more difficult to find overseas.

Additionally, it’s been more than 18 months since the semiconductor shortage first started, which means that investors have had time to respond to market demand, increasing the supply of semiconductors and thus decreasing their impact on inflation.

How Semiconductors Have Impacted the Economy Historically

Of course, the outbreak of COVID-19 and the resulting quarantine were a unique period in economic history. Before that, semiconductors were major drivers of the economy because of the way they enabled never-ending innovation.

To understand why, we need to explain Moore’s Law. Despite the name, Moore’s Law isn’t actually a law. Instead, it’s an observation that Gordon Moore first made in 1965, which stated that the number of components on an IC (integrated circuit) would double each year.

This prediction proved true, but in 1975 Moore revised it, stating that the number of components on a semiconductor would double every other year.

This prediction proved true for decades, but it wasn’t a natural law of the universe. Instead, it was a goal that the semiconductor industry continually hit. By setting this goal and continuing to hit it, the semiconductor industry enabled all kinds of technical innovations.

Tech companies could expect chips to have more power, while also getting smaller. With this knowledge, they could then determine what technology they would be able to bring to market.

Of course, this boom in technology was one of the biggest factors that allowed for prosperity throughout much of the second half of the twentieth century.

That said, Moore’s Law wasn’t designed to last forever. The pace at which more components can be added to an IC is reaching physical limitations: for instance, we’re getting close to components that are the size of a silicon atom. At that point, it is physically impossible to create smaller silicon chips.

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How Inflation Impacts Semiconductors

In the short term, inflation is not good for businesses in the semiconductor industry, for all the reasons you would likely expect. Rising costs of supplies can make it harder to turn a profit without passing that cost over to consumers. This can lead to decreased consumer demand.

This is one of the many reasons why it’s advisable to work with a trustworthy, well-established wafer supplier: the relationships they’ve built in the industry over the years can help insulate you from some economic shocks.

At the same time, some experts believe that inflation could actually be good for semiconductor manufacturers in the long run, giving them the cover they need to experiment with new kinds of semiconductors in a market where increased prices are expected.

Of course, it's impossible to take a look at inflation without taking into consideration government action: along with the moves the Fed is making, it’s also important to take a look at the Inflation Reduction Act.

This Act is designed to reduce the price pressures consumers face for things like prescription medication and energy. That latter element is key for semiconductor companies, since the US government is incentivizing clean energy choices.

Clean energy relies on semiconductors more than many other forms of energy. Electric cars, for instance, require roughly twice as many semiconductors as their gas-powered counterparts.

What This Means for the Future

Of course, no one can say exactly what the future may hold. That said, the fact that Moore’s Law is slowing down puts semiconductor manufacturers in a position where they need to be creative in order to meet the ever-evolving demands of consumers.

Even if it’s becoming more expensive for the industry to innovate, there’s still vast demand for semiconductors, especially in the clean energy space. For that reason, it’s worthwhile for semiconductor manufacturers to partner with established wafer suppliers. They can ensure you’re able to manufacture the semiconductors consumers want.

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Looking to Buy Silicon Wafers?

You’ve come to the right place. At Wafer World, we work with semiconductor companies to ensure they get the high-quality wafers they need. We offer a variety of different wafers, so you can buy silicon wafers, GaAs wafers, germanium wafers, and more.

Have any questions about what we can do for you? Would you like to speak with one of our representatives to get a quote on a wafer? Please don’t hesitate to contact us today. We’re excited to speak with you!

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