Did you like 2020? 2021 will be worse!

The year that is coming to an end will be remembered by all as a particularly difficult year. Obviously, the health crisis is the main culprit. However, if we tighten our focus a little more on the field of technology and the world of computing in the broad sense (PCs, consoles, components), this year 2020 has undoubtedly marked the beginning of a complicated era. This new era is likely to be felt even more next year. Because globally, we are moving towards a generalisation of “shortages” and undoubtedly a global and constant rise in prices.

Dependence on China, which has other concerns

The Covid crisis has served as an accelerator or revealer of a situation that would have jumped to the world’s attention at some point anyway. So of course the dependence of the world of technology on Chinese factories is not really a novelty. But while most people pinched their noses and hid their eyes when it came to anticipating the addiction that was becoming more and more apparent, others also avoided taking an interest in the evolution of China, its population and its way of life. China’s upper middle class has exploded, in less than 10 years it will account for a third of the country’s population. The average wage, which did not bother anyone when it came to low-cost manufacturing, has also soared. Of course, it used to be very low, but today in Shanghaï or Shenzen, the median wage is higher than in Portugal or Croatia, it should exceed that of Poland in the next 3 years..

The Chinese middle class consumes… and runs its own factories.

The Chinese middle class is today an important driving force for the economy of the country’s technology-oriented factories. The explosion of Chinese brands is largely driven by domestic demand… gaming and other products are exploding, so much so that when factories reopened after the Covid period in China, almost all the production resources were “consumed” by the domestic market. Worse, the sales of western products considered as unavoidable (the iPhone in particular), are clearly deteriorating to the benefit of national champions like Huawei.

Dependence, loss of competence and price increases

Apple is an interesting example on how to read this phenomenon. The Trump mandate and the health crisis have accelerated a certain awareness of the brand’s almost total dependence on Foxconn and China. Apple has therefore started the long process of setting up an ecosystem of suppliers outside the Middle Kingdom with a vengeance. But reactivating factories, opening new ones (as in the USA) makes Apple and others realize that skills have been lost for a long time now. Moreover, China has put a lot of effort into its infrastructures (roads, ports) to capitalize on its status as “the world’s largest factory”. This clearly gives it a substantial advantage over other labor-intensive but less well-equipped countries. When the question of technical expertise arises, we realize that here too we have to call on Chinese groups, if only to set up an assembly plant in Arizona or India in particular… And it is then Foxconn or another Chinese company which comes to set up or take over a production unit outside its territory: surreal.

Container prices from China are rising sharply

China is now raising the stakes

With factories running, a fully loaded logistics system and domestic consumption capable of providing substantial working capital, China is now in a position to raise the stakes for access to its production capacities. This situation has become very clear in recent weeks on the screens, where production volumes go to the highest bidder. A situation that will be reflected in 2021 on the prices of our monitors but also of laptops. On logistics, container prices exploded at the end of the year, giving rise to a bidding system to deliver the highest bidders. Paradoxically, this phenomenon is also beginning to be found in semiconductors. China’s impact is less direct but just as significant. Semiconductor “foundries” are running at maximum capacity. To access their production lines, they have already raised prices by 10 to 15% during the fourth quarter. Forecasts for next year point to a further price increase of 20 to 40% . This increase is normally limited to 8-inch wafers. But this is where we find China trying to “boost” its local foundries by offering higher wages than the competition to gain ground in this sector too. The consequence is immediate: in order to keep its key elements, TSMC plans to implement a 20% wage increase for its employees as early as January… an additional burden that will have to be borne by the customers. Rising prices and shortages are situations that are likely to occur regularly at least for the year 2021. It’s difficult to read a crystal ball, but the times ahead are shaping up to be permanently disrupted for our industry.