By Therese Poletti
While the recent chip shortage makes most consumers think it must be microprocessors – the brains of personal computers – that are causing the most recent supply headaches, it turns out that a tiny, $1 chip is wreaking the most havoc in the PC market.
The chips are called liquid crystal display, or LCD, drivers, and are used in monitors, PCs, laptops, automobiles, smartphones, and nearly all products with a digital LCD panel, giving instructions to the pixels. While the chip shortage has been the talk of the semiconductor industry, little-known integrated circuits, or ICs, are playing a much bigger role in the shortage than their more expensive brethren.
“The No. 1 component in shortage is a component that goes into the panel, the driver IC,” said Linn Huang, an analyst who covers personal computers at IDC.
“Anything with an LCD panel, a TV, a phone or a tablet, but notebooks predominantly, you will need a chip that has an LCD driver, telling the panel what pixel to light up or not,” said Shane Rau, an IDC analyst who covers semiconductors. He said smartphones and TVs are both are experiencing LCD shortages, but the pain of the shortage is being felt by the purchasers of notebook computers, which have become hot items.
“The more of a hot potato it is, people want to get it to market, to earn their $500 or $2000,” he said. “That is more of an opportunity lost than holding back a lower cost phone.”
HP Inc. /zigman2/quotes/203461582/composite HPQ +0.31% Chief Executive Enrique Lores confirmed the issue just last week, at the Bernstein Research Strategic Decisions Conference. When asked by Bernstein analyst Toni Sacconaghi what components are currently the most constrained and putting the most pressure on the company, the first one cited by Lores was LCD drivers.
“Today, the situation on processors has significantly improved,” Lores said. “And now, we see the biggest shortages in panels, not driven by the glass, but driven by the components that panels used.” He added that other low-cost components, such as Wi-Fi controllers, were also a problem.
The factors behind the overall global semiconductor shortage are many and varied, from the U.S. – China Trade war to the COVID-19 pandemic to the overall structure of the semiconductor industry. The result is some shortages, and rising prices. The shortage of LCD drivers has already affected the prices of televisions.
“In the case of TV panels, prices have gone up by 100%, prices have doubled in the last 12 months,” said Bob O’Brien, co-founder, principal and CFO of DSCC (Display Supply Chain Consultants) in Austin, Texas. “The whole picture of demand was so tremendously distorted by the pandemic, it didn’t matter what the price was, people would still buy.”
Prices for personal computers increased at a record annualized rate of 81% in April, according to the Bureau of Labor Statistics’ monthly U.S. Consumer Price Index report. While that rate fell to 8% in May, in line with overall consumer price increases reported last week, experts see more price increases ahead. Huang of IDC believes prices will begin to rise when the holiday shopping season begins.
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“It’s very, very plausible that a same device, spec by spec, could be $100 more expensive,” Huang said. “The risk is it could be even higher.”
In their most recent earnings calls, both HP and Dell Technologies /zigman2/quotes/203822527/composite DELL -0.18% , mentioned price increases. Dell also referred to inflationary costs of some components. Indeed, the price of the usually low-cost LCD drivers has jumped, but these are prices that start at around $1 a part.
“Pricing varies on the size of the display, the resolution. The higher-end displays need more sophisticated LCD drivers,” IDC’s Rau said. “For something that is so cheap compared to a microprocessor in your notebook — that costs from $50 to $100 — something that is so relatively inexpensive can hold up the shipping of the entire system. That is the crux of the concern.”
O’Brien expects prices to rise in PCs and notebooks. “It’s probably going to take some time, maybe as long as a quarter, maybe, for the dynamic to shift into the PC, but it’s only a matter of time,” he said.
Planning out capacity usage is a big part of the process, and no one could have predicted the huge boom in PC and notebook sales a couple of years ago.