Moore’s law is the observation that the number of transistors in a dense integrated circuit doubles approximately every two years. As the cost of computer power to the consumer falls, the cost for producers to fulfill Moore's law follows an opposite trend: R&D, manufacturing and test costs have increased steadily with each new generation of chips. Rising manufacturing costs are an important consideration for the sustaining of Moore's law.
It would seem, from recent trends, that Moore’s law is entirely sustainable. Manufacturing costs are just about to rise significantly. For "the man on the Clapham omnibus," electronics will no longer be seen as smaller, faster, cheaper, as the electronics industry may now have to take a long and hard look at the last word in this trilogy.
It has long been viewed that one of the factors in sales success is availability, and when essential raw materials are of critical importance, but become scarce, and then there is only one result. Within the industry which provides the basic building block of electronics circuitry, a level of incredulity is rising to the surface rather like froth of a good pint of beer. But the taste is far less pleasant. The ingredients of the brew that is unpalatable consist of copper foil, aluminium, glass fabric, resin and solvent.
A look at the causes is both interesting and probably unsurprising. Copper prices have risen from $2.10 to $2.60 per lb. in the past six months and are up 40 cents (18%) in the past month alone. Aluminium has been unstable for the past month, fluctuating between a low of $1710/tonne to a high of $1780/tonne. This time last year it was $1450/tonne. The trend for epoxy resin price is upward as well, 10% in the past two months, and glass fabric the same amount over that time span.
The causes of all this? Politics and economics. In the US pronouncements from the President-elect on massive investment in infrastructure has fueled speculation on demand for copper, which in turn has levered the price sharply upward. Add to that the reduction in supply by 25% for reasons of maintenance, add to that demands for copper foil from lithium-ion battery manufacturers, and you begin to see that the supply situation is serious now, and could become even more serious during 2017, with little signs of easing before the end of next year.
Moore’s Law again – smaller, faster, cheaper, to which you can add lighter. Lithium batteries are an $11bn market, and they meet the latter demand, being compact and small. But they use copper foil, and with the present supply situation, producers are restricting supply by weight. For a company producing copper-clad laminate this is a serious matter, as the need for heavy copper reduces the allocation by weight alone. The battery manufacturers have no such restriction, and their demands increase annually. Thus it is that it would not be irresponsible to say that price increases of at least 30% for copper-clad laminate are imminent, if not already in place.
To quote from industry analyst BPA Consulting's Global PCB & Laminate Industries Outlook 2017: “Several copper suppliers have decided to switch part or their entire capacity to the production of Battery Foils for Electrical Cars. (There is a particularly strong demand in China). As a result, there is a shortage of standard foils for the electronics market. This situation is unlikely to change over the next six months.
"In addition, during the third quarter, a number of companies have been trying to raise their prices as many report unsustainable margins for 2016. With the advent of small feature sizes and quality requirements in many of the end markets going forward, PCB companies are going to have to invest even more in up to date equipment and will need a sufficient margin to re-invest. This may well be beyond some manufacturers in 2017. Therefore much of the increased demand value in 2017 is likely to come mainly from this potential price increase, rather than any uptick in underlying demand.”
One recalls the days in the 1970s when monetary devaluation was necessitating the implementation of price rises, at the rate of 10%, and on more than one occasion. Needless to say, buyers were searching around for the best deals to obviate this increase to their manufacturing costs, but to no avail. The effect was national, the end result the same – price increases. What changed then was that manufacturing in a country so affected became less competitive, and thus manufacturing, over a period of time, moved to countries where costs were significantly lower. What is interesting about the present situation is that it is not just national, it is international, and there are "no best deals." A global market has a global supply side nowadays, and the impact will be felt right down the supply chain to the consumer, regardless of location.
With new copper capacity coming along at the end of 2017 there is some hope, but for the next 12 months the need to close ranks with suppliers of copper laminate and copper foils will be essential, as under such conditions an end-user could find themselves at the back of the queue. OEMs will do well to consider that the downward spiral they energetically pursue is about to change direction, and rather dramatically.