EL SEGUNDO, CA — Pricing for commodity electronics components is falling at a moderate rate, but the pace of erosion reflects the fact that pricing has already hit rock bottom in many commodity categories, according to iSuppli Corp.
During the period from February 2009 to January 2010, global pricing for commodity components is expected to decline 1.1% per month, a relatively moderate pace, according to iSuppli. This rate of decline is well within normal decreases as defined by Moore’s Law and learning-curve factors.
In contrast, during the last major downturn following the dot-com bust from June 2002 to May 2003, the average monthly price fell by 2.5% .
iSuppli’s tracks pricing trends for multiple commodity component categories, specifically analog-monolithic, capacitors, connectors, crystals, filters, logic, magnetics, memory, oscillators, printed circuit boards, rectifiers, resistors, diodes, transistors and LEDs.
“Amid weak worldwide demand, there’s little opportunity for component suppliers to expand their market share or to gain incremental business,” said Eric Pratt, vice president, pricing and competitive analysis for iSuppli. “Because of this, there’s really no incentive for suppliers to reduce pricing. This is especially true when many commodities have been experiencing constant price declines for such an extended period. Prices in many cases are already at rock bottom.”
Through February, iSuppli's tracking index showed 17 consecutive months of decline starting in October 2007 — a long period without at least one quarterly increase in pricing.
The current phase of moderate price declines was preceded by a period of precipitous drops during the first and second quarters of 2007. From February to June 2007, the firm's figures showed an average decline of 1.4%. By August, pricing bounced back, rising by 0.32% and then by a robust 0.75% in September.
“The third-quarter 2007 rally in component pricing was due to a jump in NAND flash demand at the time,” Pratt said. “However, pricing began to decline after that as rising energy costs started to cut into economic growth and electronics demand. After that, negative economic news began to rule the day. Although raw material prices and energy cost were up, prices for components continued to decline.”
iSuppli said that even when demand recovers, it is unlikely to bring renewed strength to pricing — and may lead to further declines.
“When the volume comes back, we may see component suppliers actively taking down prices again,” Pratt said. “After the downturn, every piece of demand will become a jump ball. The second there’s anything to be gained by cutting prices, suppliers will take action.”