Key Factors for Purchasing Semiconductor Components

Written by Arielle Lim Shi Min, DPSM

by Arielle Lim Shi Min, DPSM

Key Factors for Purchasing Semiconductor Components

Written by Arielle Lim Shi Min, DPSM

by Arielle Lim Shi Min, DPSM

by Arielle Lim Shi Min, DPSM

Realistically there is no one factor that weighs over another factor when it comes to purchasing. It is a collective issue that ties together, that leads from one factor to another. In the case of purchasing semiconductors, the buyer needs to do an in-depth research for the best possible timing to purchase the materials/components for the best price for development of products.

Functional Factor for Semiconductors

Semiconductors are the brains of modern age electronics, enabling technologies critical economic growth, national security, and global competitiveness.

Semiconductors advances leaps and bounds in communications, clean energy, health care, military systems, transportation, computing, and many other applications.

With upcoming types of technologies that brings impact on society, including virtual reality, the Internet of Things, energy-efficient sensing, brain-inspired computing, automated devices, robotics, and artificial intelligence. Semiconductors’ greatest potential lies ahead.

Semiconductor Market Statistics

In 2018, the worldwide semiconductor market was at a high of 13.7% which was at an all-time high. The market has gone through booms and busts every three to four years. The rapid growth of 2017 and 2018 contributed to the drop-off in the new forecast. There was a supposed increase in 2019, unfortunately due to factors like trade war, Brexit and weak Smartphone demand it led to 2019 semiconductor market downing 13.3%.

Global Sourcing for Semiconductors

Global sourcing enables one to source for goods from international countries across geopolitical boundaries. The main purpose is to exploit global efficiencies such as lower cost, inaccessible raw materials and other economic factors like low trade tariffs and tax breaks.Companies sourcing from both inside and outside their country borders are better able to compete. Global sourcing needs to face the rapidly changing global market environment.

Category Management for Semiconductor

Category management is defined as a “Retailing and purchasing concept where a range of products purchased by a business or sold by a retailer is broken down into groups of similar or related products”. Category management deters from determining the performance of individual brands, and towards the performance of categories of products. The aim is to provide a triple-win situation where purchasers, suppliers and consumers benefit.

In theory, category management provides opportunities for the purchase and selection of the product to meet the business needs. It is believed to achieve cost reduction, helping the company to take a selling perspective and helps to gain sales-building opportunities which addresses issues at the category level.

Marketing Mix Factors

With 4 components in the marketing mix, product, pricing, promotion and place of distribution and each of these components have a direct or indirect impact on the purchasing of materials.As a purchaser, factors like the quality of the product, price charged, availability of the product (bulk buy) at the required location and much more.

Economic Factor for Semiconductors

Demand has plunged for memory chips used in Smartphone, data centers and elsewhere. Memory sales, which makes up for roughly 30% of the semiconductor market, are seen falling by 30.6% in 2019.

Memory prices continue to decrease, even with the move to cut production and postpone spending. Large-lot prices of standard DRAMs are at almost 30% lower, and prices of NAND flash memory have fallen about 30% in half a year.

Builders of semiconductor-manufacturing equipment are also affected. Tokyo Electron in late May revised its three-year business plan released in 2018, extending the time frame for meeting the targets to within five years.

The U.S. in May essentially banned exports to Huawei Technologies, prompting some big industry players to suspend transactions with the Chinese telecommunications equipment producer. Stepped-up American tariffs on goods from China are another negative, and a further slowdown in the Chinese economy would have repercussions for trading partners.The semiconductor market is anticipated to grow over the medium term as 5G wireless technology and next-generation vehicles take root.

Industry Trends Affecting Semiconductors

• The rollout of 5G networks

“True” 5G has yet to become a full reality. But the transition from 4G LTE to 5G is closely watched by both technology companies hoping to stake their claim on this new destructive technology and governing bodies looking improve their nation’s global competitiveness. The roll out of 5G standard means the increase of data-hungry devices with higher bandwidth requirements which requires an impeccable data centers to serve all types of information to the world’s billions of devices. In short, it is the best technology for the massive amount of data that will be generated by sensors in cars, IoT devices, and a growing list of next-generation electronics.This technology is a new radio interface (5G NR). The downside is that with increased frequency, signal distance goes down. The end result will inevitability lead to increase of repeaters and base stations.

• Artificial Intelligence (AI)

Semiconductor “arms race” is headed towards AI space, major contributions to Apple and Huawei, two powerhouses in the Smartphone industry. Both companies are pushing out their new and unheard of 7-nanometer system chips.These new processes are the first major shrinks in a long time, the chips don’t just deliver raw power they are like the fuel to the machine’s learning capability which enables the creation of even more convincing artificial intelligence.

• Internet of Things (IoT)

The IoT is being brought to a new era where “technology” is being redefined. In recent times, who would have thought that shoes and watches could be connected to the internet. The appeal of IoT connectivity and productivity extends from the biggest corporations all the way to consumers. It means semiconductors are making their way into a more diverse range of products than ever before.

• Autonomousor Self-Driving Vehicles

Most of the major technology companies are currently actively testing automated cars on the roads. The extent of technology packed into these vehicles are not easily comprehensible, and all of it requires uninterrupted connectivity with wireless networks and computational power.

• Augmented Reality (AR) and Virtual Reality (VR)

There are many apps that currently simulate AR and VR. In the market games like “Pokemon Go’ are raking in hundreds of million downloads. They are more than positively received by the general public, as people are always looking for new technology to put their hands on.Consumers might now be ready to experience iterations of AR and VR beyond games—perhaps companies might even be ready to start using augmented reality to improve work place productivity.

Conclusion

The key factors in purchasing semiconductor components within semiconductor industry is about understanding the market trend and semiconductor world affairs.

By understanding how to source for global materials interact with category management and marketing mix, purchasing of components becomes clear and direct.

Economic factors affect the pricing for supply of semiconductors, market trends will make up the difference for the demand. Ultimately the factors of purchasing semiconductors do not just fall onto a single category, but it’s a collective overall of the bigger picture.


References

Chakraborty Pallabi. (2017). “7 Important Factors That Influence The Buying Decision Of A Consumer”. Retrieved from https://www.linkedin.com/pulse/7-important-factors-influence-buying-decision-pallabi-chakraborty, accessed 10/08/2019.

Elsa Zhang Chunhao, DPSM. (2019) “Mitigating the Risks of Global Sourcing” Retrieved from SIPMM: https://sipmm.edu.sg/mitigating-risks-global-sourcing, accessed 10/09/2019.

HideakiRyugen. (2019). “Global semiconductor market to shrink 12% in 2019: trade group”. Retrieved from https://asia.nikkei.com/Business/Business-trends/Global-semiconductor-market-to-shrink-12-in-2019-trade-group, accessed 01/09/2019.

Huang Qing Dian, PDPM. (2019) ” Six Effective Sourcing Techniques for Electronics Products”. Retrieved from SIPMM: https://sipmm.edu.sg/six-effective-sourcing-techniques-electronics-products, accessed 10/09/2019.

Samsung. (2018) ” Transforming virtuality into reality”. Retrieved from https://www.samsung.com/semiconductor/solutions/virtual-reality-augmented-reality, accessed 26/08/19.

Semiconductor Engineering. (2019) “5G” Retrieved from https://semiengineering.com/knowledge_centers/communications-io/communications-systems/wireless/5g, accessed 22/09/2019.

Semiconductor Industry Association. (1977). “Industry Impact”. Retrived from https://www.semiconductors.org/semiconductors-101/industry-impact, accessed 15/09/2019.

World Semiconductor Trade Statistics. (2018). “Recent News Release”. Retrieved from https://www.wsts.org/76/Recent-News-Release, accessed 20/09/2019.

About the Author: Arielle Lim Shi Min has substantive experiences in the field of procurement and logistics management, specifically in the semiconductor industry. She holds the Diploma in Health Administration from Republic Polytechnic, and SIPMM Executive Certificate in Logistics Management. Arielle is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). She completed the Diploma in Procurement and Supply Management (DPSM) on September 2019 at SIPMM Institute.

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