Rising Material Costs Remain Key Pain Point for Electronics Manufacturers

Per IPC’s May Global Sentiment of the Electronics Supply Chain Report, nine in ten electronics manufacturers surveyed are currently experiencing rising material costs, while nearly four-fifths are experiencing rising labor costs. Supporting data from IPC’s May Economic Report, indicate there are three main forces exerting pressure on the economy, and conversely, the electronics manufacturing industry: Russia’s invasion of Ukraine, inflationary pressures pushing costs higher, and China’s strict COVID policy that is hindering production in China and compounding existing supply chain issues.

“Russia’s invasion of Ukraine is a negative supply shock on already strained supply chains. It will take many months to fully determine the full effect it is having on the electronics industry,” said Shawn DuBravac, IPC chief economist. “While the invasion has more severe negative consequences for Europe, the impacts are being felt globally.”

Additional survey results indicate:

• Inventories remain tight — Results this month suggest inventories available from suppliers have deteriorated over the last month.
• Government is not doing enough to spur innovation and capacity in the semiconductor industry — Only three in ten electronics manufacturers feel their government is moving with appropriate breadth to spur innovation and capacity.
• Backlogs are rising at a faster pace in North America vs. APAC — While 59% of manufacturers in North America report backlogs are currently rising, only 33% of APAC manufacturers indicate the same.

“Downside risks have increased but a recession is still unlikely in the United States in 2022. The risks of a recession in 2023 have increased somewhat,” added DuBravac. “In Europe, the probability of a recession in major economic markets has increased. Several countries will see flat quarterly growth for several consecutive quarters which could easily turn negative and result in a recession in 2022.”

IPC surveyed hundreds of companies from around the world, including a wide range of company sizes representing the full electronics manufacturing value chain.

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