Case Study
Using TechInsights Analysis and Models to Negotiate Semiconductor Pricing
A leading luxury automobile company that manufactures several million cars a year and spends about $2B USD on semiconductors per year for those vehicles recently, beefed up their global semiconductor supply chain management team to de-risk their strategy and maintain control of expenses.
The Challenge
The organization experienced substantial price increases between 2020 and 2022 as a result of COVID-19-related shortages, increased manufacturing costs, and a change in semiconductor suppliers’ market positioning. When the pricing power shifted from buyers to suppliers, it resulted in a pricing increase of 30-50% depending on the products.
In 2023 automotive semiconductor suppliers started to experience a cyclical slowdown, and the company projected a 10% overall price reduction for semiconductors. These pricing adjustments did not materialize, as suppliers held their prices and accepted lower shipment volumes. Because suppliers did not roll back the increases, the organization was over budget by approximately $200M USD, which created not only a decrease in profitability, but also uncertainty in their procurement processes.
The Solution
TechInsights has a combination of products that offers a holistic view of the current semiconductor pricing environment. The company used several products to prepare for their pricing negotiations:
- Product costing using our Semiconductor Manufacturing Economics models, which allows customers to evaluate the cost of manufacturing practically any device in the market.
- Market pricing information from our Component Price Landscape and Component Price Analyzer allowed the company to get a reasonable view of the market pricing by device type, including historical and forecasted pricing.
- Market Dynamics analysis that provided market indicators including inventory levels, fab utilization rates, wafer capacity by supplier, market cycle analysis, and changes in market share allowing the company to quickly grasp what is driving changes in the market now and in the future to de-risk their negotiations.
The Results
TechInsights semiconductor pricing portfolio gave the organization a holistic, 360-degree view of semiconductor market pricing and trends. The available cost simulations, data, and analysis served as the core of the preparations for pricing negotiations. Even a 1% cost improvement results in savings of tens of millions of dollars for the organization.
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