There were two huge announcements in the last few weeks about costs in China. First we had the announcement from Foxconn that they would raise the base wage in their huge Longhua campus in Shenzhen. They have gone from 900 RMB/month to 1200 RMB/month, and they plan to increase that again later this year to 2000 RMB/month for workers who pass a certification test. Then just last week, the People’s Bank of China announced that they would let the Yuan rise from its current narrow trading band.

Before the Chicken Littles get out their umbrellas, it is important to realize neither of these changes is a complete surprise. In my previous blog post just a few weeks ago before these announcements, I commented on the expected wage inflation and currency appreciation in China. The second thing to note is that these announcements were made for political as well as economic purposes, and neither has actually taken full affect.

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Overall we have seen a recent slowing in the rate of increases in lead times and de-commits in several component areas as some minor incremental capacity has been brought on-line and component suppliers have sorted out some of the double ordering that has prevailed in the past 16 to 20 weeks.

Discreet semiconductors continue to be one of the most problematic areas and one that has seen little relief.  Suppliers including Diodes Inc, ST, Fairchild, NXP and most painfully ON Semi continue to struggle to meet demand.  The dramatic production cuts in the fall and spring of 2008 – ’09 positioned most of these companies poorly for the coordinated global stimulus and broad economic upturn that hit certain discreet markets especially hard.  Renewable energy demand,  LED lighting, automotive, and LCD TV demand all outperformed expectation over the past 3 quarters driving up both real and artificial demand for certain devices such as MOSFETs and rectifiers,   almost anything in a TO-223 package, and most high power applications.  Although lead times are expected to remain extended and some product families will remain on allocations - especially at Vishay, ON and Infineon - price increases have been moderate and will likely remain that way for the foreseeable future.

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