(Yicai Global) April 26 -- The global chip shortage is spreading to the Chinese home appliance sector as producers are inclined to favor more profitable clients.

Various firms, including Phillips Air Care China, recently told Yicai Global that they have started buying semiconductors much earlier in advance to secure enough supply.

Air con circuit board chips have been in short supply since November and need to be purchased half a year in advance instead of the earlier 45 to 65 days, said Gan Jianguo, operations general manager at the Chinese heating, ventilation, and air conditioning arm of the Dutch firm.

Domestic suppliers make up half of the total but some others are based in the US and Japan, the GM added.

Reasons

The reasons are rooted in the Covid-19 pandemic. Chipmakers in Europe, the US, and Japan have slowed capacity expansion during the Covid-19 pandemic, said Chen Jianmin, chief engineer at KGK Testing and Certification Center. But at the same time, consumers are buying more electronics and home appliances. The shortage may linger till December 2022, Chen added.

A tighter supply reveals some power plays. Leading semiconductor manufacturers are focusing on more expensive products and more profitable buyers so other areas such as home appliances are given a smaller priority, Cinda Securities wrote in a recent research note.

The Chinese home appliance chip market is worth about CNY50 billion (USD7.7 billion), and most of the products are imported, according to publicly available data. However, leading players, such as Gree Electric Appliances and Midea Group, are accelerating their chip development.

Big Fish Become Bigger

Not everyone faces the problem in the same way. Smaller firms are suffering more than big ones, including Midea and Haier Group, which can hoard more, according to Ouyang Huai, analyst at electrical appliances information site ChinaIOL.

But the issues are spreading across different segments. "The chip shortage has impacted [the supply of] refrigerators' printed circuit boards," Michael Yao, president of Homa Appliances, told Yicai Global. At present, buyers would like to purchase about 20 percent more than what is offered, he added.

Nearly 60 percent of Letu Electrical Appliances' roughly 1.8 million electric fan orders this year still lack chips, said Li Mingyang, general manager at the electric fan exporter. Thankfully, last September, the company placed orders for 95 percent of the total.

The obstacles may affect designs. Clients are even considering changing some product designs to mechanic alternatives to avoid the delivery hurdles and the higher costs, Li added.

However, consumer prices have not been soaring yet. Home appliances' microprogrammed control units are now generally from 15 percent to 30 percent more expensive than last year but that hasn't yet majorly affected consumer prices, said Ouyang.

The 20 percent gain in air con prices in China this year from a year ago is mostly due to the price hikes of commodities such as copper and plastic, insiders told Yicai Global. Moreover, TV set prices have been raised because of the tighter supply of display panels, they added.

Editors: Zhang Yushuo, Emmi Laine, Xiao Yi