June 22, 2010
People looking to buy new PCs or other gadgets will see prices continue to rise after a move by China's central bank to relax the exchange rate of its currency.
But the rising value of China's yuan against the U.S. dollar isn't the only reason for price increases: It simply adds to other pressures causing PC prices to rise, including shortages of key components and rising labor costs in China.
The yuan exchange rate rise will have an impact on PC prices because the majority of the world's electronic goods are assembled by workers in Chinese factories, where most of the costs are in yuan. But the contracts these companies fulfill are mainly priced in U.S. dollars, the currency in which nearly all electronics components are traded worldwide.
Some Chinese companies will find ways to reduce costs, but others will raise prices, investment bank Credit Suisse said in a report on Tuesday. Makers of components in short supply, such as PCBs (printed circuit boards), will be able to raise prices, as will big electronics makers such as Hon Hai Precision Industry (Foxconn), the report said.
A rise in manufacturing prices is a big deal for the global electronics industry, where even a slowdown in price declines is out of the ordinary. Prices for PCs, laptops and other computer hardware normally decline over time due to cost cutting. Chip makers, for example, constantly slash costs by making chips smaller, increasing production volumes and more.
Analysts blame the current problem mainly on the sharp global downturn in 2009, saying fear and a lack of funding caused companies to stop investing in new factories. Now that global electronics markets have rebounded, companies are having a hard time keeping up with demand.
Acer, the world's second-largest PC vendor, has already raised prices for the first time in five years, a company representative said. The company has been adjusting prices for the past two months, but the increases have not caused end users to slow purchases.
The Financial Times reported the price increases on Monday, quoting Acer Chairman J.T. Wang saying the price increases are "a very rare event in our industry, but consumers are still happy... End demand is still very strong."
The Acer representative confirmed Wang's comments, and said Acer does not expect the rising yuan to hurt its business. "The appreciation may even bring some benefit to Acer in terms of sales from the China market from foreign exchange," she said.
The company is in a better position than other manufacturers because it does not have heavy costs in yuan. Acer decided to spin off its manufacturing arm years ago and focus on building its brand for global sales. Still, the companies that assemble products for Acer will ask it to pay more for the electronics it orders from them.
The People's Bank of China announced a plan to increase the flexibility of the yuan exchange rate, loosening from its peg to the U.S. dollar. The yuan has already increased in value to 6.78841 for US$1 late Tuesday, from 6.81963 Friday, before the announcement. That's an increase in value of nearly half a percent against the dollar, and Credit Suisse estimates it will rise as much as 4 percent over the next 12 months.
Labor costs in China have also been an issue for the global electronics industry this year, said Helen Chiang, an analyst for market researcher IDC in Taipei. Better paying jobs throughout China have lured workers away from the electronics manufacturing industry and forced companies to pay more to retain employees.
A string of suicides at factories owned by Hon Hai Precision Industry, which operates under the Foxconn trade name, led to a pay increase for its workers as well. Hon Hai is the world's largest electronics contract manufacturer with a customer list that includes Apple, Dell, Sony and Nintendo. The company employs nearly one million people, mainly in China.