When the chips are up, gadget spending might go down

Global semiconductor prices are surging, prompting technology companies to raise product costs, which may dampen consumer spending, particularly during the holiday season traditionally marked by increased purchases. Charu Chanana, chief investment strategist of Saxo Bank, predicts that essential replacements will still occur, but consumers might opt for older models, reduced storage capacities, refurbished devices, or competing brands.

Discretionary purchases, like additional tablets, premium foldables, or gaming console upgrades, are more likely to be postponed.

The escalating chip costs, driven by artificial intelligence companies' insatiable demand, have been passed down the supply chain. Apple and Samsung have both increased their product prices in response to the escalating component costs. Apple raised the prices of some iPads and MacBooks in June, while Samsung introduced its latest Galaxy Z foldables with higher retail prices in a recent month.

Both companies acknowledged grappling with the chip prices. Samsung's orders for the Galaxy Z series are at record levels in markets like the US, South Korea, and Europe, while Apple plans to introduce its new iPhones, including its first foldable, at higher prices next month.

Higher prices may influence replacement cycles, as consumers seek to delay the purchase of new devices. Linda Sui, founder and principal analyst of Smart Analytics Global, suggests that affluent consumers may continue buying premium tech products despite higher prices, while lower-income and more price-sensitive consumers may reduce discretionary spending on non-essential electronics or postpone purchases.

Companies are exploring various strategies to counter prolonged replacement cycles. Microsoft recently increased the prices of its Xbox gaming consoles by $100 for the 512GB version and $150 for the 1TB model. Microsoft aims to offset the impact by offering subscriptions, services, financing, and trade-in offers. Acer's head of Middle East marketing, Joumana Karam, notes that budget-conscious consumers are shifting towards lower-priced configurations, previous-generation models, or entry-level devices that offer day-to-day performance.

Professional users, on the other hand, remain somewhat more resilient, albeit they may stretch the replacement timeline slightly for productivity and competitive purposes.