Electronics Manufacturing Faces Higher Component Costs on AI Board Demand

Gentex (GNTX), an auto electronics maker, and Hexagon (HXGBY), an industrial measurement company, both named rising memory and other electronic component costs as a new gross-margin headwind on their third-quarter 2026 earnings calls on October 23, 2026. Gentex went further and tied the cost spike directly to data-center demand absorbing the upstream materials used to make circuit boards [1][2].

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AI server boards pull capacity away from ordinary laminate and cloth

Auto mirrors, instrument clusters and industrial measuring tools all contain printed circuit boards. The board base is copper-clad laminate, made by soaking woven glass-fiber cloth in resin and pressing copper foil onto it. Auto and industrial products mostly use standard FR-4 laminate and 7628-grade glass cloth. AI server boards carry far more layers, need specialty low-loss cloth and earn higher margins [3]. Cloth weavers and laminate makers have therefore moved looms and lines toward the high-end grades, squeezing ordinary products: 7628 cloth rose from 3.8 to 11.8 yuan per meter, and Kingboard Laminates' FR-4 prices are up more than 100% cumulatively in 2026 [3]. Circuit-board maker TTM Technologies (TTMI) said in August that laminate producers are shifting toward higher-complexity materials, putting pressure on materials supply for its automotive business [4].

Gentex management said the problem has spread from memory to bare circuit boards: materials several tiers below the board are being consumed by data-center boards, so supply for building automotive boards keeps tightening [1]. Because ordinary laminate and memory are shared inputs across most electronics, this pressure may spread to other hardware makers whose cost base is heavy in electronic components.

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Gentex faces a steep, lagging cost hit; Hexagon's is far smaller

Gentex disclosed the largest increases and has to absorb them first. Its CEO said some components from the existing supply base are up 8 to 10 times per unit, with a part that cost $4 or $5 earlier this year now costing $40 [1]. The company's full-year gross-margin guidance of 34% to 34.5% already includes an estimated $10 million to $15 million of incremental fourth-quarter costs, with related recoveries not expected until the first half of 2027 [1]. Even when the cost is recovered, management said there is "virtually no margin" on it. Its early view puts 2027 gross margin at 33% to 34%, and it said that cost structure will not support the business model for these products, so it must engineer its way out through redesigns [1].

Hexagon's impact is much smaller, and it did not link the cost to AI. Its CFO estimated headwinds from memory, chips, Iran effects and higher transportation costs at about 70 to 90 basis points, roughly a wash against tariff refunds [2]. Taken together, the two companies show that electronic component inflation has reached the gross margins of non-AI hardware makers. The size of the hit depends on how much of the cost base is electronics and on the company's margin level, with low-margin auto electronics suppliers hit hardest.

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Pricing power shifts upstream to cloth and laminate makers into 2027

Along this value chain, profit is moving upstream. Kingboard Laminates sent seven price-increase letters in 2026 and its e-cloth profit rose 280% in the first half, while China Jushi (600176.SH) raised thick-cloth prices 15% and thin-cloth prices 20% in September [3]. Downstream module makers pay first and recover from automakers later, and the recovered portion earns nothing, so their gross margins fall. The pressure may persist until new glass-cloth capacity arrives; China Jushi has cut the build time for its Chengdu high-performance glass-fiber project from three years to two [5].

The conclusion has limits. Hexagon bundles memory with Iran-related and freight costs, and its margins still expanded [2]. Visteon (VC) recovered most of its memory inflation within the second quarter, showing that recovery speed varies by company [6]. Metrics to watch include Gentex's actual fourth-quarter incremental costs, its recovery progress in the first half of 2027, further laminate price letters and the start-up timing of new glass-cloth capacity.

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Companies exposed to the same shift

• Visteon (VC): A cockpit electronics maker that buys the same auto-grade memory. In July management said auto memory had been in tight supply all year, 2027 would be more challenging, and cost pressure was extending to other purchased components [6]. There is no newer disclosure on whether it can keep recovering costs as quickly as it did in the second quarter.
• Acuity (AYI): Its Intelligent Spaces business makes building controls and audio-visual equipment and also buys memory. The CFO expects memory costs to weigh on that segment's gross margin by about 200 basis points in fiscal 2027, recovered in dollars first and in margin later [7]. It represents a buyer with meaningful electronics content but thicker margins.
• Kingboard Laminates (01888.HK): A leading FR-4 laminate supplier; the board-material cost increases facing auto and industrial board users correspond to its price increases [3]. How long that pricing power lasts depends on upstream glass-cloth supply and new capacity.

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Sources

[1] Drillr · Gentex (GNTX) · 2026-10-23 · Q3 2026 earnings call

And to put this into just kind of rough ballparks, I mean, what we're seeing from our existing supply base, and this is wild, anywhere from 8 to 10x price increases on a per unit basis. So, I mean, literally a component that cost $4 or $5 earlier this year is now $40.

[2] Drillr · Hexagon (HXGBY) · 2026-10-23 · Q3 2026 earnings call

[3] Economic Observer (via Stockstar) · Electronic cloth enters a super cycle · 2026-09-12 · News report · https://finance.stockstar.com/IG2026091200007531.shtml

[4] Drillr · TTM Technologies (TTMI) · 2026-08-05 · Q2 2026 earnings call

[5] Sina Finance · China Jushi raises Chengdu 200kt high-performance glass-fiber project to 2.748bn yuan and cuts build time to two years · 2026-10-19 · News flash · https://finance.sina.cn/7x24/2026-10-19/detail-inivtynk0877330.d.html

[6] Drillr · Visteon (VC) · 2026-07-23 · Q2 2026 earnings call

[7] Drillr · Acuity (AYI) · 2026-10-01 · Q4 fiscal 2026 earnings call

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This article highlights industry changes and companies that may be overlooked. It is not a stock recommendation.