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    Chip prices set to rise into next year as TSMC hikes rates

    The prices of chips and the electronics they power are on track to rise in 2022 as the world’s largest contract chip makers join rivals and raise production prices.

    Semiconductor prices have risen since the fourth quarter of 2020 amid the global supply crisis.But the news that Taiwan Semiconductor Manufacturing Co is preparing for it Largest price increase in 10 years It was still a shock to some, and brought back how inflation in tip prices has taken hold.

    TSMC controls more than half of the global foundry market and manufactures chips such as Apple, Nvidia and Qualcomm. According to industry insiders, Taiwanese companies, known for their cutting-edge technology and high quality, typically demand production fees that are about 20% higher than their rivals.

    However, as small foundries have repeatedly raised prices since the end of last year, United Microelectronics, the world’s third-largest manufacturer, charges some services higher than its larger compatriots. Said four industry executives to Nikkei Asia.

    These high prices are due to a number of factors that have occurred since the first chip shortage at the end of last year, including rising material and logistics costs and competition for proper chip supply by device manufacturers.

    TSMC lags behind most other tip companies in raising prices. This is partly because they are already enjoying such a high premium. But investment costs are also rising, and the company has promised $ 100 billion over the next three years, and the chip giant felt compelled. Take over part of the burden, Said a source who explained the issue.

    This article is from Nikkei AsiaA global publication with a unique Asian perspective on political, economic, business and international affairs. Our own correspondents and external commentators from around the world share their views on Asia, and the Asia300 section details the 300 largest and fastest-growing listed companies from 11 countries other than Japan. increase.

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    More urgently, according to industry sources, the company is keen to eliminate so-called double bookings, clients are hoping to secure space on the production line and support from contract chip makers in the global supply, in fact. Order more chips than you need to chew. As a result, TSMC is having difficulty getting a complete picture of “true demand,” a source explaining the issue told Nikkei.

    Clients have mixed reactions to planned price increases.

    KSPua, Chairman and Chief Executive Officer of Phison Electronics, told Nikkei: .. The leading NAND flash controller chips and solution providers are both TSMC and UMC clients.

    “We are still in short supply and want more chip capacity to support growth in the second half of 2021,” Poor said.

    Phison raised its tip price around April this year, reflecting rising supply chain costs, and Pua said his company would discuss further price increases with clients.

    However, others have expressed concern about whether these higher costs can be passed on to their customers.

    “We are all in great shock and all account managers need to talk to their customers to see if they can renegotiate part of their contract,” Chip executives told Nikkei. “I’ve never seen TSMC introduce such a big rate hike for more than a decade.”

    According to analysts, TSMC is still processing existing orders, so the impact of TSMC’s price will be more apparent from next year. Customers will also negotiate their own specific terms with TSMC by October 1, when the price increase officially takes effect, they said.

    But overall tip prices are already skyrocketing.

    According to Dale Gai, research director at Counterpoint Research, chip developers pay a 40% higher manufacturing fee for the least-supplied legacy chips.

    Meanwhile, electronics manufacturers are facing a further surge in trying to procure enough chips to complete their devices. For example, the price of some microcontroller chips has jumped from $ 0.20 to over $ 1 each, supply chain executives and distributors told Nikkei. It’s up 400% in less than a year.

    The reason is that these chips are not necessarily the most important part of a smartphone or server, but they are still essential and cannot be easily replaced. Such chips are easier to stockpile than, for example, CPUs, and quickly become obsolete, allowing anyone with increased inventory to price when they find the buyer they need.

    Prices are rising at almost every step in the chip supply chain, from basic materials to chip packing and testing services. This is the last step before the chip is mounted on the printed circuit board.

    According to Nikkei’s analysis, for top chip developers who outsource production, namely Qualcomm, Nvidia, MediaTek and Advanced Micro Devices, this led to an increase in “cost of goods sold” in 2020. Defined as the total cost of production, materials and delivery of goods, cost of goods sold continued to skyrocket in the first half of 2021.

    Mobile chip giant Qualcomm’s cumulative cost of sales from October last year to June this year surged nearly 60% year-on-year, while Asia’s major rival MediaTek’s cumulative cost of sales was over 64% over the same period. Has increased. However, Qualcomm and MediaTek’s revenues surged further during this period. This indicates that we have adjusted the selling price of chips used by the world’s leading smartphone makers.

    Industry players and analysts predict strong chip demand, or price increases, will continue next year.

    Doris Hsu, chairman and chief executive officer of Globalwafers, the world’s third-largest wafer material manufacturer, said the price of wafers, the key substrate on which all chips are manufactured, will rise.

    “All the materials and chemicals used for production and transportation logistics costs are rising,” Sue said. “That is, you need to adjust the selling price of the wafer, otherwise you can impact your profit margin.”

    Peter Hanbury, a partner specializing in chips and technology supply chains at Bain & Company, said the price of Nikkei chips will probably rise next year as capacity expands over time.

    Chip developers such as Qualcomm, NXP and Nvidia will probably negotiate to pass these price increases to their customers: device makers and electronics builders such as Apple, Samsung, Xiaomi, HP, Dell and Ford. He added.

    “”[For] For products like smartphones and PCs, the price increase will be more pronounced, but for other devices with limited semiconductor content, you may not notice it, “Humberly said. bottom.

    Gai of Counterpoint Research said rising chip costs could also impact smartphone makers’ business strategies.

    “The net profit margin of smartphone makers, excluding Apple, is only about 5-10%. In that case, the rise in chip costs will make all industry players cost rather than focus on mid-range or low-end phones. We will be rolling out high-end mobile phone models next year to offset the impact of Apple, “he said.

    Meanwhile, the competition to develop cutting-edge technology is also expected to keep chip prices high over the long term, especially for more sophisticated products.

    “Advanced chip manufacturing, such as 7 nanometers, 5 nanometers, and 3 nanometers in the future, is very expensive,” Markley, a veteran semiconductor analyst at Sanford C. Bernstein, told Nikkei. “Only TSMC, Samsung, and Intel could afford to invest. I’m not saying that these advanced chip prices will never go down, but given the size of the investment, it’s not easy for them to go down significantly. “Li said.

    For smaller players and more mature production technology, Li said, “If the economy slows, the market can become more volatile. Modifications can also be fairly substantial and quick.”

    However, Lee said the most important factor in determining prices is the same as usual. It’s demand.

    “The chip plant operates like an airline. Even with one or two passengers, the airline has to bear fixed costs. The chip manufacturing plant is the same. If demand slows, We need to lower prices to attract more customers and maintain utilization. “

    TSMC told Nikkei that it would not comment on price adjustments, but mentioned a statement by CEO CC Wei at a financial results briefing in July, saying: “TSMC’s pricing strategy is strategic and not opportunistic. At the same time, increasing process complexity at key nodes, new investments in mature nodes, expanding global manufacturing footprint, materials and basics. We are facing manufacturing cost challenges due to rising product costs, which is driving wafer prices. “

    Version of this article First published by Nikkei Asia on September 6, 2021. © 2021 Nikkei Co., Ltd. All rights reserved.

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