TSMC Shares Drop 4.20% Amid Decade-High Price Hike in Chips
Friday, Sep 6, 2024 6:33 pm ET
2min read TSMC (TSM) shares fell by 4.20%.
With TSMC, the world's largest contract chip manufacturer, joining its competitors in raising production fees, chip and related electronics prices are expected to rise further in 2022. Since Q4 2020, chip prices have been on the rise due to global supply constraints. Yet, TSMC's move to implement its largest price increase in a decade underscores the unyielding trend of growing chip costs.
TSMC holds more than half of the global chip foundry market, counting giants like Apple, Nvidia, and Qualcomm among its clients. Industry insiders highlight that TSMC's cutting-edge technology and superior production quality usually command a 20% premium over rivals. However, smaller foundries have frequently raised prices since late last year. United Microelectronics, the world's third-largest contract chipmaker, already charges more than TSMC for some services.
The rise in chip prices stems from a variety of factors, including soaring costs of raw materials and logistics, and manufacturers ramping up efforts to secure sufficient chip supplies. These issues have gradually come into focus since the chip shortage began to significantly impact the market late last year.
TSMC has traditionally been slower in raising prices compared to most chip companies, partly because its initial pricing is already relatively high. Insiders reveal that TSMC sees the need to pass on some cost pressures amid climbing investment costs, including a $100 billion investment commitment over the next three years.
More pressing, TSMC aims to reduce customers' double-booking practices—when clients order more chips than needed to secure production line space amid tight global supplies. This practice complicates TSMC's ability to gauge genuine market demand.
Customer reactions to TSMC's planned price hike are mixed. Pan Jiancheng, Chairman and CEO of Phison Electronics, expressed approval, noting it could curb double-booking practices. However, other chip companies are apprehensive, doubting their ability to transfer these higher costs to their clients.
Analysts predict TSMC's price hike will become more evident from next year, as the company is still processing existing orders. Clients are currently negotiating specific terms with TSMC ahead of the official price hike on October 1.
Across the market, chip prices are already soaring. Dale Gai, Research Director at Counterpoint Research, points out that chip design firms are paying 40% more for traditional chips due to supply chain tightness. Electronics manufacturers are also facing steeper price hikes as they scramble to procure enough chips for production.
Over the long term, the competition to develop cutting-edge technology is likely to keep chip prices elevated, especially for more advanced products. Mark Li, senior semiconductor analyst at Bernstein, notes that the production of advanced chips like 7nm, 5nm, and future 3nm is extremely costly. Only TSMC, Samsung, and Intel can afford this scale of investment.
TSMC has not commented on the price adjustments but referenced CEO C.C. Wei's statement in their July earnings call: "TSMC's pricing strategy is strategic, not opportunistic. We face manufacturing cost challenges due to increased complexity of leading nodes, new investments in mature nodes, expanding global manufacturing footprints, and rising costs of materials and basic commodities. Therefore, we are consolidating wafer pricing."
With TSMC, the world's largest contract chip manufacturer, joining its competitors in raising production fees, chip and related electronics prices are expected to rise further in 2022. Since Q4 2020, chip prices have been on the rise due to global supply constraints. Yet, TSMC's move to implement its largest price increase in a decade underscores the unyielding trend of growing chip costs.
TSMC holds more than half of the global chip foundry market, counting giants like Apple, Nvidia, and Qualcomm among its clients. Industry insiders highlight that TSMC's cutting-edge technology and superior production quality usually command a 20% premium over rivals. However, smaller foundries have frequently raised prices since late last year. United Microelectronics, the world's third-largest contract chipmaker, already charges more than TSMC for some services.
The rise in chip prices stems from a variety of factors, including soaring costs of raw materials and logistics, and manufacturers ramping up efforts to secure sufficient chip supplies. These issues have gradually come into focus since the chip shortage began to significantly impact the market late last year.
TSMC has traditionally been slower in raising prices compared to most chip companies, partly because its initial pricing is already relatively high. Insiders reveal that TSMC sees the need to pass on some cost pressures amid climbing investment costs, including a $100 billion investment commitment over the next three years.
More pressing, TSMC aims to reduce customers' double-booking practices—when clients order more chips than needed to secure production line space amid tight global supplies. This practice complicates TSMC's ability to gauge genuine market demand.
Customer reactions to TSMC's planned price hike are mixed. Pan Jiancheng, Chairman and CEO of Phison Electronics, expressed approval, noting it could curb double-booking practices. However, other chip companies are apprehensive, doubting their ability to transfer these higher costs to their clients.
Analysts predict TSMC's price hike will become more evident from next year, as the company is still processing existing orders. Clients are currently negotiating specific terms with TSMC ahead of the official price hike on October 1.
Across the market, chip prices are already soaring. Dale Gai, Research Director at Counterpoint Research, points out that chip design firms are paying 40% more for traditional chips due to supply chain tightness. Electronics manufacturers are also facing steeper price hikes as they scramble to procure enough chips for production.
Over the long term, the competition to develop cutting-edge technology is likely to keep chip prices elevated, especially for more advanced products. Mark Li, senior semiconductor analyst at Bernstein, notes that the production of advanced chips like 7nm, 5nm, and future 3nm is extremely costly. Only TSMC, Samsung, and Intel can afford this scale of investment.
TSMC has not commented on the price adjustments but referenced CEO C.C. Wei's statement in their July earnings call: "TSMC's pricing strategy is strategic, not opportunistic. We face manufacturing cost challenges due to increased complexity of leading nodes, new investments in mature nodes, expanding global manufacturing footprints, and rising costs of materials and basic commodities. Therefore, we are consolidating wafer pricing."
