Major chip manufacturers' price increases are normal

TSMC internally decided last week to increase the price of the most advanced process chips by about 10%, while the prices of mature process chips used by customers such as automakers will increase by about 20%, according to media reports. This price increase is expected to take effect later this year or the first quarter of 2022.

The report stated that this may lead to an increase in the prices of consumer electronic products such as mobile phones and tablets. Among them, Apple is one of TSMC's largest customers, and they use advanced process microprocessors produced by TSMC's foundry in the iPhone. It is reported that Apple plans to increase the price of the new iPhone 13 series to compensate for the increase in costs caused by the price increase of its main chip foundry, TSMC, to "reduce the impact of rising costs on its profitability."

TSMC is the world's largest chip foundry manufacturer, and it is also one of only three companies in the world that can produce the fastest and most cutting-edge chips alongside Samsung and Intel. In particular,7nmand 5nm advanced process technology chips are currently only produced by TSMC and South Korea's Samsung.

In this regard, TSMC responded to us saying that they would not comment on the price issue but the company would work closely with customers. As of press time, TSMC's stock price is US$117.23 per share, and the total market value of ADR reaches US$607.94 billion.

Chip shortage leads to the price increase

In fact, the global chip shortage crisis has intensified since this year, and it has not yet seen a trend of relief. It has affected the normal production and supply of many products such as automobiles, mobile phones, and game consoles. Moreover, the prices of upstream raw materials continued to rise, making the chip generation undertake the surged cost pressure and order pressure of the factory.

Therefore, in the face of rising prices of upstream raw materials and the strong downstream demand, major chip foundries continue to increase their quotations. UMC, Power Semiconductor Manufacturing Co., TSMC, SMIC, etc. are all affected. The competition for production capacity is fierce, and the price is showing a trend of increasing quarterly.

Many industry media reported that UMC plans to increase its 22nm and 28nm process prices in succession in September, November, and January next year. After the price increase in Q1 next year, UMC’s 28nm offer will reach US$2,800 to US$3,000, and the 22nm offer will be US$2,900. The company has reached agreements with customers such as MediaTek, Novatek, and Realtek on the new price.

At the same time, it also reported that Samsung will adjust the pricing of its semiconductor wafers to fund the expansion of its S5 wafer fab near Pyeongtaek, South Korea. Samsung believes that efforts to finance the S5 factory will increase the price of consumer technologies including GPUs and SoCs in the short term.

In the past two months, leading power semiconductor manufacturers such as Infineon, STMicroelectronics, ON Semiconductor, and Anshi Semiconductor （acquired by Wingtech） have also raised their prices by 10% to 15%. On July 25, Maxim has also issued a price increase notice to distributors, announcing that from August 22, the entire line of products will increase by 6%. Maxim specializes in analog semiconductor products and also has many products in power semiconductors.

The domestic chip foundry leader SMIC pointed out in its second-quarter financial report that the increase in gross profit margin in the quarter was due to the increase in production capacity, product structure adjustments, and price increases. Among them, the impact of price increases is about 9%.

Zhao Haijun, the co-CEO of SMIC, stated in the financial report that up to now, SMIC has been increasing prices slowly in the market. The ups are not high all at once. Zhao Haijun said that SMIC will discuss with customers what to do, "I believe that in the future, prices can continue to stabilize or rise mainly due to our competitiveness in market segments."

However, due to the complexity of the industry chain customers and other reasons, even if the market is rumored that TSMC has raised its quotation, it has never responded to the price issue externally.

As early as 27th Aug, many chip design manufacturers have received notification of TSMC price increases. Advanced processes such as 5nm and 7nm have increased by about 7% to 9%, and mature process prices have increased by about 20%.

It is reported that this is the third time that TSMC has announced an increase in the price of chip foundry this year. As early as December last year, the market reported that TSMC canceled the 12-inch wafer foundry discounts and indirectly increased prices for major customers after the Spring Festival this year. At the end of March this year, supply chain companies said that TSMC had taken second place. Starting from the quarter, the foundry prices of 12-inch and many other businesses will be increased quarter by quarter.

According to the latest forecast issued by Morgan Stanley, as TSMC's price increases across the board, it may affect more than 24 chip companies in mainland China, Taiwan, and South Korea. Among them, there are 14 related companies in Taiwan, according to the proportion from TSMC, followed by ASPEED, ASMedia Technology Inc, Silicon Motion, MediaTek, Creative, Alchip-KY, Aegis, Phison, Realtek, Novatek, Nuvoton, Silicon Energy-KY, Spectral-KY, and Richwave.

Morgan Stanley believes that the reasonable growth rate of TSMC's overall manufacturing process next year will fall within 5-10%. For customers, it can only be accepted in the next two years, but it does not rule out that under the long-term Intel and Samsung manufacturing processes, orders will be transferred to other foundries.

On 15th July this year, TSMC released its second-quarter 2021 financial report. Revenue was approximately US$13.306 billion, with a year-on-year increase of 19.8%; the net profit was approximately US$4.804 billion, with a year-on-year increase of 11.2%. Moreover, in the second quarter, it was disclosed that TSMC’s gross profit margin had reached an astonishing 50.0%, and the operating profit margin was 39.1%, and the net profit margin was 36.1%, both hitting record highs. This means that under continuous full production capacity, the gross profit margin rose along with price fluctuations.

TSMC also predicts that the company's sales will increase by more than 20% in 2021, highlighting the company's key role in helping alleviate the global chip shortage.

Investment bank Needham analyst Charles Shi wrote in a research report, If TSMC's price increases by 10%, TSMC's revenue growth rate may increase by about 5%, which will also increase its gross profit margin by 1% in 2022. We predict that TSMC's revenue this year will grow by 18% to 56.4 billion and that it will grow by 17% to 65.8 billion in 2022.

TSMC CEO expects tight supply to continue until 2022

Due to the global shortage of chips, the chip foundry capacity continues to be full, unable to meet market demand. To this end, TSMC is working hard to increase production capacity, increase production, and address structural growth in long-term demand.

On April 23, TSMC approved a capital expenditure of 2.89 billion U.S. dollars to increase the mature process capacity of the 28-nanometer plant in Nanjing. According to the plan, the production line will start mass production in the second half of 2022 and reach a monthly production capacity of 40,000 pieces by 2023. TSMC expects to invest about 100 billion U.S. dollars in the next three years to increase production capacity.

Not only TSMC but also leading chip foundry companies such as Intel and SMIC are working hard to expand their factories to increase production capacity. Recently, Intel CEO Kissinger announced the IDM2.0 strategy. For the first time the core CPU product line was handed over to an external foundry, and at the same time, the US and European foundries were opened to provide foundry services to the outside world. To this end, Intel will build two new foundries in Arizona, USA, with an investment of US$20 billion. The new plant will start production in 2024.

SMIC announced in mid-March that it would join the Shenzhen Municipal Government to introduce third-party funds and plan to invest US$2.35 billion to build a 12-inch wafer fab with a monthly production capacity of approximately 40,000 wafers. Before this, SMIC and the Beijing Economic Development Zone Management Committee signed a cooperation framework agreement. The two parties will establish a joint venture to build a wafer production line with a 28nm and above process. The first phase of the project plans to invest 7.6 billion US dollars and finally reach about 100,000 12-inch wafer production capacity per month. In July this year, SMIC stated that it plans to expand the production capacity of 10,000 12-inch and 45,000 8-inch wafers.

In addition, Samsung also announced on August 24 that it would spend US$205 billion in the next three years to invest in semiconductors, biopharmaceuticals, and telecommunications businesses. Among them, Samsung Electronics will first invest in the development and production of DRAM dynamic memory chips below 14nm and V-NAND flash memory chips. And in the next three years, Samsung will invest 50 trillion won to build a wafer factory in the United States.

However, the near thirst cannot be overcome by far, and it still takes time to expand production capacity. The current capacity crisis will continue at least beyond next year.

Many heads of semiconductor companies said in our interviews that the chip shortage crisis will continue, and there is no sign of alleviation.

Regarding capacity shortages and demand trends, TSMC President and CEO Wei Zhejia once said that the current challenge of semiconductor capacity shortages is due to structural long-term demand growth and short-term imbalances are due to supply chain disruption. In the next few years, 5G and HPC-related applications will still have a strong demand for advanced manufacturing processes, and the epidemic will fundamentally accelerate digital transformation, making chip semiconductors more popular and indispensable in people's lives. Driven by the supply chain disruption, the uncertainty brought about by the epidemic and geopolitical tensions is causing short-term imbalances in the supply chain.

On August 27, Isao Matsumoto, CEO of Japanese chip supplier Rohm Semiconductor Rohm, said in an interview with Bloomberg that the shortage of key raw materials and the entire production line had hindered operations. And important semiconductors used in automobiles and industrial machinery would still be in short supply in the next whole year, and it would take longer for the increased production capacity to be realized. ROHM Semiconductor is headquartered in Kyoto, Japan, and its customers include Toyota, Ford, and Honda.

Wei Zhejia emphasized: "The chip shortage problem will continue throughout this year and may continue until 2022, and it is expected to be resolved in 2023."

And Huang Leping, head of the TMT research group of Huatai Securities and chief analyst of technology and electronics, believes that the problem of domestic chip shortages may continue until next year. In the long run, the demand for localization will be a structural opportunity to promote the growth of China's semiconductor industry.

The article is edited by @Jack Chen (email:xiaomingchen@tmtpost.com; Mobile/Wechat: 13678866580). The Chinese version article is published by TMTPOST. Please note source and hyperlink when reproduce.