The world’s largest contract chip maker is raising prices by as much as 20%, according to people familiar with the matter, a move that could result in consumers paying more for electronics.
Taiwan Semiconductor Manufacturing Co. plans to increase the prices of its more advanced chips by about 10%, while the less advanced chips, used by customers such as automakers, will cost about 20% more, these people said. The higher prices will generally go into effect later this year or next, according to sources.
Apple Inc. is one of TSMC’s largest customers, and its iPhones use advanced microprocessors made in TSMC foundries. How much more Apple will pay could not be determined.
A TSMC spokeswoman declined to comment on pricing, but said the company works closely with customers. An Apple spokeswoman did not immediately respond to a request for comment.
The price increases come on the back of a global semiconductor shortage that has hit Apple and most automakers, including General Motors Co. and Toyota Motor Corp. In August, GM said it had to idle three factories. in North America dedicated to building large trucks, the largest source of income for the company. Last week, Toyota said it would cut production by 40% in September.
The price increases serve a dual purpose for TSMC, in addressing shortages. In the short term, higher prices push down demand and preserve supply for customers who have no other choice. In the longer term, the higher revenues will help TSMC invest aggressively in new capacity, according to analysts.
The company has said it plans to spend a total of $ 100 billion over the next three years on new factories and equipment, as well as research and development. It is expanding its production capacity in Nanjing, China, and has begun construction of a $ 12 billion facility in Arizona.
Chips are just one of many costs that go into a car or smartphone, but TSMC’s price increases could eventually trickle down to consumers next year, unless brand-name companies decide to absorb the higher costs.
Chip shortages have already driven up prices for laptops, which are in high demand because more people are working remotely.
Apple warned in its last conference call with investors that the chip shortage, which hit its iPad tablets and Mac computers at the beginning of the year, would affect the production of iPhones in the quarter ending in September.
Andrew Lu, a semiconductor analyst at Sinolink Securities, said the price increases would preserve TSMC’s profit margins. He said the Taiwanese company had spent too much of its huge capital budget on more advanced chips, losing market share in less advanced chips.
“TSMC is finally going to raise its prices to follow the trend, making up for the misallocation of its capex,” Lu said.
One person whose business is affected by price increases stated that these increases would affect all of TSMC’s customers, including long-term partners. The chipmaker typically negotiates prices in August or September for products to be delivered the following year, another person claimed.
The company’s market dominance gives it more pricing power than suppliers typically enjoy. TSMC accounts for more than half of the global semiconductor foundry market by revenue, according to Taiwanese research firm TrendForce, and makes more than 90% of the world’s most advanced chips.
In the April-June quarter, TSMC reported a net profit equivalent to US $ 4.8 billion on net sales of US $ 13.3 billion. Its 36% net profit margin for that quarter is the envy of most companies, but its cash flow is often well below its profit because it invests so much of the money it makes in new factories and equipment.
Bernstein analysts said the price increases would likely boost TSMC’s revenue by 10-15% and increase profits by 20-30%, adding that the impact would be seen in the first quarter of next year. anus.
Before the pandemic, TSMC generally offered regular discounts for its large customers, but CEO CC Wei told customers in a letter in March that his company would no longer do that starting later this year.
Wei has said that the company faces rising manufacturing costs due to more expensive raw materials and constant investment to expand production and develop more advanced chips.