TSMC’s double bind sees it hike prices despite slow adoption of new tech

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The Taiwan Semiconductor Manufacturing Company (TSMC) has decided to cancel the discounts it had offered to its customers following the coronavirus pandemic. Taiwanese press reports suggest that TSMC is planning price hikes for all of its chipmaking technologies and that the decision reflects the rising costs with which companies around the world and in all sectors have struggled in the wake of the crisis. historic inflation ushered in by loose monetary policies of central banks. Today’s report is the latest to speculate on such a move by the world’s largest contract chipmaker, and it builds on previous industry reports and investment banking coverage.

TSMC expected to raise prices by up to 6% next year, report suggests

The report comes courtesy of United Daily News (UDN) and it speculates that the price discount offered by TSMC to its customers in the wake of the coronavirus pandemic will be withdrawn. TSMC had offered discounts of between 2% and 3% to customers in the wake of the pandemic, and now it appears rising costs have forced the company to roll back the discount.

UDN’s source goes further and speculates that while the cost of mature manufacturing processes, such as those above 16 nanometers, increases by 15% to 20% and those for processes below 7nm increase by 10% , the price increase that will take place next year will be between 3% and 6% – which implies that the bulk of the cost increases will be reflected in TSMC’s gross margins and not in its final prices.

Today’s report is also not the first time rumors of price increases have surfaced from Taiwan. The first such report came in May this year when a German report claimed that prices of commodities such as gas and metals had jumped 30% following the Russian invasion of Ukraine due to most materials coming from both countries. Subsequently, it was speculated that TSMC was considering a range of price increases starting at 5%.

Image: Ann Wang/Reuters

Additionally, cost increases for advanced manufacturing technologies such as 3 nanometers may hurt TSMC’s margins. Investment bank Morgan Stanley feared last year that even if the company managed to squeeze more transistors into a 3nm wafer, the upfront wafer prices and higher costs would erode margins. A 2019 research report suggests that a 3nm wafer costs $3,000 more than a 5nm wafer, and chip costs are also higher.

Investment bank Goldman Sachs had shared as early as late last month that TSMC is heading for a price increase in 2023. In a research note that saw Goldman raise TSMC’s share price target, the bank pointed out that prices for TSMC’s eight-inch and 12-inch wafers could rise 5% and 4% next year.

The source goes on to add that TSMC is facing issues with its long-time customers upgrading to newer nodes due to higher prices. Manufacturing processes under the 7nm node account for more than 50% of its revenue, indicating that most of its customers are happy with older technologies as long as the unit price remains low.

From TSMC’s perspective, this is unfavorable not only because of lower revenues, but also because it takes longer for the company to recoup its investments. Advanced technologies require heavy capital outlay, and it is crucial for a chipmaker to secure orders to recoup costs. Wary of the spending, TSMC also reportedly asked customers to pay earlier this year as rumors suggested it would have to put its 3nm manufacturing expansion on hold.

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