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Fears arise that chipmakers including TSMC, UMC, and Samsung intend to raise chip prices by up to 20%

Customers are being warned about price rises by chipmakers, citing inflation fears, rising power and component prices, and high-interest rates as reasons.

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Fears arise that chipmakers including TSMC, UMC, and Samsung intend to raise chip prices by up to 20%

The world’s leading contract chipmakers have informed clients that they want to raise chip prices by up to 20%. Customers are being warned about price rises by Taiwan Semiconductor Manufacturing Company (TSMC), United Microelectronics Corp (UMC), and Samsung, citing inflation fears, rising power and component prices, and high-interest rates as reasons.

Due to persisting chip shortages, the world’s largest contract chipmaker, Taiwan’s TSMC, raised its chip prices by 10% to 20% in mid-2021. The chipmaker is even considering another price increase this year, owing to inflationary worries, increased expenses, and growth ambitions. However, TSMC is not alone; in fact, Samsung, the second-largest business in the semiconductor sector, is apparently intending to raise manufacturing prices.

Samsung, the world’s leading memory chip manufacturer and the second-largest contract chip manufacturer behind Taiwan’s TSMC, is said to be in talks with foundry clients this year about charging up to 20% more for semiconductor fabrication. According to an early Bloomberg report, Samsung is basically “joining an industry-wide push to hike prices to cover rising costs of materials and logistics.”

According to Bloomberg, contract-based chip costs are expected to rise by 15% to 20%, depending on the level of complexity, citing people familiar with the matter who asked not to be identified due to the sensitivity of the topic. On the other hand, chips based on older nodes might see higher price rises. Samsung appears to have completed negotiations with certain clients while continuing to negotiate with others.

Samsung’s move is a departure from the company’s relatively constant pricing strategy last year, even as the industry scrambled to boost prices in response to a global chip shortage. This time, however, the business, like TSMC, is facing various macro-concerns like the Ukraine crisis, Chinese lockdown measures, increasing interest rates, and inflation. “That’s throwing a wrench into business plans typically made a few years in advance,” Bloomberg emphasized.

To recall, in August of last year, TSMC announced a 10% to 20% price rise on its chips—the company’s largest single increase in a decade, but not an isolated action. TSMC has hiked pricing multiple times since the pandemic, citing COVID-19 related shortages, material costs, and even supply chain bottlenecks as justifications.

According to those briefed on the topic, the Taiwanese conglomerate has notified clients that it plans to boost pricing by “single-digit percentages” across both mature and innovative chip manufacturing processes, reports Nikkei Asia. The price increase for this cycle is expected to take effect in early 2023.

The company’s most sophisticated chips (10% increase) and less advanced chips used by clients such as automakers (20% increase) were both affected by the price increases in August 2021. According to the Wall Street Journal, the price increase mainly took place late last year and this year.

New pricing will be implemented by Samsung in the second half of this year. Last month, ASML Holding NV, a key supplier to Samsung and TSMC, warned of growing labour expenses, as well as higher material and freight prices. That would have been a strong enough signal to imply a price increase among its clients, such as TSMC and Samsung.

On the heels of a price hike several months ago, even other competitors, such as United Microelectronics Corp (UMC), have warned clients that they intend to boost prices by a mid-to-high single-digit percentage. UMC’s next wave of pricing increases will be a 4% rise in the second quarter. Since the South Korean semiconductor behemoth, Samsung, manufactures chips for a diverse range of clients, including IBM, Nvidia, and Qualcomm, among others, the price hike will undoubtedly affect them too.

According to Samsung’s foundry business executive VP Kang Moon-soo on a recent earnings call, Samsung is already fielding orders for the next five years that total about eight times the previous year’s revenue. “We expect our order book to continue to grow.”

Just last year, the firm dethroned Intel Corp. to become the world’s largest chipmaker by sales, and it has proclaimed its intention to surpass TSMC and become the dominant player in the US $400 billion chip foundry market.

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