TAIPEI – Taiwan Semiconductor Manufacturing Co., the world’s largest contracted chip maker, and its Taiwanese peers are considering another round of price increases mainly for automotive chips, Nikkei learned on Monday as global semiconductor shortages put the power pricing firmly on your side.
The increases of up to 15% are being considered by Vanguard International Semiconductor, a TSMC subsidiary that manufactures automotive chips, along with other Taiwanese participants, including the 4th United Microelectronics Corp.
If Taiwanese suppliers were able to negotiate higher prices, it would mark the rare case of two substantial increases in just a few months, after a round of increases that began last fall. Their aggressiveness shows how they now occupy the driver’s seat in price negotiations with automakers.
When contacted by Nikkei, UMC’s chief financial officer, Liu Chi-tung, said he “cannot answer price questions.” But he added that “it is true that we chip makers are in a relatively advantageous position based on the balance between supply and demand”.
Any further increases are expected to be implemented from the second half of February to March.
Taiwanese foundries appear to have reached customers specializing in automotive chips, including NXP Semiconductors in the Netherlands and Renesas Electronics in Japan. Renesas, NXP and their peers have already asked car manufacturers to accept higher prices, and further increases would likely affect margins. automakers’ profit.
In the latest round of increases, chip foundries reportedly increased prices by 10% to 15% in response to a wave of additional orders, some urgent, to meet demand from automakers who have increased production.
The increases come amid not only the continued tightening of the global chip supply, but also a stronger Taiwanese dollar. The currency appreciated about 6% against the US dollar last year.
Automakers usually negotiate prices with parts suppliers once a year. Automakers generally seek cuts of around 2% to 3% to boost profit growth. Now, the situation has changed as chipmakers demand that their customers pay more, underscoring the severity of the shortage.
TSMC, as one of only a handful of chip-making giants, is well positioned to capitalize on peak demand. (Photo courtesy of TSMC)
Automakers are likely to face the double problem of being forced to cut production due to the lack of semiconductors, while swallowing higher manufacturing costs.
The chip shortage was triggered by U.S. government trade sanctions against Chinese companies, including Semiconductor Manufacturing International Corp., and worsened due to a sharp increase in demand from automakers.
The coronavirus pandemic forced car manufacturers to drastically reduce vehicle production in the spring of 2020. With China managing to contain the spread of infections, however, the country’s automotive market has started to show a surprising recovery, registering a gain of 11% annual sales in June.
“We couldn’t make optimistic production plans while we were thinking about orders for chips and other parts in the next three months,” said an executive at a major Chinese automaker, with the effects of the global infection spreading.
Another development started to appear in July. With then President Donald Trump’s U.S. government tightening sanctions against Huawei Technologies, the Chinese technology company began that month to place massive orders with TSMC and other Taiwanese manufacturers to secure enough chips before the new American sanctions package was put in place. effective in September. The “fierce” orders, as an industry official in Taiwan described them, left TSMC and other local manufacturers incomparably busy as of July.
In mid-September, after the launch of new U.S. sanctions against Huawei, the Taiwanese chip industry was hit by a “second arrow” when news began to circulate that the Trump administration would aim its sanctions at SMIC. US Qualcomm reacted immediately, sending employees to TSMC, UMC and other Taiwanese chip makers to acquire them in large quantities instead of SMIC.
TSMC controls just over 50% of the world market for contract chip production. The combined participation of TSMC and UMC is around 60%. But the two Taiwanese companies were already busy trying to fulfill orders for chips for use in personal computers, game consoles and iPhones stemming from the strong domestic demand caused by the pandemic.
There was also a technological problem. SMIC produces low-cost standard chips used in sensors and electrical power sources that offer small profit margins. But they are indispensable for a variety of products.
TSMC and UMC accepted orders for such chips from Qualcomm and other companies. As of September, they have become busier than ever
The confusion was further exacerbated when automakers successively decided to increase production in October, after the double-digit growth of the Chinese automotive market in August and September, abandoning its wait-and-see posture maintained until July.
But chipmakers like Germany’s Infineon Technologies were not ready to deal with the sudden increase in orders from automakers and therefore shifted production to other companies like TSMC and UMC, something they often do when they cannot fully fulfill orders .
But as Taiwanese manufacturers were already operating at full capacity, they froze the production of car chips, which usually use standard chips, compounding the scarcity.
Asked when the chip shortage could ease, Liu of UMC said: “Our factories are already operating at full capacity, so it will be difficult to increase production in the short term.”
“I do not know when [the shortage] will be resolved, but it will take at least another six months to have the production lines ready, “added Liu.
Government officials in Germany, the United States and Japan have asked the Taiwanese authorities to help deal with the shortage of automotive chips, an unusual step that is likely to also contribute to the price increases under consideration.
The effects of scarcity may spread across the semiconductor supply chain, in addition to chip makers like TSMC and UMC. ASE Technology Holding, a leading Taiwanese semiconductor packaging company, is believed to be considering raising prices by around 10%.
And prices across the industry may continue to rise as the scarcity extends beyond automobiles to other types of products, such as home electronics.
Semiconductor production was dominated by Western countries and Japan in the early years of the industry. But the digital revolution of the 2000s increased the demands for capital spending and caused sharp fluctuations in market conditions, taking many players out of the game. Those that remain are giants like TSMC and Samsung Electronics, or smaller companies that specialize in specific products like automobiles and home electronics.
Taiwanese authorities have supported the island’s semiconductor industry since the 1980s. Chip companies here have overcome the ups and downs of the market, and many have stood still despite financial difficulties. Now, with less competition to contend with, they can reap the benefits when the global chip supply is tight, which helps to further solidify their strong position.
TSMC recorded a 25% increase in revenue and a 50% jump in net profit for 2020, both reaching record highs. UMC’s net income tripled in the year in the July-September quarter.