TSMC’s Double Bind Sees It Raise Prices Despite Slow Adoption Of New Technologies

Ramish Zafar
TSMC Gas Contamination for iPhone 13 and MacBook Pro

This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.

The Taiwan Semiconductor Manufacturing Company (TSMC) has decided to cancel the discounts that it had offered its customers in the wake of the coronavirus pandemic. Reports from the Taiwanese press suggest that TSMC is planning a price hike across all of its chip manufacturing technologies and that the decision reflects growth in costs that companies all over the globe and in all industries have struggled with in the wake of historic inflation ushered in by loose central bank monetary policies. Today's report is the latest that speculates such a move by the world's largest contract chip manufacturer, and it builds upon previous industry reports and coverage by investment banks.

TSMC Slated To Increase Prices By Up To 6% Next Year Suggests Report

The report comes courtesy of the 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it speculates that the price discount offered by TSMC to its customers in the wake of the coronavirus pandemic will be withdrawn.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 ranging between 2% and 3% to customers following the pandemic, and now it's appearing as if rising costs have forced the company to revert the discount.

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

Today's report also is not the first time that whispers of a price increase have surfaced from Taiwan. The first such report came to light in May this year when a report from Germany claimed that prices of raw materials such as gasses and metals had surged by as much as 30% in the aftermath of the Russian invasion of Ukraine due to most of the materials being sourced from the two countries. Subsequently, it was speculated that TSMC was considering a range of price increases that started from 5%.

Image: Ann Wang/Reuters

Additionally, cost increases for advanced manufacturing technologies such as 3 nanometer stand to harm TSMC's margins. Investment bank Morgan Stanley feared last year that even though the company will manage to squeeze in more transistors in a wafer with 3nm, the initial wafer prices and higher costs will erode the margins. A research report from 2019 suggests that a 3nm wafer costs $3,000 more than a 5nm wafer and die costs are also higher.

Investment bank Goldman Sachs had shared as soon as late last month that TSMC is heading for a price increase in 2023. In a research note that saw Goldman increase TSMC's share price target, the bank outlined that the prices for TSMC's eight and 12-inch wafers could go up 5% and 4% next year.

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

From TSMC's perspective, this is unfavorable not only due to less revenue but also due to the fact that it takes longer for the firm to recoup investments. Advanced technologies require hefty capital expenditure, and it is crucial for a chipmaker to secure orders to recover the costs. Wary of these expenditures, TSMC also purportedly asked its customers to pay up sooner earlier this year as rumors suggested it would have to pause expanding its 3nm manufacturing.

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