Amid the ongoing chip shortage, the world’s largest contract chipmaker is planning to raise the prices of semiconductors. Taiwan Semiconductor Manufacturing Co. has informed its clients about the decision. The contract chip-making giant has said that prices of chips are likely to rise as much as 20 percent. This could be the steepest single increase by the company. The price increase may differ depending on the client. Also, the time frames for the hikes are likely to be different. For some companies, the hikes may be implemented with immediate effect. In other cases, the increase will be affected from late this year or even next year. Once implemented, this could result in an increase in the prices of electronics and therefore consumers will end up paying more. According to reports, the prices of the most advanced chips of the TSMC are expected to see around a 10 percent increase in prices. On the other hand, less advanced chips are expected to be 20 percent costlier. Less advanced chips are mostly used by customers like automakers. It must be noted that TSMC and several other semiconductor manufacturers of Taiwan had raised prices of chips by over 10 percent between the last fall and this spring.
But the strong demand for chips has outstripped supply. This is apparently why TSMC has decided to sharply increase the prices of semiconductors once again. The companies involved in manufacturing chips are of the view that the rise in prices is because of the higher cost involved in ramping up the production. They say that prices are being passed downstream and hence result in an increase in the prices of chips. Moreover, this has put manufacturers in a better position to bargain with clients amid the ongoing shortage of chips. The decision is likely to impact the prices of end products. The other reason behind the price hike is TSMC’s concerns over lower profitability. The chip manufacturing giant has already stated that it will make capital investments of USD 100 billion over the three years through 2023. This has raised doubts about a potential decline in profits. However, TSMC has still managed to maintain a profit margin of over 36 percent during the second quarter. The company is expanding its presence in other countries and is currently focused on overseas expansion. It is building a semiconductor facility in Arizona, the United States. The company said that the cutting-edge semiconductor facility will cost the company a lot of money. TSMC is also planning to open a chip plan in Japan. The plant, that is likely to come up in Kumamoto, will be the first in the country.
One of the biggest clients of TSMC is Apple Inc. iPhone manufactured by the company uses the most advanced chips manufactured by TSMC. It is not clear how much more the company would be exactly paying after the price hike is implemented. A spokesperson of TSMC refused to comment on prices but said that the company works closely with customers. Apple too has not commented on the reports of TSMC increasing prices of chips. Apple and several car manufacturers are among those most affected by the ongoing chip shortage. Toyota, considered to have one of the most supply chain planning, too had to take the decision to cut production. The company recently announced that it would cut annual production by around 40 percent next month. Toyota is one of the largest manufacturers in the world. General Motors too had to stop production in around three factories in North America. GM manufactures large pickup trucks, which fetch maximum profit for the company. Apple too warned that chip shortage would affect iPhone production in the current quarter.