How a rise in TSMC chip price could affect the electronics industry?

Highlights

• Taiwan Semiconductor Manufacturing Company (NYSE:TSM) might increase the prices of its microchips used in the electronics industry.
• Rising raw material costs and orders may have forced the chipmaker to hike prices.
• Smartphones, cars, laptops, etc, that use TSM chips are expected to become expensive by the year-end.

Taiwan Semiconductor Manufacturing Company (NYSE:TSM), the world’s leading semiconductor company, might be considering raising the prices of its most advanced chips by 10 percent and the less advanced ones by 20 percent, several multiple media outlets reported, although TSM hasn’t confirmed it yet.

The Taiwan-headquartered company’s supposed plans have grabbed the world headlines over the weekend. However, the electronics industry in the US is pondering how that decision might affect the prices of its products.

TSM’s most advanced chips are also the smallest and are used by companies like Apple Inc (Nasdaq:AAPL), QUALCOMM Inc(Nasdaq:QCOM), and Advanced Micro Devices (Nasdaq:AMD), among others. Only a few countries in the world like TSM can make these advanced processor chips.

The semiconductors constitute a major part of the expenses in the manufacturing of smartphones, laptops, and cars. If the chip prices go up, the costs of these products would also rise. Because of this, industry experts believe the prices of many electronics products might go up by the end-year.

The non-stop demand and rising expenses in raw materials may have led to TSM’s decision to hike the chip prices, several media reports claimed.

Also read: Seven electronic stocks to keep an eye on post chip shortage

Source: Pixabay.

The development comes amid a continuing global chip shortage over the last three years. Persistent trade disputes, mainly among the top chip-making nations, like Taiwan, the US, China, and Japan have worsened the situation.

The disruptions caused by these conflicts accelerated during the pandemic as demand for chips from consumer electronics, datacenter, 5G, and auto markets continued to swell. Although TSM is running all its facilities at full capacity, the shortage would remain through 2023, as per analysts. The company has already canceled all its orders for 2022 and increasing the prices for the orders for December 2021 delivery, they said.

Apple Inc, the most priced customer of TSM, will get a discount. But it will still have to pay 3-5 percent more. As a result, Apple is expected to pass additional this cost to consumers for the iPhone 13. It is also said that Apple would use a 4nm processor chip instead of a 3mn to produce an A16 Bionic chip for iPhone 14.

TSM produces both 3nm and 4nm chips, but their production has been delayed. Meanwhile, Intel has also ordered 3nm process chips from TSM for its notebook and data center. Intel has been struggling to beat the chip shortage.

TSM, the undisputed leader of chipmakers

The company has adopted the world’s most advanced technology, the ‘ultraviolet lithography system,’ to produce chips following three decades of research. Hence, it has left behind all its competitors in advanced chip-making. Its rivals like Samsung, and Intel will take years to match TSM’s capabilities.

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TSM and Samsung manufacture smaller chips on a nanometer scale than Intel’s. But TSM chips are denser than Samsung’s. Intel’s advanced chips also give similar performance to TSM’s but they are larger than TSM chips. For instance, TSM’s 7nm chip and Intel’s 10 nm chip perform similarly.  Hence, Intel’s chips consume more batteries.

TSM stocks were trading at US$118.87 at the premarket on August 3. The stock rose more than 8.6 percent YTD.

Bottom line:

TSM’s revenue rose by 29 percent in 2020 year-over-year. It is expected to grow further in 2021 due to the high demand for chips and the upcoming price hike.