Samsung Electronics Co. is in talks with foundry clients about charging up to 20% more for semiconductor production this year, joining an industry-wide push to compensate for rising material and logistical costs.
According to persons familiar with the situation who asked not to be identified owing to the delicacy of the issue, contract-based chip prices are anticipated to rise by 15% to 20%, depending on the level of sophistication. They predicted that chips made on older nodes will see higher price increases. According to the persons, the new pricing will be implemented in the second half of this year, and Samsung has completed negotiations with some clients while remaining in talks with others.
Samsung’s decision is a departure from the company’s relatively consistent pricing policy last year when the industry hurried to hike prices in response to a global chip scarcity. Multiple macro concerns confront the industry, including the conflict in Ukraine, Chinese lockdown measures, rising interest rates, and inflation. That throws a wrench in business plans that are usually made a few years ahead of time.
The action puts more pressure on smartphone, vehicle, and game console manufacturers to raise prices for customers. More than two-thirds of global outsourced chip capacity is held by Samsung and Taiwan Semiconductor Manufacturing Co.
Manufacturing costs of Chipmakers such as Samsung are rising by around 20% to 30% on average across the board, from chemicals, gas, and wafers to equipment and construction materials
Following a price boost several months ago, contract chip manufacturers such as TSMC and United Microelectronics Corp. are advising clients that they expect to raise prices by a mid-to-high single-digit percent. According to Nikkei, industry leader TSMC has informed clients that it aims to boost prices by around 5% to 8% starting in 2023, following a 20% price jump last year.
In the second quarter, UMC intends to implement another round of 4% pricing increases. Last month, ASML Holding NV issued a warning about growing labour costs, as well as higher material and shipping prices.
“This is an inevitable move for Samsung,” with costs rising on everything from power and equipment to materials and freight, Wakasugi said. “Some customers may accept higher prices if they can get chips earlier than others,” he said.
Customers must prioritize the ability to obtain and secure the chips they require overprice due to the shortage. According to Masahiro Wakasugi, a Bloomberg Intelligence analyst, semiconductor companies have been seeking to enhance profitability by putting more emphasis on high-end chips.
Samsung is the world’s largest memory chipmaker, but in order-based chip manufacturing, it is catching up to TSMC. Consumer demand for PCs and smartphones is declining, but tech giants claimed on earnings calls that 5G-related enterprise demand for new servers with more capacity and requiring more chips would be strong. Overall foundry demand is expected to surpass supply over the next five years, according to the industry.
During a recent earnings call, Kang Moon-soo, executive vice president of Samsung’s foundry business, stated that the company is already receiving orders for the next five years that total about eight times the previous year’s sales. “We anticipate an increase in our order book.”
In 2021, South Korea’s largest corporation spent more than $36 billion growing its semiconductor division, outspending competitors by acquiring cutting-edge equipment such as extreme ultraviolet lithography machines. The company, which dethroned Intel Corp. as the world’s largest chipmaker by revenue last year, has proclaimed its intention to overcome TSMC and become the largest player in the $400 billion foundry market, which manufactures chips for global companies such as Qualcomm Inc. and Nvidia Corp.