Recently, the industry’s largest pure-play foundries have been announcing wafer price increases for all their major production nodes. This represents a shift from previous pricing practices, and the resulting impact on fabless semi companies is in turn, driving them to pass those increases on to their customers. Organizations ought to heed these current and future changes to identify the results on their supply chains.
The Plays From the Leaders
TSMC announced several months ago a record $100B investment over the next three years to expand wafer capacity. UMC, Samsung, and Global are making the same play, albeit less extensively. Further digging suggests that much of that TSMC capacity expansion will be geared toward their advanced nodes (7,5,4,3nm); this is also where most of the other foundries are investing. A number of the foundries are also asking key customers to help fund the expansion in return for commitments on future capacity.
Roughly $24 billion from TSMC's 2021 capital budget is set to be spent on expanding capacities for advanced technologies, including 3nm, 4nm/5nm, and 6nm/7nm. Analysts from China Renaissance Securities have predicted that the majority of these funds will be used to expand TSMC's N5 capacity; they estimate anywhere from 110,000 to 120,000 wafer starts per month (WSPM) by the end of 2021. Meanwhile, TSMC has announced that 10% of its CapEx will go to advanced packaging and masking; an additional 10% will be allocated toward specialty technologies.
All of this additional investment, as well as the simple supply/demand imbalance currently in the market, is leading Foundries across the board to raise their prices across almost all of the nodes. Digitimes recently reported another round of increases from UMC, Vanguard, etc. for Q3, with TSMC canceling any discounts.
What These Increases Mean for Your Supply Chain
Anecdotally, we’re seeing many semiconductor-design companies pass 15+% price increases to most organizations. Some of those increases are being added to MPN pricing; others are coming as "expedite" fees. A few customers have been able to leverage business awards with their EMS/ODM partners in order to mitigate the majority of those increases in Q2; however, almost all have very real, substantiated concerns about the impact of these increases on their Q3 costs.
The most disconcerting factor, by far, is that some semiconductor suppliers seem to be coming back to their customers multiple times for wafer price increases; these actions seem to reflect a certain lack of control on their supply chain pricing/costs.
One way to protect any long-term damage to your organization’s cost optimization efforts is to establish an agreement with suppliers that outlines parameters around limiting any additional increases for the remainder of 2021. While it’s entirely possible the market could turn again and soften, most projections are that this will not occur until mid-2022 at the earliest. Being aware of this is crucial to enable price renegotiation when possible.
LevaData’s Cognitive Supply Platform can provide even more insight into what your organization can do to stay ahead of competitive, unforeseen pricing changes.
- Supply Chain Disruptions & the Pace of ChangeAnyone who has spent any amount of time in the supply chain profession is well experienced in dealing with constant […]
- A Supply Management Wish for You in 2022Though it may be hard to believe, 2022 is officially upon us. As we look to the new year and […]
- Prediction Over Reaction: The Key to Winning Supply Risk ManagementSupply risk management has never been as important to sourcing and procurement executives as it is today. Of course, managing […]
- How AI Has Evolved in BusinessRecently, as I was opening up my email, I was shown an alert on an old message I had sent […]