Samsung Foundry is negotiating a rather massive 15% – 20% price hike with its customers, the report says. The increase is projected to take place in the second half of 2022 and will vary depending on the manufacturing technology. Chips made on legacy processes will get a higher price hike, whereas devices made using advanced and leading-edge nodes will see a lower hike. Some of Samsung Foundry's customers have reportedly agreed to new terms. Samsung declined to comment on the matter when asked by Bloomberg.
Unlike GlobalFoundries, TSMC, SMIC, and UMC, Samsung Foundry maintained a relatively stable pricing policy in 2021, despite booming demand. But with fab utilization rates of around 100% or higher, foundries face additional risks and their equipment depreciates quicker. In addition, there are macroeconomic risks like inflation, rising interest rates, climbing labor costs, and the war in Ukraine. As a result, everyone has to increase their quotes. That means that foundries get higher revenue and increase their profits.
"With costs rising on everything from power and equipment to materials and freight, this is an inevitable move for Samsung " said Masahiro Wakasugi, Bloomberg Intelligence analyst. "Some customers may accept higher prices if they can get chips earlier than others."
Price increases of chip production process have an effect on the whole electronics supply chain as virtually all applications use chips nowadays. While the PC market may be facing declines in the coming months, due in part to lockdowns in China and a slowing demand, other markets keep growing and they are far from being saturated with chips. As a result, demand for various ICs is high and is not slowing down, so contract chipmakers are hiking their quotes.
Since demand for AI/HPC, edge servers, 5G base stations, and other applications with high chip content is only going to increase in the coming quarters and years, developers of chips and makers of actual equipment just have to pay what they are asked in order to not lose business to competitors. Meanwhile, suppliers of consumer electronics, game consoles, PCs, and smartphones face a major dilemma whether to pass rising chip price on to consumers and potentially sell fewer devices, or maintain prices and keep increasing their sales volumes.