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TSMC Is Reportedly Terminating Discounts and Increasing Prices

TSMC
(Image credit: TSMC)

Taiwan Semiconductor Manufacturing Co. (TSMC) has annulled volume discounts for its largest customers and raised prices amid overwhelming demands for its services, a media report claims. Other contract makers of semiconductors reportedly did the same in recent months.

As demand for personal computers, game consoles, televisions, smartphones, and other advanced electronics rises, so does demand for all kinds of chips. Leading-edge system-on-chips made using 5 nm and 7 nm process technologies designed for PCs, consoles, and handsets usually make headlines when people can't get their new graphics cards or processors. But each advanced SoC is accompanied by a power management IC, a chipset, and/or an I/O controller that are crucial for its operation and which are made using mature nodes. Without those semiconductors, it's impossible to build actual products, which is why numerous makers of various devices are complaining about general shortages of components.

TSMC's largest customers also happen to use its most advanced fabrication process, so select clients of the foundry receive discounts for the 300mm processed wafers they purchase. TSMC's discount prices fell within 3%, but the world's largest contract maker of semiconductors had decided to cease discounts starting next year, reports Taiwanese Central News Agency.

TSMC traditionally does not comment on unofficial information regarding its prices and it is unclear whether the company omits discounts for all of its customers. Furthermore, it is unclear whether the plan to abandon discounts was caused by overwhelming demand or increased pricing quotes by TSMC's rivals.

Over the past few months numerous reports emerged claiming that demand for basic chips produced on 200mm wafers outpaced supplies, which is why companies like United Microelectronics Corp. had to increase their prices. According to the Central News Agency, UMC has even confirmed hikes of its prices.

TSMC and Samsung Foundry are the only companies that can offer leading-edge production technologies, such as 5 nm, 6 nm or 7 nm. Due to high demand and lack of competition (as it is impossible to switch from one foundry to another quickly), contracts for semiconductors using advanced nodes are now a seller's market. Many fabless chip designers depend on their contractors, and are likely to feel the squeeze.

Rising prices at TSMC, UMC, and other foundries will inevitably affect prices of actual products, but it remains to be seen how significant the effect will be.

  • Makaveli
    They have so much demand this was expected leaving money on the table with those discounts.
    Reply
  • jonathan1683
    hopefully this will drive bigger companies to use the own fabrication processes especially apple.
    Reply
  • watzupken
    jonathan1683 said:
    hopefully this will drive bigger companies to use the own fabrication processes especially apple.
    This is quite unlikely, especially for the likes of Apple. If you look at Intel and AMD, there are good reasons why other big chip makers don't want to run the fab business. It may seem cheaper to run your own, but there are complications and from as far as I can tell reading some of the articles out there, it is not cheap to own one as well.
    Reply
  • Shadowclash10
    watzupken said:
    This is quite unlikely, especially for the likes of Apple. If you look at Intel and AMD, there are good reasons why other big chip makers don't want to run the fab business. It may seem cheaper to run your own, but there are complications and from as far as I can tell reading some of the articles out there, it is not cheap to own one as well.

    Yep. IIRC, back in the day (someone please correct me if I'm wrong), AMD tried their hand at owning their fabs and that was when they started spiralling downhill until recently, or something like that.
    Reply
  • OriginFree
    jonathan1683 said:
    hopefully this will drive bigger companies to use the own fabrication processes especially apple.

    Long term this may be cost effective, but from a cash flow point of view it usually isn't.
    To me it's like a lease vs buy decision.

    Lease: You can pay less and get the new model when it comes out (new fab mode)
    Buy: Pay more overall and have the equipment still working 10-20 years down the road. It may not be producing CPU chips but you may be able to have a profit stream from other chips.

    Does Apple really want to drop 10+ Billion on a fab to make their own CPUs for 5 years and then be in the fab business after that? Or is it easier to just pay a premium to use the best node out there? It's not like Apple know anything about charging people a premium to recoup costs.
    Reply
  • Jim90
    Seems eminently reasonable, considering the current status of TSMC. I'm sure profits all round will still be 'acceptable'.
    Reply
  • cryoburner
    Shadowclash10 said:
    Yep. IIRC, back in the day (someone please correct me if I'm wrong), AMD tried their hand at owning their fabs and that was when they started spiralling downhill until recently, or something like that.
    That's not quite accurate. AMD was fabricating their own chips since their start in 1969. Only in 2009 did they spin off their fabrication business, which became GlobalFoundries, as they were finding it was becoming significantly more expensive to build fabs for smaller process nodes.

    TSMC's discount prices fell within 3%, but the world's largest contract maker of semiconductors had decided to cease discounts starting next year, reports Taiwanese Central News Agency.
    If the discount amounts to no more than 3%, then that in itself isn't going to affect much. The actual fabrication cost of each Ryzen chiplet, for example, is estimated to be quite cheap actually, only a small fraction of the total selling price of the processors. So ending a 3% discount isn't likely to raise the cost to manufacture them by more than a dollar. Even additional increases to fabrication costs probably won't mean much to the end-user, as these processors have rather high profit-margins. Large graphics chips would naturally be affected a bit more, but still not likely enough to affect pricing or profit margins much.
    Reply
  • escksu
    Only way is to build your own fab so you wont rely on tsmc. Right now they are the only ones with 5nm.
    Reply
  • InvalidError
    Shadowclash10 said:
    Yep. IIRC, back in the day (someone please correct me if I'm wrong), AMD tried their hand at owning their fabs and that was when they started spiralling downhill until recently, or something like that.
    As cryo said, AMD was a chip foundry from the beginning.

    What changed in 2009 is that its chip sales spiraled downward due to lack of competitive products and fabs are very expensive to own when you cannot run them at 100% capacity from lack of demand.
    Reply
  • Arrion
    InvalidError said:
    As cryo said, AMD was a chip foundry from the beginning.

    What changed in 2009 is that its chip sales spiraled downward due to lack of competitive products and fabs are very expensive to own when you cannot run them at 100% capacity from lack of demand.

    AMD got its start in the CPU business as a foundry for Intel. Back in the 70s and 80s, chipmakers were required to provide a second source for their parts to ensure supply for a big contract. Intel licensed their early designs to AMD as that second source. AMD didn't get into the design side until Intel started making the Pentium.

    That requirement for a second source shows how much things have changed.
    Reply