Electronics set to rise as chip giants like TSMC and Samsung raise prices

Analysts say products that rely on semiconductors are set to become even more expensive as chip foundries prepare to raise prices.

The world’s largest foundries — including Taiwan Semiconductor Manufacturing Company, Samsung and Intel — are considering further price hikes, analysts told CNBC.

“Foundries have already raised prices by 10 to 20 percent over the past year,” Bain semiconductor analyst Peter Hanbury told CNBC. “We expect another round of price increases this year, but smaller (i.e. 5-7%).”

Foundries are raising their prices partly because they can, but also because it is increasingly expensive for them to finance their growth activities.

“The chemicals used in [chip] manufacturing increased by 10-20%,” Hanbury said. “Similarly, the labor needed to build new semiconductor facilities has also experienced shortages and rising wage rates.

TSMC has warned customers for the second time in less than a year that it plans to raise prices, Nikkei Asia reported last Tuesday, citing people knowledgeable about it.

The Hsinchu-based company plans to raise prices by single-digit percentage points. He cited looming inflation issues, rising costs and his own expansion plans as the reason for the price hike.

A TSMC spokesperson told CNBC the company does not comment on its pricing.

Elsewhere, rival Samsung is expected to raise chipmaking prices by up to 20%, according to a Bloomberg report last Friday. Samsung did not immediately respond to a CNBC request for comment.

“With the continued shortage of semiconductor chips, manufacturers are able to charge a premium as customers continue to push to secure supply,” Hanbury said, adding his company expects the shortage begins to ease on some chips by the end of the year.

Intel did not immediately respond to a CNBC request for comment.

Forrester analyst Glenn O’Donnell told CNBC that the rise in chip prices should come as no surprise to anyone in the current economic climate, adding that he expects prices to rise about 10 to 15%, roughly in line with inflation.

Over the past two years, the coronavirus pandemic has helped fuel a global chip shortage.

“Chipmakers are facing their own growing supply issues that are exacerbated by the war in Ukraine…and demand remains high while supply remains constrained,” O’Donnell said. “Energy prices are also falling, including electricity. Manufacturing chips requires an enormous amount of electrical energy.”

Despite the deepening cost-of-living crisis, companies that integrate chips into their products may have to start passing the costs on to consumers.

“Chip price increases will add stress to all downstream customers who will either have to pass on these price increases to their customers, which will be difficult in the current environment, or accept lower profitability,” Hanbury said. .

O’Donnell said he expects PCs, cars, toys, consumer electronics, appliances and many other products to become more expensive.

“Margins are already tight on these products, so they have no choice but to raise prices,” he said.

Syed Alam, Global Head of Semiconductors at Accenture told CNBC that the magnitude of any price increase will depend on how much of the cost of the semiconductors is in the overall cost of the product. He added that it will also depend on manufacturers’ ability to cut costs in other areas and the competitive landscape in each product category.

“Taking these factors into account, products that use more advanced chips such as GPUs (graphics processing units) and high-end processors (CPUs) are likely to increase in price,” Alam said.

But some sectors are starting to see reduced demand and they will struggle to pass those cost increases on to their customers, Hanbury said. “For example, the smartphone market has seen a drop in demand, so they won’t be able to pass on those increases as much,” he explained.