Record-Level Semiconductor & Component Price Increases in 2021

Taiwan Semiconductor Manufacturing Co., the world's largest contract chipmaker, will increase chip prices by as much as 20%. United Microelectronics (UMC) has also issued a price increase of its own, raising quotes for 28nm and 22nm processes. The quotes will be raised in September and November of 2021 and adjusted again in January of 2022.

A third semiconductor manufacturer based in China—Semiconductor Manufacturing International (SMIC)—has joined TSMC and UMC in raising its prices for 28nm and 40nm processes. The Chinese manufacturer will continue to prioritize fulfilling orders from China and offers higher quotes to foreign-based companies: particularly companies based in Taiwan, according to DigiTimes Asia.

Why Raise Semiconductor Prices?

In the midst of a significant supply shortage, why would manufacturers want to raise chip prices? For TSMC, the answer is two-fold with a long and short-term goal:

In the long term, higher prices create more net revenue for TSMC to put toward aggressive investments in new capacity.

In the short term, price increases reduce demand from customers who are not in dire need of chips and preserves capacity for customers who need chips now.

It all boils down to this: preventing customers from overbooking and increasing revenue to increase future capacity.

And TSMC's plan to bolster its capacity is no secret. The company will spend up to $100 billion on new factories and equipment over the next three years while spending money on research and development as well. In addition to new facilities in Arizona, the semiconductor giant will also expand its production capacity in Nanjing, China.

TSMC accounts for 90% of the world's most advanced chips and commands more than half of the global semiconductor market revenue. Due to this, there's not much its customers can do but accept the price increases and hope for TSMC and others to increase future capacity with the increased revenue.

Record-Level Price Increases

Due to the lag between tech development, fabrication plant construction, and production of new chips, Jim Whitehurst—head of IBM—believes the ongoing chip shortage should last for at least two more years.

Due to global foundries increasing chip prices for their customers, a lot of the raised prices are being passed onto consumers. Computer and electronics prices have risen at a 2.5% annual rate this summer, which amounts to the biggest increase in prices in the last ten years.

In addition to the 10 to 40% increases in chip prices over the last year, other critical components and materials have also seen price increases. Prices of aluminum, electronic components/assemblies, packaging materials, plastics, resins, and copper have all seen price increases this year.

The price hikes are not limited to semiconductors.

Average component costs have increased nearly 15% in the past year, while certain components have soared to 40% price increases since 2020.

During a time where availability is king, suppliers and manufacturers continue to have leverage over their customers.