TSMC raises prices for chips: expensive or strategically smart move?

TSMC raises prices for chips: expensive or strategically smart move?

Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest contract chip manufacturer, is planning sweeping price increases for high-tech products that could have far-reaching effects on the technology industry. These announced price increases particularly affect the N3, N4 and N5 production generations as well as the associated advanced packaging technologies. TSMC plans to increase prices by 10 percent by the end of 2025, especially for Nvidia and AMD, which rely on these manufacturing technologies.

The price increase for 4-nanometer chips in Arizona is set at up to 30%, while global price adjustments are expected to be around 10%. The reasons for these changes are diverse: increased construction and labor costs, global inflation, currency fluctuations and massive investments in future technologies that drive up the production costs of “Made in USA” chips.

Economic impact and market forecasts

The effects of these price changes are already being felt. TSMC has lost over 12% in value year-to-date, partly due to the Soros Fund's complete sale of TSMC shares in the first quarter. This resulted in an additional price decline of 1.15%. Moving forward, TSMC expects revenue growth of 24% to 26% in 2023, driven by increasing demand for AI and HPC chips.

The semiconductor sector will see over 19% growth to NT$6.33 trillion (around US$209.8 billion) in 2025, according to ITRI. The IC manufacturing segment in particular is expected to grow by 23.1% year-on-year. To meet this increasing demand, TSMC plans to build eight new wafer factories and a modern chip packaging facility.

Strategic partnerships and production capacities

The challenges in chip production particularly affect companies such as Nvidia and AMD, which rely on TSMC's advanced manufacturing techniques. The price of a 300mm wafer is expected to rise from $18,000 to around $20,000. TSMC also wants to increase its share of the growing market for artificial intelligence, an area in which Nvidia generates high sales from its AI accelerators.

The advanced packaging process CoWoS, which is used intensively by Nvidia, will become 20% more expensive in the next two years. Jenson Huang, CEO of Nvidia, has been outspoken in support of TSMC's price increases and sees TSMC's stock as undervalued in the market. Nvidia is also recording an increase in sales of around four billion US dollars per quarter in the data center sector, which underlines the importance of a stable and predictable chip supply.

Given these developments, it remains to be seen how market conditions will change in the coming years and whether the planned price increases will impair or even boost the industry's innovative strength.

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