London, Hong Kong, Boston, Toronto, New Delhi, Beijing, Taipei, Seoul – September 9, 2021

• TSMC’s recent adjustment on wafer prices indicates that the price hikes in the foundry industry will continue into 2022.
• Wafer prices at matured nodes have increased by 25-40% between 2020 and the current quarter, and are likely to rise another 10-20% by 2022. We do not expect a similar magnitude in advanced/leading-edge nodes (10nm and below) since both TSMC and Samsung focus more on customer relationships and cost-down executions to maintain profitability.
• Smartphone IC vendors will seek to pass some of the rise in wafer/packaging costs to their OEM customers, but more in low-price chips. Overall, we expect a 5-12% cost increase in 2022 from logic ICs (non-memory, non-RFFE) on premium smartphones, 6-14% on mid-range and 8-16% on low-end smartphones.
• At the tail end of the supply chain, smartphone OEMs suffer most on margins if they fail to increase prices for end users. But if they do, smartphone growth, especially in 5G, may slow down in 2022 and eventually see IC inventory piling up.  

The prolonged IC shortage, which is expected to last till 2022, is the major driving force for wafer price hikes in the foundry industry, from most second-tier vendors during the past 1-2 years to TSMC recently. With the latest notices to its customers, TSMC will raise its wafer prices across the main nodes mainly from the beginning of 2022. The company has maintained its wafer prices for quite a long time when compared with its smaller competitors. The change in its pricing strategy from 2022 implies not only stronger market demand going forward, but also that the capacity tightness will persist in the next few quarters. Aside from the market mechanism, the new price strategy also protects foundries from both short-term and long-term uncertainties, such as double-booking effect (massive order cancellation), supply chain disruptions (increase in shipping cost) and geopolitical complexities, which may affect their production margins/profits. We have seen wafer price hikes from second-tier vendors since 2020, especially in the matured nodes if we define them as the technology geometries at 22/28nm and (numerical) above. The price increases were 25-40% over the base of Q1 2020 and are likely to see another 10-20% hike in 2022. Relatively, wafer price hikes in advanced/leading-edge nodes below 10nm are milder, while we could see an average of 5% increase for 7/6nm nodes as per TSMC’s latest quotes for 2022. In Exhibit 1, we show the prices for various nodes for leading foundries during 2020-2022. As we can see, matured nodes have seen wafer price hikes for almost a year, with the price gap in some nodes (like 28nm vs 40nm) narrowing driven by a higher percentage of price hike from smaller foundry players like UMC and SMIC, which enjoyed strong profit boosts during H1 2021. How to forecast wafer prices beyond 2022? It is largely subject to the demand and supply outlook on major IC products in each node. We have conducted an analysis of all matured nodes in our report published on August 26. In our view, while the ongoing global IC shortage will begin easing from late 2021, especially in DRAM/NAND, logic ICs fabricated in mainstream/matured nodes in the foundry will remain in a tight position and will not reach the demand-supply balance until mid-2023. For foundry customers (fabless and IDMs), the impact of supply shortage weighs much greater on their business compared to the 10-20% increase in wafer cost, which they might pass to their end customers (device ODMs/OEMs).

Impact on smartphone demand after wafer price hike

Logic ICs (the chips largely fabricated in foundries for smart devices) account for 30-40% of the total BoM (Bill of Material) cost depending on the selling price. Assuming other component and assembly costs are stable moving into 2022, logic IC price increases will be added to the total product cost for smartphone ODMs/OEMs. Analyzing this impact, we conduct a sensitivity check for different price segments of smartphones under different percentages of price pass-through from logic IC vendors. For example, in high-end/premium models, if all vendors (from AP processors to power management chips) pass wafer price increases to OEMs, the smartphone cost increase from logic ICs is about 12% in 2022, demonstrated in the upper-left cell in Exhibit 2.

Exhibit 2: Smartphones – scenarios of IC (*) cost increase from higher wafer prices