With the development of technology, the demand for chips in the electronics market is increasing. According to survey data from Strategy Analytics, the global AP market grew by 23% in 2021, reaching a high of US$30.8 billion.

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TSMC has a huge market share

Under the current situation of global chip shortage, the semiconductor industry has ushered in rapid development, and the status of chip manufacturers has also risen. As the world's largest semiconductor foundry, TSMC (TSMC) has a share of 56% in the global chip foundry market as early as 2017, and its current market share is still further expanding.

With the development of technology, the electronics market demand for chips is increasing. According to the survey data of Strategy Analytics, the global AP market (smartphone application processor market) grew by 23% in 2021, reaching a high of US$30.8 billion.

Among them, TSMC's chip production share accounts for as high as three-quarters of the global AP market, and chips using process technologies of 7 nm and below account for 43% of the total shipment.

Under strong market demand, TSMC has increased shipments of 5nm process chips, with production increasing by 25%, from 120,000 per month to 150,000 per month, which is the most advanced process in TSMC's current product portfolio.

Currently, the only one who can compete with TSMC in the chip foundry market is Samsung Electronics . However, Samsung has been facing the problem of low yield rate for a long time, so TSMC is better in advanced processes.

Previously, Qualcomm handed over the 5nm process order originally handed over to TSMC due to Samsung's yield rate issues.

TSMC President Wei Zhejia said at this month's legal meeting that the 3nm process will be put into production in the second half of 2022, and strive to achieve mass production of the 2nm process by 2025.

According to the financial report statistics released by TSMC, TSMC's overall revenue in the first quarter of 2022 was 491.076 billion NT$ (equivalent to RMB approximately 107.546 billion), an increase of 35.5% year-on-year from the previous year, and its net profit reached NT$ 202.733 billion, an increase of 45.1% compared with the previous year's 139.690 billion (equivalent to RMB approximately 37.661 billion) last year.

revenue in March alone reached NT$171.967 billion, and it is expected that the second quarter will hit another new high.

The sales of the 7 nm and 5nm processes account for 50% of the total sales, the 7 nm processes account for 30% and the 5 nm processes account for 20%. Wei Zhejia said: The revenue contribution of the 3nm process will be equivalent to the 5nm and 7nm process becoming the next big growth node.

Judging from this set of data, TSMC not only occupies a major position in the chip foundry market, but also masters more advanced chip manufacturing processes.

TSMC makes a price increase decision

Revenue and profit can hit such a new high, in addition to increasing sales, more importantly, either reducing production costs or increasing prices. According to the Economic Daily of Taiwan, TSMC's gross profit margin in the first quarter will exceed the company's 55% high standard, reaching 55.5%. With the further increase in the number of films produced by 7nm and 5nm processes, the gross profit margin will enter 56%.

According to IC design industry insiders, many chip foundries have raised their chip foundry prices in the past five quarters, and TSMC is no exception. The current quotation has reached the highest level in history. Currently, these foundries plan to freeze quotes and are unlikely to lower them.

CEO Wei Zhejia was asked on the company's financial report conference call whether he would adjust the OEM price again: Currently, TSMC's quotation is very competitive in the market, and the pricing strategy is strategic, and customers will understand. This means that TSMC has no intention of reducing OEM prices even during the economic downturn.

Judging from the plans of foundries to raise the foundry prices and freeze quotations, it is obvious that the chip market is still in the seller market . In particular, TSMC, as a chip foundry with scale and strength, almost controls the trends of the entire chip market.

There is no customer willingness to TSMC raise prices. Some foreign media said that TSMC has admitted that the market monopoly in disguise.Foreign media believe that TSMC has begun to customize prices at will because it has mastered the market voice, and because it has mastered the highest process technology, , there is no need to worry about customer loss.

So is this really the case?

As early as when various chip foundries and other semiconductor industries raised prices, TSMC did not raise prices for a long time, and made it clear that it would not raise prices for the sake of the growth of gross profit margin.

But now due to global public health problems and irresistible geographical factors, these force majeures have caused the current increase in raw material costs, and no matter how big the company is, it cannot withstand it, so TSMC has to raise prices.

In addition, unlike the 28nm and 16nm processes, the cost increase caused by chip production is geometrically doubled every time it enters a new process. Now half of TSMC's shipments are below the 7nm process, and the cost increase is immeasurable.

plus labor costs at home and abroad have been increasing in recent years, which are key factors that have caused TSMC to have to raise prices.

Not to mention that TSMC's R&D investment in the past two years has also been quite high. In recent years, TSMC has been committed to independent research and development of advanced processes, and the R&D funding investment is about 8% of its revenue (note here that it is revenue, not profit).

TSMC's investment in R&D funds exceeded NT$100 billion for the first time in 2020, and last year it broke the new record and reached NT$125 billion (about NT$27.375 billion).

Next, TSMC is still planning mass production of 3nm processes and 2nm processes. The chip process reaches below 7nm. The difficulties brought by each further increase exponentially, and the R&D costs will only get higher and higher.

What do you think about TSMC's price increase? Welcome to leave your unique insights in the comment section.